http://www.afr.

com/p/world/china_baby_boom_bad_bet_TxY9uQuar6UjfPbrd6
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Less than 3 per cent of the 11 million Chinese couples eligible for another child
applied for permission by the end of May, jeopardising government efforts to bolster a
population that the United Nations predicts will start shrining by !"3"#
Photo: Reuters/China Daily
Nine months after stoc$maret wagers on a baby boom in China reached record
levels, the bets have turned into some of the nation%s biggest losers as living costs
deter couples from having more than one child#
&hile mil$powder producers 'iostime (nternational )oldings and *ashili
(nternational )oldings surged to all$time highs after the ruling Communist +arty
rela,ed its one$child policy last November, the stocs have lost at least -" per cent
this year, with 'iostime leading declines in the M.C( China (nde,# )engan
(nternational /roup, a diaper maer, has dropped 0#3 percent even as the M.C( gauge
rose 1#3 per cent#
Less than 3 per cent of the 11 million Chinese couples eligible for another child
applied for permission by the end of May, jeopardising government efforts to bolster a
population that the United Nations predicts will start shrining by !"3"# 2aising a
child from birth through to 10 years of age costs about !3,""" yuan 34-"3-5 a year,
according to Credit .uisse /roup, e6uivalent to -3 per cent of the average household
income in China#
78here was too much speculation about a baby boom,9 :hang /ang, a strategist at
Central China .ecurities in .hanghai, said by phone on ;ugust 0# 7'aby$related
stocs still have room to fall further#9
China loosened family$planning restrictions first imposed in the late 1<="s, allowing
couples to have two children if either parent is an only child# 8here were about
!=1,""" applications to have a second child by the end of May and !-1,""" received
approval, according to China%s National )ealth > ?amily +lanning Commission#
Economic freedoms expanded
2ela,ation of the one$child policy in the world%s most$ populous nation is part of the
government%s broadest e,pansion of economic freedoms since at least the 1<<"s# 8he
M.C( China (nde, has gained 0#! per cent since the reforms were unveiled in
November, while the .hanghai Composite (nde, of mainland$traded shares has
increased -#< percent# 8he 'loomberg China$U. @6uity (nde, fell "#3 per cent in
New *or yesterday, reducing its gain for the year to 1" per cent#
'iostime san to the lowest level since Auly !"13 yesterday after reporting first$half
net income that trailed analysts% estimates, e,tending this year%s drop to B! per cent#
ChaoChou City, China$based *ashili is down -" per cent this year, while China
)uishan Dairy )oldings, the mil producer baced by billionaire Cheng *u$tung, has
retreated 3- per cent, the second$ biggest decline on the M.C( China inde,#
Losses in dairy$related stocs have been e,acerbated by concern over the 6uality of
mil in China, which led to reduced profit margins as producers shifted some of their
supply to costlier imports, said 2onald &an, the chief China adviser at ;sian Capital
)oldings in )ong Eong#
Declines in some baby$related shares have dragged valuations down to 7reasonable9
levels, according to 8empleton @merging Marets /roup%s Mar Mobius, who
declined to name specific companies#
78his is a longer$term9 trend, Mobius, who oversees more than 4U.-" billion as the
e,ecutive chairman of 8empleton @merging Marets, said in .ingapore on Auly 3"#
(nvestors shouldn%t e,pect rising birthrates to 7happen overnight,9 he said#
'iostime shares are valued at 1- times estimated earnings for the ne,t 1! months,
down from a pea of !1 in November# )uishan Dairy%s ratio of 11 is almost half its
high of !" times last year# 'oth are cheaper than the M.C( China Consumer .taples
(nde,, which has a multiple of !3#
A nanny is too expensive
.un Fing, who wors at a broerage in northeastern )arbin city, says a second child
is a lu,ury she can%t afford#
78he cost is a top consideration,9 .un, 3!, said by phone# 7My four$year$old daughter
is heading to school and that will mean e,tra classes and higher spending# ; nanny is
too e,pensive so the grandparents loo after her# 8hey are approaching =" and ( don%t
thin they can handle a second child#9
&hile prices of new homes in China fell last month from Aune in 1- of =" cities
traced by the government, they%re still up by about !" per cent during the past four
years, according to .ou?un )oldings#
; couple would need to spend !#=1 million yuan to support a child from birth to
college in 'eijing, according to China%s official Ginhua News ;gency# 8he Auly !"13
report cited an informal survey and calculations suggesting that a husband and wife
earning the average per$capita income would theoretically need to wor for !3 years
without eating and drining to afford it#
;verage household income in China is about B3,110 yuan, according to the China
)ousehold ?inance .urvey compiled by the .outhwestern University of ?inance and
@conomics in Chengdu#
8he confidence of couple in their ability to provide for a second child may also be
waning as China%s economic growth slows, ;sian Capital%s &an said# /ross domestic
product will probably e,pand =#- per cent this year, the weaest pace since 1<<",
according to economist estimates compiled by 'loomberg#
7+eople tend to give birth to a second child when the macro$environment and
property prices are more favourable and they have job security,9 &an said by phone
on ;ugust 0#
;t stae is China%s ability to avoid a demographic crisis as its population ages#
China%s fertility rate of 1#11 per woman compares with the !#1 level needed to sustain
population levels, according to the UN#
8he latest government census in !"1" shows 1=0 million Chinese were over 1"# 8hat
figure may rise to -3= million by !"B" as the population falls to 1#30 billion from a
pea of 1#-B billion in !"3", according to UN forecasts#
Laour costs rise
; scarcity of worers is helping push up labour costs, spurring companies including
.amsung @lectronics to relocate production to countries such as Hietnam# 8he base
monthly salary for a factory worer in 'eijing was 4U.-11, compared with 4U.1-B
in )anoi, according to a !"1! survey of pay by the Aapan @,ternal 8rade
Irganisation#
Unless China is successful in convincing its citiCens to have more babies, the country
will face faster inflation and slower productivity growth, according to 'ocom
(nternational )oldings#
7&ith a rapidly aging population and declining birth rate, even rela,ing the birth$
control act now won%t help reverse the trend anytime soon,9 )ao )ong, a )ong Eong$
based strategist at 'ocom, said on ;ugust 1B# 7China will be dealing with wage
pressure soon#9
'loomberg
http://blo#$.mar%etwatch.com/themar#in/&'()/'*/(6/plan+to+cut+up+california+
into+$ix+$tate$+mo,e$+toward+,ote/
; .ilicon Halley billionaire%s 6ui,otic effort to split California into si, separate states
has moved closer to the ballot bo, with the submission of more than a million
signatures to state election officials this wee#
8im Draper%s plan to divide the /olden .tate up could be on the !"11 statewide ballot
if enough of the signatures are certified#
Many hurdles lie ahead, even if voters approve the plan, however, including approval
by the federal government#
Draper argues that California, with roughly 30 million residents, has become too large
to govern effectively and that fast$moving .ilicon Halley is being hamstrung by a
lethargic state government in .acramento#
8he proposal would create the nation%s richest state, per capita, to be called .ilicon
Halley, as well as North$California, Central$California, .outh$California and &est$
California# 8he northern counties of the state, among the poorest, would be called
Aefferson#
Unresolved are issues over water rights and transportation projects such as the state%s
multibillion$dollar high$speed$rail project and the unintended political conse6uences
that could develop from the addition of 1" members to the U#.# .enate#
http://blo#$.ft.com/andrew+$mither$/&'()/')/u$+dilemma+janet+yellen+and+
profit+mar#in$/
!ed dilemma: "anet #ellen and profit mar$ins
-pril &9/ &'() *:'' am by -ndrew 0mither$
'in0hare'
1
2anet Yellen/ the U0 3ederal 4e$er,e5$ chairwoman/ #a,e an important $peech earlier thi$ month which rai$ed
$e,eral intere$tin# i$$ue$. 6ne of them wa$ empha$i$ed by the 3T U0 economic$ editor 4obin 7ardin# in an article
headlined 8Yellen warn$ inflation may la# reco,ery9. :n the -pril (6 article/ he $aid that 8;$ Yellen $aid that hi#h le,el$
of unemployment had put le$$ downward pre$$ure on inflation than expected/ $o hi#her employment mi#ht not pull
price$ up a#ain9.
There are two diametrically oppo$ite interpretation$ of the chan#e in the relation$hip between inflation and
unemployment to which ;$ Yellen ha$ drawn attention. :t i$ either a one+off aberration which will unwind/ or a
$tructural chan#e. :f the former/ then inflation i$ li%ely to remain low for lon#er than would otherwi$e be li%ely< but/ if
the latter/ inflation i$ li%ely to pic% up more =uic%ly. The difference i$ crucial a$ the former interpretation would
rea$onably allow the 3ed to delay rai$in# intere$t rate$/ while the latter call$ for an e,en earlier ri$e than would
otherwi$e be appropriate.
: illu$trate the way in which inflation ha$ been hi#her than expected/ relati,e to unemployment/ in chart one below. >:n
order to ea$e the compari$on in the way each $erie$ ha$ chan#ed/ : ha,e in,erted the $cale on the ri#ht?. 6,er the
whole period inflation ha$ fallen much le$$ than unemployment ha$ ri$en/ but the ,olatility of inflation pro,ide$ $cope
for both optimi$t$ and pe$$imi$t$. The ri$e in inflation in &'((/ de$pite the $mall fall in unemployment/ $tand$ out a$
di$coura#in# a$ unemployment could pro,ide #round$ for optimi$m. 7owe,er/ ;$ Yellen $eem$ unimpre$$ed by the
latter. :n the $ame $peech $he remar%ed: 8To $ome extent/ the @currentA low rate of inflation $eem$ due to influence$
that are li%ely to be temporary/ includin# a deceleration in con$umer ener#y price$ and outri#ht decline$ in core
import price$ in recent =uarter$.9
The =ue$tion i$ therefore why inflation i$ not lower than it i$ #i,en the ri$e in unemployment< the mo$t ob,iou$
an$wer lie$ in the beha,iour of profit mar#in$. -$ chart two >below? $how$/ corporate profit mar#in$ mea$ured before
capital con$umption >depreciation? are at an all+time hi#h. !orporate output i$ di,ided between profit$ and labour.
Bhen profit mar#in$ are hi#h/ price$ are hi#h relati,e to labour co$t$. :f profit mar#in$ today were at their a,era#e
le,el of C(.C per cent/ then corporate price$ would be $e,en percenta#e point$ below their current le,el relati,e to
output and/ a$ corporate output i$ 1& per cent of U0 #ro$$ dome$tic product/ price$ would be about C.1 percenta#e
point$ lower today than they are.
:t i$ rea$onable to expect profit mar#in$ to ri$e and fall in the oppo$ite direction to unemployment/ a$ competition i$
li%ely to be $tron#e$t when demand i$ wea% and unemployment hi#h. :n fact/ other factor$ $eem to ha,e o,erridden
thi$ and there wa$ no apparent correlation between unemployment and profit mar#in$ from (9)D to (99* >correlation
coefficient '.''?. 0ince then/ howe,er/ there ha$ been an apparently per,er$e chan#e/ with unemployment and profit
mar#in$ ri$in# to#ether a$ : illu$trate in chart three >correlation coefficient '.6D?.
The failure/ to which ;$ Yellen draw$ attention/ for inflation to fall le$$ than expected i$ thu$ rea$onably attributable
to the chan#ed beha,iour of profit mar#in$.
-$ re#ular reader$ of thi$ blo# will by now be familiar/ : attribute thi$ ri$e in mar#in$ to the chan#e in corporate
beha,iour which ha$ re$ulted from the chan#e in mana#ement remuneration. -$ there ha$/ a$ yet/ been no chan#e
in the way chief executi,e$ of =uoted companie$ are paid/ : $ee no rea$on to expect their beha,iour to chan#e/ nor
therefore expect profit mar#in$ to fall/ at lea$t in the ab$ence of mar%ed economic wea%ne$$.
;r 7ardin# ha$ al$o drawn attention to another potential problem for the 3ed. :n the $ame $peech which ;$ Yellen
#a,e to the Economic !lub of Few Yor% on -pril (6/ $he claimed that $he con$idered the lon#+run e=uilibrium le,el of
unemployment to be 1.&+1.6 per cent/ while ;r 7ardin# wrote on -pril &' that: 8;o$t e$timate$ put the natural rate of
unemployment G the lowe$t rate an economy can $u$tain before inflation ri$e$ G at 1.1+1.6 per cent in the U0.9 :n
addition/ he report$ that recent re$earch claim$ that the %ey i$ not the a,era#e rate/ which include$ the lon#+term
unemployed/ but $hort+term unemployment/ which at ).C per cent i$ already at it$ lon#+term a,era#e le,el.
The o,erall impre$$ion i$ that the 3ed i$ predi$po$ed to ri$% a ri$e in inflation. Bhile dan#erou$/ thi$ may pro,e
correct. 6ne a$pect of ;$ Yellen5$ ,iew $hould/ howe,er/ worry in,e$tor$. 0he fore$ee$ a return to the pre,iou$
relation$hip between unemployment and inflation. 0he i$ thereby implicitly foreca$tin# that profit mar#in$ will $oon
fall.
3allin# profit mar#in$ could pro,ide a hu#e boo$t to the U0 economy/ pro,ided that they did not re$ult in other
unde$irable chan#e$ $uch a$ a fall in bu$ine$$ in,e$tment. :f/ for example/ mar#in$ fell bac% $lowly o,er the next
three year$/ the impact would be to reduce inflation by more than one percenta#e point a year.
That would not/ howe,er/ be welcome to the $toc% mar%et. ;$ Yellen i$ thu$ bein# pe$$imi$tic about the $toc% mar%et
and optimi$tic about %eepin# inflation low. :n the $hort term : am le$$ pe$$imi$tic about the $toc% mar%et. 0toc%
mar%et bull$ want inflation to be lon# po$tponed and profit mar#in$ to remain hi#h. !on$iderable mental #ymna$tic$
are re=uired to hold both the$e ,iew$ at the $ame time. 7owe,er/ : expect the demand for $uch #ymna$tic$ to be
$tron# and produce it$ own $upply.
http://www.ft.com/intl/cm$/$/'/*f'''b(D+ca))+((eC+bb9&+''())feabdc'.htmlH
$iteeditionIintlJaxKK&KrL0M6D7
-pril &)/ &'() (:C& pm
Strip private banks of their power to create money
Ly ;artin Bolf-uthor alert$
The #iant hole at the heart of our mar%et economie$
need$ to be plu##ed
Printin# counterfeit ban%note$ i$ ille#al/ but creatin# pri,ate money i$ not. The
interdependence between the $tate and the bu$ine$$e$ that can do thi$ i$ the
$ource of much of the in$tability of our economie$. :t could G and $hould G be
terminated.
: explained how thi$ wor%$ two wee%$ a#o. Lan%$ create depo$it$ a$ a
byproduct of their lendin#. :n the U"/ $uch depo$it$ ma%e up about 9* per
cent of the money $upply. 0ome people object that depo$it$ are not money
but only tran$ferable pri,ate debt$. Yet the public ,iew$ the ban%$5 imitation
money a$ electronic ca$h: a $afe $ource of purcha$in# power.
ON THIS STORY
;artin Bolf NToo bi# to fail5 remain$
;oney 0upply
;artin Bolf 3ear of hyperinflation
;artin Bolf NThe Lan%er$5 Few !lothe$5/ by -dmati and 7ellwi#
ON THIS TOPIC
The ;acro 0weep Oerman bu$ine$$ confidence ri$e$
3und an$wer to bond in,e$tor$5 dilemma
2ac=ue$ de aro$iPre 0ecuriti$ed debt
Ba#e ri$e$ $een a$ threat to low U0 rate$
MARTIN O!"
E=ual $ociety will not hinder #rowth
!apital in the Twenty+3ir$t !entury/ by Thoma$ Pi%etty
!hine$e $a,er$ and the world
Qebt trouble$ in !hina
Lan%in# i$ therefore not a normal mar%et acti,ity/ becau$e it pro,ide$ two
lin%ed public #ood$: money and the payment$ networ%. 6n one $ide of ban%$5
balance $heet$ lie ri$%y a$$et$< on the other lie liabilitie$ the public thin%$
$afe. Thi$ i$ why central ban%$ act a$ lender$ of la$t re$ort and #o,ernment$
pro,ide depo$it in$urance and e=uity injection$. :t i$ al$o why ban%in# i$
hea,ily re#ulated. Yet credit cycle$ are $till hu#ely de$tabili$in#.
Bhat i$ to be doneH - minimum re$pon$e would lea,e thi$ indu$try lar#ely a$
it i$ but both ti#hten re#ulation and in$i$t that a bi##er proportion of the
balance $heet be financed with e=uity or credibly lo$$+ab$orbin# debt. :
di$cu$$ed thi$ approach la$t wee%. 7i#her capital i$ the recommendation
made by -nat -dmati of 0tanford and ;artin 7ellwi# of the ;ax Planc%
:n$titute in The Bankers New Clothes .
- maximum re$pon$e would be to #i,e the $tate a monopoly on money
creation. 6ne of the mo$t important $uch propo$al$ wa$ in the !hica#o Plan/
ad,anced in the (9C'$ by/ amon# other$/ a #reat economi$t/ :r,in# 3i$her. :t$
core wa$ the re=uirement for ('' per cent re$er,e$ a#ain$t depo$it$. 3i$her
ar#ued that thi$ would #reatly reduce bu$ine$$ cycle$/ end ban% run$ and
dra$tically reduce public debt. - &'(& $tudy by :nternational ;onetary 3und
$taff $u##e$t$ thi$ plan could wor% well.
0imilar idea$ ha,e come from aurence "otli%off of Lo$ton Uni,er$ity in
Jimmy Stewart is Dead/ and -ndrew 2ac%$on and Len Qy$on in Modernising
Money . 7ere i$ the outline of the latter $y$tem.
3ir$t/ the $tate/ not ban%$/ would create all tran$action$ money/ ju$t a$ it
create$ ca$h today. !u$tomer$ would own the money in tran$action account$/
and would pay the ban%$ a fee for mana#in# them.
0econd/ ban%$ could offer in,e$tment account$/ which would pro,ide loan$.
Lut they could only loan money actually in,e$ted by cu$tomer$. They would
be $topped from creatin# $uch account$ out of thin air and $o would become
the intermediarie$ that many wron#ly belie,e they now are. 7oldin#$ in $uch
account$ could not be rea$$i#ned a$ a mean$ of payment. 7older$ of
in,e$tment account$ would be ,ulnerable to lo$$e$. 4e#ulator$ mi#ht impo$e
e=uity re=uirement$ and other prudential rule$ a#ain$t $uch account$.
Third/ the central ban% would create new money a$ needed to promote non+
inflationary #rowth. Qeci$ion$ on money creation would/ a$ now/ be ta%en by
a committee independent of #o,ernment.
3inally/ the new money would be injected into the economy in four po$$ible
way$: to finance #o,ernment $pendin#/ in place of taxe$ or borrowin#< to
ma%e direct payment$ to citiKen$< to redeem out$tandin# debt$/ public or
pri,ate< or to ma%e new loan$ throu#h ban%$ or other intermediarie$. -ll $uch
mechani$m$ could >and $hould? be made a$ tran$parent a$ one mi#ht wi$h.
The tran$ition to a $y$tem in which money creation i$ $eparated from financial
intermediation would be fea$ible/ albeit complex. Lut it would brin# hu#e
ad,anta#e$. :t would be po$$ible to increa$e the money $upply without
encoura#in# people to borrow to the hilt. :t would end 8too bi# to fail9 in
ban%in#. :t would al$o tran$fer $ei#nora#e G the benefit$ from creatin# money
G to the public. :n &'(C/ for example/ $terlin# ;( >tran$action$ money? wa$ D'
per cent of #ro$$ dome$tic product. :f the central ban% decided thi$ could #row
at 1 per cent a year/ the #o,ernment could run a fi$cal deficit of ) per cent of
OQP without borrowin# or taxin#. The ri#ht mi#ht decide to cut taxe$/ the left
to rai$e $pendin#. The choice would be political/ a$ it $hould be.
6pponent$ will ar#ue that the economy would die for lac% of credit. : wa$ once
$ympathetic to that ar#ument. Lut only about (' per of U" ban% lendin# ha$
financed bu$ine$$ in,e$tment in $ector$ other than commercial property. Be
could find other way$ of fundin# thi$.
6ur financial $y$tem i$ $o un$table becau$e the $tate fir$t allowed it to create
almo$t all the money in the economy and wa$ then forced to in$ure it when
performin# that function. Thi$ i$ a #iant hole at the heart of our mar%et
economie$. :t could be clo$ed by $eparatin# the pro,i$ion of money/ ri#htly a
function of the $tate/ from the pro,i$ion of finance/ a function of the pri,ate
$ector.
Thi$ will not happen now. Lut remember the po$$ibility. Bhen the next cri$i$
come$ G and it $urely will G we need to be ready.
http://www.ft.com/intl/cm$/$/'/aDc*(1b&+c*(6+((eC+DD9e+''())feabdc'.htmlH
$iteeditionIintlJaxKK&K4*%iQE,
-pril &'/ &'() 6:)6 pm
a#e inf$ation threatens "e% interest rate p$ans& say
economists
Ly 4obin 7ardin# in Ba$hin#ton
RLloomber#
7i#h lon#+term unemployment in the U0 may fail to hold down inflation/
creatin# a challen#e for 3ederal 4e$er,e plan$ to %eep intere$t rate$ low well
into &'(1/ accordin# to economic analy$i$.
- #rowin# body of re$earch from hi#h+profile economi$t$/ includin# -lan
"rue#er/ who chaired Pre$ident Larac% 6bama5$ council of economic
ad,i$er$ until -u#u$t/ $u##e$t$ that wa#e inflation could $oon ri$e becau$e
$hort+term unemployment i$ almo$t bac% at normal le,el$.
:f $uch wa#e pre$$ure$ $tart to $how up thi$ year/ they could force the 3ed to
con$ider earlier intere$t rate$ ri$e$ e,en while the unemployment rate
remain$ relati,ely hi#h.
7owe,er/ 3ed chairwoman 2anet Yellen ha$ rejected the idea that lon#+term
unemployment will fail to hold down inflation. 8: thin% it5$ premature/ fran%ly/ to
jump to that conclu$ion/9 $he $aid in re$pon$e to a =ue$tion after a $peech in
Few Yor% la$t wee%.
;o$t e$timate$ put the natural rate of unemployment G the lowe$t rate an
economy can $u$tain before inflation ri$e$ G at 1.1+6 per cent in the U0. The
current rate i$ 6.* per cent/ $o it $till ha$ a full percenta#e point to fall/
$u##e$tin# that there i$ plenty of $pare capacity in the economy.
-t thi$ $ta#e/ howe,er/ almo$t all of the extra unemployment i$ lon#+term/ due
to people bein# out of wor% for half a year or more. The $hort+term
unemployment rate/ at ).C per cent/ i$ more or le$$ bac% to it$ lon#+run
a,era#e.
The $tandard economic $tory $ay$ there i$ a ne#ati,e relation$hip between
unemployment and inflation. Bhen unemployment fall$ clo$e to it$ lon#+run
le,el/ there i$ more competition for wor%er$/ which $tart$ to dri,e wa#e$ up.
Lut re$earch G by economi$t$ includin# 4obert Oordon of Forthwe$tern
Uni,er$ity and ;ar% Bat$on of Princeton G $u##e$t$ that not all
unemployment i$ e=ual. :n particular/ they find inflation foreca$t$ become
more accurate when they exclude the lon#+term unemployed from their
calculation$.
:n a paper/ ;r "rue#er and hi$ collea#ue$ ar#ued that the lon#+term
unemployed are on the mar#in$ of the labour force/ both becau$e they #i,e
up on inten$i,ely $earchin# for a job and becau$e employer$ $tart to
di$criminate a#ain$t them. 8Be tentati,ely conclude that the lon#+term
unemployed exert relati,ely little pre$$ure on the economy.9
-$ a re$ult/ lon#+term unemployment doe$ little to hold down wa#e$/ and with
$hort+term unemployment bac% to normal they could $tart to ri$e. ;o$t
mea$ure$ of U0 wa#e inflation are $till $lu##i$h but ;$ Yellen $aid the 3ed
would be alert to 8wa#e pre$$ure$ that can tran$late into price pre$$ure$ and
be an early warnin# indicator of an impendin# uptic% in inflation9.
There are $e,eral po$$ible problem$ with the re$earcher$5 ar#ument$ about
lon#+term unemployment. The re$ult$ are $en$iti,e to the method$ u$ed by
analy$t$. Until now/ there ha$ been almo$t no time in U0 hi$tory with a
$u$tained period of lon#+term unemployment/ $o all the re$ult$ draw on the
thinne$t of data. ;r "rue#er5$ paper loo%$ to the U" and 0weden for more
e,idence.
;eanwhile/ re$earcher$ at Qeut$che Lan% loo%ed at recent pattern$ in U0
$tate$ and found lon#+term unemployment doe$ ha,e an effect in holdin#
down inflation but only %ic%$ in once $hort+term unemployment i$ bac% to
normal. That would $u##e$t ;$ Yellen5$ patience i$ wi$e.
E,en if it turn$ out that lon#+term unemployment doe$ not hold down inflation/
other factor$ could/ $uch a$ the lar#e number of people who ha,e dropped
out of the U0 labour force.
httpJKKwww#newyorer#comKonlineKblogsKcommentK!"1-K"!Kwhere$have$all$the$
worers$gone#htmlLintcidMobnetwor
?ebruary !B, !"1-
here Have A$$ the orkers 'one(
+osted by George Packer
; hundred years ago, the popular image of the worer was a sweaty toiler, his face
smudged with coal dust or scorched by the blast furnace, oppressed by the industrial
machine but not its total victim# )e was coiled with potential energy that was
frightening to some and inspiring to othersNhe had the country%s future in his
muscular hands# 'y the time .tuds 8erel published his oral history 7&oring,9 forty
years ago ne,t month, that image had blurred# 8he Chicago steelworer at the start of
the boo was a woring stiff, bored and trapped by his job but still able to tae its
e,istence for granted# ;nd he now had companyNamong others, a hospital aide, a
supermaret cashier, a pair of hair stylists# 8hese were the last days of secure blue$
collar wor, and the beginning of wage stagnation in the service economy#
(n the decades after 1<=-, the archetypal worer became a store greeter at &almartN
part time, nonunion, maing near$poverty wages# 8he animating spirit of her woring
life was no longer the dignity of labor, the drama of factory strife, or the slacness of
union bureaucracyNit was re6uired cheerfulness barely concealing an unhappiness
that she was too afraid to show# .he was isolated, an,ious, and, basically, powerless,
under the constant threat of having no job at all#
;s the bottom fell out of the woring class, this attitude spread to other inds of wor,
including the once formidable assembly lineJ employees at the Holswagen plant in
Chattanooga, who recently voted against joining the United ;uto &orers, cited the
fate of their counterparts in Detroit# .olidarity had become too risyNthey were
lucy just to be maing nineteen dollars an hour#
&hen ( wrote about ;maConNwhich is as emblematic of the ;merican corporation in
!"1- as U#.# .teel was in 1<1- and &almart in 1<<-Nfor a story in The New Yorker,
earlier this month, ( began to wonder what a company worer looed lie# ( found it
hard to come up with an image# ;maCon%s worforce is made up mainly of computer
engineers and warehouse worers, but when you thin of ;maCon you don%t picture
either one 3and there aren%t many photographs to help your imagination5# &hat you
see, instead, is a &eb site with a button that says 7;DD 8I C;289 and a cardboard bo,
with a smile printed on the side# 'etween clicing 7'U*9 and answering the door
when U#+#.# arrives lies a mysteryNa chain of events that only comes to mind if you
mae a conscious effort# 8he wor is done by people you don%t see and don%t have to
thin about, which is partly what maes ;maCon%s unmatched efficiency seem nearly
miraculous#
8he invisibility of wor and worers in the digital age is as conse6uential as the rise
of the assembly line and, later, the service economy# &hether as victim, demon, or
hero, the industrial worer of the past century filled the public imagination in boos,
movies, news stories, and even popular songs, putting a grimy human face on
capitalism while dramatiCing the social changes and conflicts it brought# 8he guy
stocing shelves and the girl scanning purchases at 8arget never occupied much of a
place in the public mind, and certainly never a romantic one 3no one composed a
7'allad of the ?loor ;ssociate95, but at least you had to loo at them whenever you
ventured out to stimulate the economy# 8hey reminded you that low$priced Chinese$
made goods were a mi,ed blessingNthat many of the jobs being created in post$
industrial ;merica were crappy ones#
&ith wor increasingly invisible, it%s much harder to grasp the human effects, the
social contours, of the (nternet economy# ?or e,ample, a century ago there was a great
debate over the trustsNenormous concentrations of economic power in oil, railroads,
baning, steel# 8he trusts produced a historic baclash called +rogressivism#
2eformers were divided into two campsJ the New Nationalists, led by 8heodore
2oosevelt and guided by the New Republic editor )erbert Croly, believed that
monopoly was an inevitable and highly efficient feature of the industrial economy#
8he New Nationalists wanted not to brea up monopolies but to regulate them in the
public interest, necessitating a central government that was the e6ual of the big
corporations# 7@very man holds his property subject to the general right of the
community to regulate its use to whatever degree the public welfare may re6uire it,9
2oosevelt said in Isawatomie, Eansas, in 1<1", in a speech that inspired +resident
Ibama to tal about ine6uality a century later in the same place#
(n the election of 1<1!, 2oosevelt%s New Nationalism was opposed by the New
?reedom of &oodrow &ilson, under the intellectual guidance of Louis 'randeis, the
goal of which was to liberate individual enterprise and to eliminate monopoly power
and its corrupting influence# &ilson embraced 7that vision which sees that no society
is renewed from the top but that every society is renewed from the bottom#9 (n
practice, the difference between these two schools of thought was not as wide as the
rhetoric of their proponents# 7&hether the objective was to regulate monopoly or
competition,9 ;rthur .chlesinger, Ar#, later wrote, 7the method was to meet the power
of business by e,panding the power of government#9 @lements of both the New
Nationalism and the New ?reedom informed +rogressive thought and its crowning
achievement, the New Deal#
8oday, we have our own concentrations of economic power# (nstead of .tandard Iil,
U#.# .teel, the Union +acific 2ailroad, and A# +# Morgan and Company, we have
;maCon, /oogle, ;pple, ?aceboo, and Microsoft# 3@arlier this month, /oogle
briefly passed @,,on Mobil as the second most valuable ;merican company, after
;pple, with a maret capitaliCation of nearly four hundred billion dollars#5 ;mong
tech companies, dependent on rapid growth with huge networ effects for revenue,
competition for maret share has become so routinely intense that ?aceboo%s
purchase, last wee, of the mobile$messaging company &hats;pp for nineteen billion
dollars was reported as yet another tale of sudden, outlandish wealth creation, not as a
dangerous consolidation of the messaging business in one company%s hands, which is
taen as a given and probably a beneficial thing# Comcast%s proposed forty$five$
billion$dollar taeover of 8ime &arner Cable raised a few eyebrows, but most
observers e,pect it to go through# (n baning, the Dodd$?ran reform law has
provisions to minimiCe the ind of risy behavior that led to the financial crisis, but,
in the name of global competitiveness, the too$big$to$fail bans just eep getting
bigger#
8he whole trend of antitrust policy for the past thirty years, continuing with the
Ibama ;dministration, has been to disregard monopoly in the interest of low
consumer prices and greater 7efficiency#9 ;s +aul Erugman wrote, in the Times, of
the Comcast deal, 78here used to be a bipartisan consensus in favor of tough antitrust
enforcement# During the 2eagan years, however, antitrust policy went into eclipse,
and ever since measures of monopoly power, lie the e,tent to which sales in any
given industry are concentrated in the hands of a few big companies, have been rising
fast#9
&here is the great debate over bigness in our timeL &hat public limits should be
placed on the power of private companies to disrupt older industries, which usually
involves destroying more jobs than can be createdL &hat are the ideas for regulating
monopoly or competition on the (nternetL &ho are the leaders and thiners of the
New New Nationalism and the New New ?reedomL 8here are thoughtful, though
fairly marginal, critics, such as Aaron Lanier, whose recent boo 7&ho Iwns the
?utureL9 argues for giving users a share of the wealth in an (nternet economy that
re6uires their participation# Lanier stands in the philosophical tradition of Louis
'randeis, who regarded bigness as a result of financial manipulation more than the
drive for efficiency# 'ut the sheer siCe of the tech giants, and the economic and
political power that comes with this, generates much less septicism than 2ocefeller
and Morgan ever inspired#
Ine reason, ( thin, has to do with the sense in which these companies are
everywhere and nowhere, ubi6uitous in our lives but with no physical presence or
human face# 8hey are regarded by many users as public resources, not private
corporationsNthere for usNand their own rhetoric furthers this misperceptionJ
?aceboo%s 6uest for a 7more open and connected world9O /oogle%s motto, 7Don%t be
evil,9 and its stated mission to 7organiCe the world%s information and mae it
universally accessible and useful9O ;maCon%s ambition to become 7@arth%s most
customer$centric company#9 'ecause these endeavors seem to involve no human
beings, no worers, other than ourselvesNthe supposed recipients of all the benefits
Nit taes an effort to realiCe that the tech economy is man$made, and that, as with the
economies that preceded it, human beings have the capacity to shape and reform it for
the public good# (t would be easier to remember this if every time you cliced 7'U*,9
searched for an article, or te,ted a friend your screen flashed the face of a worer who
once held a job that made way for your seamless online e,perience#
http://%%%&ne%yor'er&com/tal'/financial/()*+/),/),/*+),),ta-tal'-s
uro%iec'i.intcid/onet%or'
0he !inancial Pa$e
The Mobi$ity Myth
y "ames 1uro%iec'i 2arch ,3 ()*+
.ince at least the days of )oratio ;lger, a cornerstone of ;merican thining has
been the hope of social mobilityNthe idea that, as Lawrence .amuel put it in a
history of the ;merican dream, anyone can, 7through dedication and with a
can$do spirit, climb the ladder of success#9 (n recent years, though, plenty of
;mericans have come to believe that, as +resident Ibama said in his .tate of
the Union address, 7upward mobility has stalled#9 .o it was a surprise recently
when a team of economists from )arvard and 'ereley released a
comprehensive study showing that mobility in the U#.# hasn%t fallen over the
past twenty years at all# 7Lie many people, we thought mobility would have
declined,9 2aj Chetty, one of the researchers on the project, told me# 7'ut what
we found was that ids born in the early nineteen$nineties had the same
chances of climbing up the income ladder as ids born in the seventies#9 @ven
more striing, when the researchers looed at studies tracing economic
mobility going bac to the fifties, they concluded that it had remained
relatively stable over the entire second half of the twentieth century#
8hat sounds lie good news, but there%s a catchJ there wasn%t that much
mobility to begin with# ;ccording to Chetty, 7.ocial mobility is low and has
been for at least thirty or forty years#9 8his is most obvious when you loo at
the prospects of the poor# .eventy per cent of people born into the bottom
6uintile of income distribution never mae it into the middle class, and fewer
than ten per cent get into the top 6uintile# ?orty per cent are still poor as adults#
&hat the political scientist Michael )arrington wrote bac in 1<1! is still trueJ
most people who are poor are poor because 7they made the mistae of being
born to the wrong parents#9 8he middle class isn%t all that mobile, eitherJ only
twenty per cent of people born into the middle 6uintile ever mae it into the top
one# ;nd although we thin of U#.# society as archetypally open, mobility here
is lower than in most @uropean countries#
8his wasn%t always the case# ;s the economist Aoseph +# ?errie has shown, in
the late nineteenth century U#.# society was far more mobile than /reat
'ritain%sNa child in the U#.# was much more liely to move into a higher$class
profession than that of his fatherNand much more mobile than it became later#
(t was possible for ;ndrew Carnegie to start as a bobbin boy in a cotton factory
at a dollar$twenty a wee and end up one of the world%s richest men# 8his
legacy left a deep imprint on ;merican culture# 8he sociologist &erner
.ombart noted in 1<"1 that the average ;merican worer felt he had a good
chance of rising out of his class# 8hat feeling has persistedJ ;mericans are less
concerned than @uropeans about ine6uality and more confident that society is
meritocratic# 8he problem is that, over time, the ;merican dream has become
increasingly untethered from ;merican reality#
from the issue
buy as a print
e$mail this
'oth political parties say that they want to change this# ;nd Chetty and his
colleagues have shown in another study that some places in the U#.#, lie .alt
Lae City and .an Aose, have mobility rates as high as anywhere else in the
developed world# 8here are also places in the U#.#, lie Mississippi, where
mobility is lower than anywhere else in the developed world# .o if you could
figure out e,actly what .alt Lae City is doing right, and apply that lesson
elsewhere, you might be able to get people movin% on up again#
(ncreasing economic opportunity is a noble goal, and worth investing in# 'ut
we shouldn%t delude ourselves into thining that more social mobility will cure
what ails the U#.# economy# ?or a start, even societies that are held to have
7high9 mobility aren%t all that mobile# (n .an Aose, just thirteen per cent of
people in the bottom 6uintile mae it to the top# .weden has one of the highest
rates of social mobility in the world, but a !"1! study found that the top of the
income spectrum is dominated by people whose parents were rich# ; new boo,
78he .on ;lso 2ises,9 by the economic historian /regory Clar, suggests that
dramatic social mobility has always been the e,ception rather than the rule#
Clar e,amines a host of societies over the past seven hundred years and finds
that the maeup of a given country%s economic Plite has remained surprisingly
stable#
More important, in any capitalist society most people are bound to be part of
the middle and woring classesO public policy should focus on raising their
standard of living, instead of raising their chances of getting rich# &hat made
the U#.# economy so remarable for most of the twentieth century was the fact
that, even if woring people never moved into a different class, over time they
saw their standard of living rise sharply# 'etween the late nineteen$forties and
the early nineteen$seventies, median household income in the U#.# doubled#
8hat%s what has really changed in the past forty years# 8he economy is growing
more slowly than it did in the postwar era, and average worers% share of the
pie has been shrining# (t%s no surprise that people in &ashington prefer to tal
about mobility rather than about this basic reality# 2aising living standards for
ordinary worers is hardJ you need to either get wages growing or tal about
things that scare politicians, lie 7redistribution9 and 7ta,es#9 'ut maing it
easier for some ;mericans to move up the economic ladder is no great triumph
if most can barely hold on# Q
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siteeditionMuRa,CC!lN&hs"*i 32efer to our 7?ree$dom versus /reed$dom9 on
Constant and &eber#5
Trade trumps missiles in
todays global power plays
Ly Philip 0tephen$
China is waking up to the fact it is being left behind as the
west clings to economic power
R:n#ram Pinn
Stop counting carrier fleets, fighter jets and cruise missiles. Americas wars
in Ira and Afghanistan showed the limits of military might. Todays great
games re!ol!e around another dimension of power. "eopolitics is making way
for geoeconomics.
There are three sets of big international negotiations under way. They promise
to draw the contours of the post#western world, fi$ the point of the balance
between ad!anced and rising states, and describe Chinas place in world. They
will decide what can be sal!aged from the present multilateral system. The
choice lies between open global arrangements and an economic order built
around competing blocs.

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ON THIS STORY
BT6 on ,er#e of #lobal trade pact
U0 wor%$ to win o,er #reen$ in trade deal
Olobal tal%$ on tech trade tariff$ collap$e
!hina and EU in in,e$tment treaty tal%$
U%raine freeKe$ trade tal%$ with EU
ON THIS TOPIC
!hina pro,e$ re$i$tant in :T trade tal%$
Top Qemocrat tie$ currency to trade tal%$
Lenefit$ li%ely to flow from liberali$ation in 0han#hai
U" mini$ter ur#e$ #lobal trade deal
PHI!IP ST)PH)NS
The four bi# truth$ that are $hapin# the :ran tal%$
U0 will not e$cape the ;idea$t fire$
Philip 0tephen$ 7ollande hold$ the %ey
:f Lritain lea,e$ EU/ 0cotland lea,e$ Lritain
The immediate focus is on trade. Successful conclusion of the Trans#%acific
%artnership talks would cement &S economic integration with much of east
Asia. A parallel Transatlantic Trade and In!estment deal would reinject
cohesion into 'ashingtons relationship with (urope. Alongside these
regional pacts, the (& is negotiating bilateral deals with India and )apan. To
complete the patchwork, the &S and (& are leading talks between more than
*+ ad!anced and rising economies to liberalise trade in ser!ices.
%ull the strands together and the message is that the west has gi!en up on the
grand multilateralism that defined the postwar era. ,ore striking still, each of
the proposed new agreements would lea!e China on the sidelines. The
e$clusion of the worlds second#biggest economy is more than a coincidence.
China has been the big winner from the open global economy. The &S is
asking why it should further e$pand arrangements that empower its ri!al. The
&S response to Chinas rise has long been to engage and hedge - to draw in
.eijing to a rules#based system while refurbishing old alliances as an
insurance policy. The emphasis now is on hedging.
The attraction of the new /midi#lateralism0 is that it would strengthen the
wests grip on global standards and norm#setting. (uropeans are more
instincti!ely inclusi!e than Americans, and many suggest regional deals offer
a path to more inclusi!e agreements. .ut the &S is not alone in its an$iety to
hold on to economic power. A 1rench diplomat friend tells me that %aris
signed up to the TTI% talks because it /fears China more than it hates the &S0.
I dont see 'ashington rushing to in!ite China into the T%%.
There is no guarantee, of course, that the pacts will be concluded. The scope
and scale of &S snooping by &S intelligence agencies has soured transatlantic
relations. )apan will struggle to meet the demands imposed by the T%%.
2isiting India last week, I sensed little urgency about an (& trade deal.
3ne problem is that this ne$t generation of agreements would reach well
beyond tariffs into regulation, public procurement and standards. This
challenges powerful !ested interests and awakens political neuralgia about
national so!ereignty. Another is that go!ernments are not organised to grasp
the strategic significance of economic agreements. %residents and prime
ministers like to talk about war and peace. Trade is for technicians. There is
no one to look at the big geoeconomic picture.
,y sense is that western go!ernments will labour mightily to a!oid a
breakdown of the !arious talks. They need the growth promised by a further
opening of markets. 1ailure would carry a hea!y price. .etter to uietly dilute
some of the original ambitions. This is the wests last chance to hold on to
economic power.
China is waking up to fact that it is being left behind. .eijing has asked to join
the trade in ser!ices negotiations and has suggested that talks with the (& on
in!estment rules could be followed by the negotiation of a trade pact. The
responses from 'ashington and .russels ha!e been distinctly lukewarm.
China is seen as free#rider on the multilateral system. The &S and (urope
want e!idence .eijing is ready to open up its economy.
The risks of fragmentation of international trading rules are ob!ious enough.
A positi!e sum can uite uickly become a 4ero sum game, carrying the
unfortunate fla!our of a contest between the west and the rest. Sidelining
China would carry threats to the e$isting fabric of the global system5 and
history throws up some ugly e$amples of how disputes about trade are the
precursor to more serious conflict.
,uch may depend on outcome of the two other sets of negotiations promising
to test allegiance to multilateralism. 3ne will decide whether it is possible to
secure a global accord on climate change5 the other whether rich nations are
ready to e$tend the help for poor nations enshrined in the soon#to#e$pire
millennium de!elopment goals.
The debates in both cases centre on rights and responsibilities. 6ow to share
out the burden of cutting carbon emissions5 how much should the west pay for
de!elopment7 Should western largesse be matched by greater responsibility
on the part of the recipients7
.ehind the specifics lies the 89:,+++ uestion. ;o go!ernments from north
and south, or west and east ha!e the political will and energy to recognise
their mutual interest in new multilateral agreements7 The signs are less than
hopeful.
The &S is more comfortable with coalitions of the like#minded than with
multilateralism. "o!ernments elsewhere pay lip ser!ice to the facts of
interdependence while jealously guarding outdated notions of national
so!ereignty. (nlightened self#interest is an approach lost on todays world
leaders. "lobalisation without global rules may work for a while, but it will not
last.
httpJKKwww#ft#comKintlKcmsKsK"KB!=-<-d!$B3!1$11e3$0B01$
""1--feabdc"#htmlRa,CC!lN&hs"*i 3;sset +rices affected by policy decisions
Sclassifying% them as to ris5
Asset price <security alerts
mask real risks
Ly Tracy -lloway in Few Yor%
;efining !alue is hamstrung by assumptions and
e$pectations
Any reader who has flown commercially in the &S during the past do4en
years will no doubt ha!e a passing awareness of the 6omeland Security
Ad!isory System.
The now defunct terrorism threat scale was rolled out to indicate the threat
le!el faced by the nation, from green - for a /low0 risk of an attack - to red for
/se!ere0.

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ON THIS TOPIC
;oody5$ cut$ ratin#$ of three bi# U0 ban%$
0hadow ban%$ reap 3ed rate reward
!ritic5$ $taff ma%e o,erture$ to U0 ban%$
4e#ulator$ bic%er o,er how to mea$ure Qodd+3ran% pro#re$$
ON A!! STR))T
3ed continue$ to $upport mar%et Nmelt up5
3ed un,eil$ Plan L for withdrawin# QE
Pe$$imi$m o,er dollar will be $hortli,ed
;ar%et$5 animal $pirit$ need tamin#
I was this week reminded of the now#moribund warning system thanks to a
flight to 1lorida and a new research report by 1itch =atings that draws an
unusual parallel between the nations old colour#coded scale and &S
accounting rules.
There is something undoubtedly alluring about a process that classifies a
complicated concept - be it the threat of a terrorist attack or the !alue of a
security - into an easily digestible label. .ut there are unuestionable trade#
offs in doing so.
1or much of its lifespan, the 6omeland Security system was stuck at /yellow0
or /orange0 - indicating a significant or high risk of terrorist attacks.
So omnipresent were the yellow and orange indicators that many critics of the
system pointed out that the colours should simply become the baseline for the
entire scale. 'hen the warning system was e!entually phased out in *+>>,
public officials noted that it had pro!ided /little practical information0.
About fi!e years ago, a new /mark to market0 regime came into effect to
go!ern how &S banks !alue the assets on their balance sheets at market
prices, known as /fair !alue0. The rule - 1AS >?@ - created three categories
financial institutions could use to classify the securities on their balance
sheets.
At the /top0 of the fair !alue hierarchy are /Ae!el >0 assets, which can be
!alued fairly easily. There are prices to be obser!ed, like stock prices on an
e$change.
Be$t come /Ae!el *0 assets whose !alues may be based on models or on
uoted prices in relati!ely inacti!e markets - such as deri!ati!es or some
loans.
Then there are /Ae!el C0 assets which cannot be !alued using obser!able
prices or e!en models. Instead they are priced using a hefty dose of subjecti!e
assumptions.
The 1itch report finds that since the new rules took effect, the /Ae!el *0
category has accounted for about D? per cent of all fair !alue assets.
'hile much of that will no doubt be due to the breakdown of securities on
banks balance sheets, there is something to be said about the usefulness Eor
lack thereofF of an indicator that appears stuck at one point in an already
simplified scale.
/A classification system that offers little differentiation pro!ides only limited
informational !alue,0 write 1itch analysts. /Ae!el * encompasses a range of
situations, from assets that may be acti!ely traded but fail to ualify for Ae!el >
categorisation, to assets that are difficult to !alue.0
And just as the 6omeland Security system suffered from debates o!er its
subjecti!ity, so too do &S accounting rules and the percei!ed !alues of !arious
securities.
- $imple cate#ori$ation of Nfair ,alue5 may ma$% many a$$umption$ and
rele#ate pro#re$$i,ely important information from $crutiny
&S banks generally categorise &S Treasuries as Ae!el > - yet many mutual
funds opt to classify them as Ae!el *, according to 1itch. Aast week, the
Commodity 1utures Trading Commission upset many traders when it
announced it would reuire cash to backstop Treasuriesused as collateral for
deri!ati!es trades.
If the markets cannot agree on the !alue of one of the most liuid and
relati!ely safe assets in the world - an 8>>tn market - then it is tempting to
belie!e that e!en the most basic assumptions are open to interpretation.
In other words, while finance may appear to be a well#defined and ordered
arrangement of numbers and accounts, the reality is far more nuanced.
1inancial institutions are as much an amalgam of broad assumptions about
!alues and forecasts as they are a collection of well#defined assets and
liabilities.
It may seem like an ob!ious point but it is, I think, an increasingly important
one.
This is a world where e$pectations - of the continuation of the 1ederal
=eser!es bond#buying programme, of the scope of the economic reco!ery, or
the path of future interest rates - ha!e come to wield a hea!y influence
on market prices.
All this means that the importance of recognising those e$pectations, and the
scope and extent of their influence, has increased.
)ust as a warning system that is fore!er stuck on high alert may blind the
public to shifts in security, a simple categorisation of /fair !alue0 may mask
many assumptions and relegate progressi!ely important information from
scrutiny.
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>3ailin# role of $toc% exchan#e$?
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modIB02-0:-_hpp_;:QQE0econdFew$ >!hina rich try to #et out?
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modIB02-0:-_hpp_;:QQEThirdFew$ >2apane$e wa#e $uppre$$ion and low+yen
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&&1D&'.$html >Toxicity of 3ranco+Oerman ban%$?
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>Bhy E030 i$ totally inade=uate to re$cue EU $o,erei#n debt?
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modIworld_new$reel >EU on ,er#e?
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the limit/ therefore/ the liabilitie$ of ban%$ become off+balance+$heet #o,ernment debt$. ;r 7aldane ar#ue$ that 83or
U" ban%$/ . . . the implicit $ub$idy amount$ to at lea$t ten$ of billion$ of pound$ per year/ often $tretchin# to three
fi#ure$. 3or the #lobal ban%$/ it i$ at lea$t worth hundred$ of billion$ of dollar$ per year/ on occa$ion four fi#ure$.9 The
economic re$ult/ meanwhile/ i$ an enormou$ increa$e in le,era#e in the economy.
*et the subsidy does not benefit most creditors, since they merely receive a lower return# @ven long$term
shareholders appear not to gainJ the purchaser of a portfolio of global baning stocs !" years ago is sitting on real
losses today# 8he beneficiaries of the subsidy are short$term shareholders silled at trading volatility and, of
course, managers with remuneration lined to returns on e6uity or share options# Mr )aldane describes the
resulting emphasis on short$term returns as the 7myopia loop9#
httpJKKwww#ft#comKintlKcmsKsK"Kc1<<010e$fe31$11e"$bac-$
""1--feabdc"#htmlRa,CC1bDhH,1FL 3@ichengreen Centr#'an 2eport5
httpJKKwww#ilsole!-ore#comKartKcommenti$e$ideeK!"11$1"$!-Klondra$modello$
banca$centrale$"13<"1#shtmlLuuidM;aN3@U?@ 3?inan# .tability replaces
inflation as central ban target5
httpJKKwww#ilsole!-ore#comKartKcommenti$e$ideeK!"11$1"$!-Krigore$abbinare$
innovaCione$"0B="<#shtmlLuuidM;a!jb&?@ 32ecession and (nnovation5
httpJKKonline#wsj#comKarticleK.'1"""1-!-"B!<="!"3=B!1"-B=11-3B1"3B!!B"-
=-#htmlLmodM&.A;siaTarticleTforsub 3?ed planning more F@5
httpJKKwww#ft#comKintlKcmsKsK"Kca30a03"$fb!d$11e"$0=B1$
""1--feab-<a#htmlRa,CC1bDhH,1FL 3?inanCapital as 7e,tortionist9J $ 72ein
us in and we will not lend9 U note comment by /#?eiger5
httpJKKwww#ilsole!-ore#comKartKcommenti$e$ideeK!"11$1"$!1Ksolitudine$
imprenditore$"13<!1#shtmlLuuidM;a!uej@@ 3@nterprise at the base and
collectivism at the verte,#5
httpJKKwww#ft#comKintlKcmsKsK"K11bdcbc"$fc11$11e"$b1d0$
""1--feab-<a#htmlRa,CC1bDhH,1FL 3@,tent of crisis reach in public$private
divide#5
httpJKKwww#businessspectator#com#auKbs#nsfK;rticleK@urope$needs$plan$before$
Chinese$invest$MFNG0LIpenDocument>srcMhp3 3'lunt tal from China
sovereign fund re @uro welfarism5
httpJKKwww#ft#comKintlKcmsKsK"Kef1dB<!c$fBc!$11e"$bcc!$
""1--feab-<a#htmlRa,CC1ati1uEAr 3Magnus on 8he China .yndrome5
Leijin# ha$ to rebalance it$ in,e$tment+centric/ credit+hun#ry economic
model to one built round hou$ehold con$umption. Lut thi$ i$ complex. :t
in,ol,e$ a redi$tribution of income from capital and profit$ to labour and
wa#e$< radical chan#e$ in the role of the exchan#e rate/ intere$t rate$
and capital mar%et$< and $trate#ie$ to counter the hi#h propen$ity to $a,e
by hou$ehold$/ corporate$ and central #o,ernment. :t i$ al$o politically
di,i$i,e becau$e power and economic pri,ile#e ha,e to be wre$ted from
party elite$/ $tate enterpri$e$ and ban%$/ and #i,en to new beneficiarie$
$uch a$ pri,ate companie$/ hou$ehold$/ colle#e #raduate$ and rural
mi#rant wor%er$/ the la$t of which ha$ become increa$in#ly re$ti,e.
httpJKKwww#ft#comKintlKcmsKsK"K0B33B11e$fB0!$11e"$<-b1$
""1--feab-<a#htmlRa,CC1ati1uEAr 38he shipwrec of the Chinese economy U
;nderlini5
httpJKKwww#ft#comKintlKcmsKsK"Kafa0cd=1$f1B0$11e"$01dc$
""1--feab-<a#htmlRa,CC1ati1uEAr 38ony Aacson on interplay of public$private,
lending and recapitaliCation for bans#5
httpJKKwww#guardian#co#uKworldKfeedarticleK<0<="!B 3Aapan to renew fighter$
plane fleet to counter China, 2ussia U closer ties to U.5
httpJKKwww#lesechos#frKopinionsKchroni6uesK"!"110B=!--<1$la$foudre$va$
frapper$les$entreprises$!31-01#php 3Hittori on the coming financial 7crac of the
whip9 on firms5
httpJKKwww#ft#comKintlKcmsKsK"Ka03eBcf-$f"!c$11e"$<==b$
""1--feab-<a#htmlRa,CC1aE1"v-s8 3?unds moving from bans to shadow
baning5
httpJKKwww#businessspectator#com#auKbs#nsfK;rticleKChina$privatisation$politics$
marets$.M@s$.I@s$gro$pd!"11"<!"$LU.D;LIpenDocument>srcMrot 3China
.I@s threaten .M@s5
httpJKKwww#ft#comKintlKcmsKsK"KBa!3-10!$e30f$11e"$0f-=$
""1--feabdc"#htmlRa,CC1*"-MwuLl 3/rowing @uropean trade tensions with
Chinese dictatorship5
httpJKKwww#ft#comKintlKcmsKsK"K-d3c"b1e$e30c$11e"$0f-=$
""1--feabdc"#htmlRa,CC1*"-MwuLl 3/erman elites and Irdnungspoliti
leading to @uropean ruin5
httpJKKlecercle#lesechos#frKeconomie$societeKpoliti6ue$eco$conjonctureKmonnaies$
et$tau,K!!113=11<Klimites$euro$solidarite 3@U failed states5
httpJKKonline#wsj#comKarticleK.'1"""1-!-"B3111<"--<1="-B=1B="<13-=-!-!<
=-#htmlLmodM&.A;siaThppTL@?88op.tories 3@uropean bans in serious
trouble5
httpJKKwww#corriere#itKeditorialiK11TsettembreT13Kmucchetti$economist$
salariTf1d011f0$ddca$11e"$aa"f$d3<1be=bB=bb#shtml 3Crisis of overproduction
or underconsumptionL Unemployment in I@CD5
httpJKKblogs#lesechos#frKplace$du$marcheKles$ban6ues$chinoises$aussi$a1110#html
3+arlous state of Chinese bans5
httpJKKwww#maretwatch#comKstoryKmortgage$system$is$rife$with$conflict$!"11$
"<$"! 3Contradiction, conflict of govt# punishing systemically risy bans5
httpJKKwww#ft#comKintlKcmsKsK"K<b-1-1<e$d!-0$11e"$<13=$
""1--feab-<a#htmlRa,CC1&UfL:H8I 3/# 8ett confuses corporate e,$patriation
with Sautonomy%#5
httpJKKwww#businessspectator#com#auKbs#nsfK;rticleKLagarde$Aacson$)ole$?ed$
euroCone$debt$contagion$i$pd!"11"0!<$L1UD!L
IpenDocument>srcMsph 3@U bans in dire trouble5
httpJKKwww#ft#comKintlKcmsKsK"K-eeB=fe0$cfe3$11e"$a1de$
""1--feabdc"#htmlRa,CC1&0-bE&"" 3Ibama and the 7fracture95
httpJKKwww#ft#comKintlKcmsKsK"Kaa-1c"f!$ce=0$11e"$b=BB$
""1--feabdc"#htmlRa,CC1Hw8F+:bb 3&oodford on F@35
httpJKKwww#maretwatch#comKstoryKbernane$ready$for$action$but$when$is$in$
doubt$!"11$"0$!!LdistMafterbell 3/ertler comments on 'ernane5
httpJKKwww#ft#comKintlKcmsKsK"Kb-bB!e01$caB!$11e"$a"dc$
""1--feabdc"#htmlRa,CC1HytLaml 38 Aacson on trade and e,$rate
imbalances5
httpJKKlecercle#lesechos#frKeconomistes$project$syndicateKnouriel$
roubiniK!!1131<==Kis$capitalism$doomed 32oubini $ crisis caused by
growing disparity of incomes5
httpJKKonline#wsj#comKarticleK.'1"""1-!-"B3111<"-"="1"-B=1B1--31!"311="<!#ht
mlLmodMbusinessTnewsreel 3@uropean bans tested by ?ed re funding
ade6uacy in U.5
httpJKKwww#ft#comKintlKcmsKsK3K"Ba3b"-0$c0db$11e"$a!c0$
""1--feabdc"#htmlRa,CC1H!r;fr!f 3Le, on currency controls in China and
C)5
httpJKKwww#corriere#itKeditorialiK11TagostoT10Kcura$dimagrante$per$lo$
statoT10f-Be<1$c<11$11e"$a11c$1"="1cdb<ebd#shtml 3@ditorial blaming crisis
on 7speculators9 encouraged by e,cessive role of .tate in 7economy95
httpJKKwww#ft#comKintlKcmsKsK3Kae"c=b-a$c0"!$11e"$<B"1$
""1--feabdc"#htmlRa,CC1H!r;fr!f 3Le, U +arado, of austerity and debt,
inflation or default5
httpJKKwww#ft#comKintlKcmsKsK"K<-"B-"3!$c11<$11e"$bbB"$
""1--feabdc"#htmlRa,CC1H!r;fr!f 38 Aacson on Haluations5
httpJKKwww#lemonde#frKideesKarticleK!"11K"0K13Kle$long$passe$de$la$dette$
publi6ueT1BB<!-0T3!3!#htmlRensTidM1!11=-1 3?iscal Crises leading to ?rench
2evolution5
httpJKKwww#newyorer#comKtalKfinancialK!"11K"0K1BK11"01BtaTtalTsurowieci 38he
rich are no longer bondholders and would do better with +rogressives#5
httpJKKonline#wsj#comKarticleK.'1"""1-!-"B3111<"-0!30"-B=1-<<<-!--!""=3"1#ht
mlLmodM&.A;siaThppTL@?88op.tories 3Aapan nuclear regulator has become a
Slobby% for the industryV5
httpJKKwww#corriere#itKeditorialiK11TagostoT11KgiavaCCiTincerteCCa$non$risparmia$
nessunoT-1-!11!e$c3d0$11e"$<d<-$101c=0=ab!-0#shtml 3/iavaCCi on maret
uncertainty, lac of Sleadership% apart from ?ed @C'5
httpJKKwww#ft#comKintlKcmsKsK"K<be=B0"-$c3f=$11e"$b3"!$
""1--feabdc"#htmlRa,CC18jofm@a! 38ony 'arber on fiscal union and dem# deficit5
httpJKKlecercle#lesechos#frKeconomistes$project$syndicateKautres$
auteursK!!11310<"Kamerica$first$debt$crisis 38he first ?iscal Crisis in U.5
httpJKKwww#ft#comKintlKcmsKsK"K0Bea1=10$c-f"$11e"$<c-d$
""1--feabdc"#htmlRa,CC18jofm@a! 3?ed and @C' fiscal role5
httpJKKwww#corriere#itKeditorialiK11TagostoT"!Kultima$occasione$per$una$svolta$
francesco$giavaCCiT1=0!!ef"$bccb$11e"$bB3"$d!ad1f=31cf<#shtml
httpJKKwww#nytimes#comK!"11K"0K"1KopinionKthe$president$surrenders$on$debt$
ceiling#htmlLTrM1>partnerMrssnyt>emcMrss 3Erugman on Ibama%s Ssurrender%5
httpJKKwww#ft#comKintlKcmsKsK"K1<<e"fc0$bbb<$11e"$a=c0$
""1--feabdc"#htmlRa,CC18jofm@a! 3).'C selling to U. ban5
httpJKKwww#faC#netKartielKC3"130Kwaehrungsunion$ist$deutschland$hauptprofiteur$
des$euro$3"-=1<1-#html 3?;: right$wing propaganda5
httpJKKwww#repubblica#itKeconomiaK!"11K"=K!<KnewsKanalisiTmercati$1<=0"3!BKL
refM)2@;$1 3(nsolvency of (taly with high @C' rates5
httpJKKlecercle#lesechos#frKentreprises$marchesKfinance$
marchesKfinancesK!!1131=1!Kmarches$financiers$tempete$approche 3Michel 2ocard5
httpJKKwww#ft#comKintlKcmsKsK3KB0c0cBa!$b01d$11e"$b1!b$
""1--feabdc"#htmlRa,CC1.eL1*=<M 3Le, on the dollar5
httpJKKwww#nytimes#comK!"11K"=K1<KbusinessKchina$largest$holder$of$us$debt$
remains$tied$to$treasuries#htmlLpagewantedM1>TrM1>refMglobal$home 3China
8reasury holdings5
httpJKKwww#ft#comKintlKcmsKsK"K-fBdc<!!$b"a=$11e"$aBa=$
""1--feab-<a#htmlRa,CC1.Medg@Ci 3Clive Croo on 2epublicans and debt ceiling5
httpJKKwww#ft#comKintlKcmsKsK"KB""fddce$b"a=$11e"$aBa=$
""1--feab-<a#htmlRa,CC1.Medg@Ci 3Munchau on the euro5
7(t is hard to comprehend why marets decided to panic over (taly at this particular
time# 8here was a trigger, for sure, but (taly%s problems are not new# 8he country
needs to grow by !$3 per cent a year in the long run to be able to remain in the
euroCone# Ir it needs lower interest rates# 8he marets understand that (talian politics
maes the first difficult, and /erman politics maes the second tough# (f you accept
the constraints of euroCone membership, low productivity growth, and high interest
rates as given, (taly is insolvent# Ine of those constraints will have to give#9
( notice that that 7twit9, 'ill /ross, has been twitting furiously this morning about the
rise in U. bond yields U lie a churlish child who nows that he has made a disastrous
bet and clasps at straws just to get evenV 'ut the fact of the matter is that this is a
reaction to the end of F@! and a 7relief rally9 due to the latest 7successful /ree
rescue9 3which merely postpones the inevitable5 as well as jitters about inflation in the
U.# ( have argued at the /avyn Davies 'log 3?85 that mild inflation in the U. is due
to the A$curve effect with a lower dollar and higher commodity prices caused by cheap
money$funded speculation# 'ut speculation will get its come$uppance once the
Chinese economy starts to implode, and so does /ermany%s, under the weight of the
massive amounts of greenbacs that are pushing interest rates and inflation to
impossible levels in China, 'raCil, (ndia, (ndonesia and everywhere else#
8his ?8 story on the collapse of corn prices overnight says it all 3the worst plunge in
1B yearsV U which tells you how much speculative money there is out thereV5J
httpJKKwww#ft#comKintlKcmsKsK3K"!ec1!b-$<db1$11e"$b3"c$
""1--feabdc"#htmlRa,CC1Fj1naoA
8he fact of the matter U something /ross and Co# had better drill into their heads U is
that bondholders no longer run the show because the U. ;dministration and the ?ed
cannot destroy the U. economy by abandoning it to the vagaries of 7the private
sector9, which is not invest and will not invest because there is no 7demand9 on which
to invest and U as you can see U the minute there is even the 7sniff9 of demandW
inflation shoots upV 8he 7margin9 of capitalist action 3capital%s 7profitability95 is
e,tremely low U which means that nominal wages remain high, deficits are stubborn,
and unemployment cannot recede until the so$called 7surplus countries9 U from China
to /ermany and Aapan U start behaving lie 7civilised9 governments and e,pand
domestic demand, instead of engaging in 7wage suppression and demand repression
and e,port subsidisation9V
8he upshotL (f this continues and U. employment does not recover there will be
renewed deflationary pressures U which will induce 'ernane toward F@3W and 'ill
/ross to sell his shirt#
XXXXXXXXXXXXXXXX
8he China Fuestion U ; Comment on +hilip .tephens% ?8 Column here
httpJKKwww#ft#comKintlKcmsKsK"K33c"<3e-$a313$11e"$0<<"$
""1--feabdc"#htmlRa,CC1Fj1naoA
; fairly pedestrian effort from .tephens U the ind of thing that you jot down on your
daily commute to London by train# .tephens fails to understand that when assessing
7what governments want9 it is far more important to now first 7what they can
achieve9# ;nd this is where the limitations on the Chinese dictatorship literally leap to
one%s eyes# 8o consider these one has to loo at the 7strategic9 role that the Chinese
economy plays in what remains the 7capitalist9 global maret 3in trade and finance5
and at the internal politico$economic dynamics of the Chinese polity#
(f we loo first at the internal dynamics, we see that the Chinese polity is in a
calamitous state U one that is a legacy of Mao%s Cultural 2evolution during which
many millions of Chinese were murdered by the present regime# &hen Machiavelli
wrote 76uesto popolo non ha religgione9 3he used two g%s in his 2enaissance (talian5
what he meant was not that 7this people have no religion9 or 7are not religious9#
2ather, he meant that what holds a polity together is a lot more than producing cheap
goods for e,portV 8he incalculable damage that the Cultural 2evolution wreaed on
the Chinese population is that it virtually wiped the slate cleas U it destroyed any
semblance of social and cultural cohesion that the vast Chinese country had and
replaced it instead with the cult of Mao#
.ince Mao%s death, his cult has been replaced with the cult 3a mere and pathetic
ideology5 of self$advancement and economic growth# 'ut in reality the subservient
role of the Chinese economy in the global capitalist economy 3it has been the linchpin
of 7globalisation95 has meant that hundreds of millions of Chinese worers have been
e,ploited in unprecedented ways in order to enrich an 7elite9 made up of +rincelings
and their .tate$Iwned @nterprises that have access to unlimited amounts of cheap
capital e,tracted from the forced 7savings9 of poor Chinese worers 3there is nowhere
to save in China U real interest rates are negative and the .hanghai maret is in free
fall, and the yuan is not being revaluated even while inflation climbs parabolically5#
Meanwhile, Chinese people in the countryside have been e,propriated to enrich real
estate developers and elite investors in infrastructure projects that normal Chinese will
never be able to use because they do not earn enough money U so that these projects
are bound to be the 7bridges to nowhere9 that we saw in Aapan# 8he environment U
social and ecological U has been utterly destroyed and laid to waste# ;ll these
developments have induced +rofessor +ettis 3at www#mpettis#com 5 to conclude that
actual Chinese /D+ could be as low as one 6uarter of what it is calculated
conventionally#
'ut the Chinese dictatorship nows that its days are numbered# (t is desperately
lashing out in all directions 3with +aistan, in .udan, but above all in the .outh China
.ea5 to protect its shrining economic power 3which it ac6uired on the bac of cheap
e,ports to the &est, mainly the U. in the /reat Moderation5 and turn its fast$
declining economic might into a nationalist campaign for military prowess that will
unite the divided, lacerated, impoverished 7polity9 that we mentioned aboveV
.o this is where Machiavelli%s 7religgione9 comes bac to the foreground U something
.tephens, whose politico$economic formation is too limited to allow, fails to consider
U and what is the biggest 7gap9 in this piece# 8he upshot is that the Chinese
dictatorship is isolated and 7encircled9J by Aapan and Eorea and 8aiwan and Hietnam
and the +hilippines and (ndonesia in the .outh China .eaO by 2ussia to the northO by
(ndia in the (ndian Icean U and by the ubi6uitous presence of the U. Navy and
military U a power far too great for the virtually insignificant forces of the +L;V .mall
wonder the +olitburo is trying to revive MaoV +retty soon, once its economy and /D+
collapse 3and that time according to everyone from +ettis to 2oubini U and myself $
will come soon5, ideology and the memory of Mao will be all that is leftV
&hat the capitalist &est has to do now isJ stop taling to the dictatorship and start
taling to its peopleV &hich is the opposite of what .tephens suggests here# Cheers to
all#
httpJKKwww#project$syndicate#orgKcommentaryKrajan10K@nglish
3on loose U. policy causing inflation and stalling growth5
httpJKKwww#project$syndicate#orgKcommentaryKroubini3<K@nglish
roubini on double dip5
httpJKKwww#project$syndicate#orgKseriesKtheTne,tTfinancialTorderKdescription
3@ichengreen on 7)ow to Eill a Dollar95
&e hope /avyn Davies will not mind if we than all the people visiting our
commentary at www#eforum!1#com# &e are truly grateful for your interest $ and we
will not let you down#
Ymacmillan $ 8he effect of monetary and non$monetary ZeasingZ is widely accepted#
Aoseph 'elbruno discussed this on this 'log bac in May in connection with this '(.
paper from 'orio and Lown $ httpJKKwww#bis#orgKpublKwor11-#pdf
8he problem is that, as @dwar *ardley whom we discussed here yesterday says
Zmonetary policy alone cannot do the wor of fiscal policyZ# .o 'ernane and his
+rinceton colleagues at the ?ed are having to do what Congress is not capable of
doing $ and this because of obvious Zinternal tensionsZ in the vision of the role of the
.tate in the capitalist economy# &e have spoen of a ZfractureZ in the ;merican ruling
elites and the polity between ZprogressivesZ and ZconservativesZ# 3Erugman and
@ichengreen accept that this is fast becoming the biggest problem to face the U. in
recent history#5 8he growing role of the .tate in ensuring the ZsurvivalZ of the
economic system in its present form is something that )yman Minsy above all
others made plainJ tersely put, each time there is a recession or contraction the .tate
deficit grows larger and more ZintrusiveZ into the so$called ZcapitalistZ economy# ;nd
Martin &olf has taled of Znotionally private debtZ $ meaning that the debt
accumulated up to the bursting of the financial bubble was Zin factZ public debt
ZdisguisedZ as private debt during the /reat Moderation# 8his is the nature and e,tent
of the ZcrisisZ that we are confronting#
@arlier we spoe, in connection with &ynne /odley, of Zthe e,ternal balanceZ,
meaning current and capital account# Ine of the ways in which national bourgeoisies
are seeing to deal with the crisis $ certainly Zthe easiest way outZ $ is to push Zthe
burden of adjustmentZ on to other national bourgeoisies# (n @urope this is creating the
havoc we now# 'ut the U. government has had enough of accommodating all the
e,ternal surpluses of Ze,port$dependentZ economies 3from China to /ermany5 and of
Zimporting unemploymentZ $ and that is why we will see more 3not less5 6uantitative
easing $ for the simple reason that printing greenbacs will force China and /ermany
3already in apocalyptic difficulties with their bans and finance5 to raise interest rates
at a time when to do so is political dynamite#
/eopolitically, this will mean that the Chinese dictatorship 3read the /eorge Magnus
piece in the ?8 today, lined in our previous intervention5 will see to shore up itself
politically by Zlashing outZ at neighbours in the .outh China .ea# &e view this as the
most important development of this crisis# 8he U. ;dministration and ruling elites 3ld
by their cash$rich financial institutions5 will drive the rest of the world into a slump or
banruptcy $ a 2ooseveltian New Deal by any other name#
Y aufsteiger and Y nobby $ ?inally, an obli6ue apology to ZaufsteigerZ below# ?or
too long we have been ignoring his repeated calls to discuss the Irdo$liberalist
?reiburger .chool in /ermany# &e intend to post at our site at the earliest a full
discussion of this in connection with the famous ZMethodenstreitZ controversy
between Earl Menger and the /erman )istorical .chool 3part of our larger wor
called ZErisisZ5# 8here will be plenty of mentions of the ;ustrian .chool# Cheers#
XXXXXXXXXXXXXX
Fuite fre6uently, we read comments to our pieces with the objection that this is all
7philosophy9 but not 7economics9# .o it may be instructive for all our friends to read
a piece of analysis, or theory, illustrating just how crucial philosophical analysis is to
economic theory# &e start with the e,pression 7/reed is good9# Now, this e,pression
3taen from a well$nown )ollywood movie starring Michael Douglas5 is intended as
more than just an o,ymoron or a parado,# (t is meant to say thisJ $ that the self$
interested 6uest for the accumulation of wealth is 7good9 because it ma,imises the
social wealth for every member of society# ;ccording to Hilfredo +areto, such a 6uest
is optimal when no$one is disadvantaged by it 3+areto optimality5#
'ut if self$interest is to optimise the wealth of society as a whole in such a way that
no$one is left the worse for it, then this can happen either by accident 3a mere co$
incidence5 or else because there is some 7thing9, some 7aspect9 of greed that
intrinsically 3necessarily5 leads to the 7good9 of +areto optimality#
*et, when we loo more closely into the concept of 7greed9 there are no 6ualities or
attributes that we can see that would either necessarily or coincidentally lead to the
7good9 of all members of society# ;nd it is easy to see whyJ $ because it is logically
impossible to argue that actions that are dictated by 7self$interest9, the interest of
one%s self, must also coincide with or lead to 7the common interest9, the 7good9 of
society#
8he reason why ;dam .mith, in theorising the perfectly competitive maret e,change
economy, felt compelled to attribute the 7self$regulating maret mechanism9 to an
7invisible hand9 was precisely that he could not see how 7logically9 he could argue
that 3to 6uote from Mandeville5 7private vices9 can lead to 7public 3sic5 benefits9#
;dam .mith was an e,cellent thinerJ he new that 7competition9 in and of itself
would lead ine,orably to 7the abolition of competition9 U for the simple reason that
the greatest aim of 7competition9 is, precisely, to eliminate the competitionV 8hus, in
7postulating9 the e,istence of a 7guiding invisible hand9, .mith was implicitly
admitting that without 7divine guidance9, without an 7invisible mind or /od9, a
7hidden /od9 or 7Deus absconditus9, the maret mechanism could not possibly lead
to the 7good9 of society# (n other words, without a 7pre$established harmony9 decreed
by a 7benevolent /od9 there could be no 7free maret e,change9 that would
7optimise9 or even 7ma,imise9 the 7good9 of society, as a whole or individually#
Fuite obviously, the postulate of an 7invisible hand9, if rejected, necessitated the
development of an alternative theory to the one advanced by .mith# 'ut even if
accepted, this theory led to one further problem# Let us suppose that there is indeed a
7hidden /od9 who ensures the smooth optimal operation of the maret mechanism
and economy# 8he ne,t 6uestion we must answer is 7how9 and 7why9 such a /od
would be interested in ensuring the achievement of such a goal# (n other words, even
admitting that we can agree on what is 7good9 for both society and the individuals in
it, it will still be impossible to see, first of all, 7why9 such a /od would wish to ensure
that this 7good9 can be achievedO and, secondly, it will be impossible to e,plain
7how9 such an omniscient and omnipotent /od can 7physically9 intervene and
interfere with human and mundane affairsV
8his is e,actly the 6uestion that NietCsche posed himself after he had joined
.chopenhauer in rejecting and refuting the e,istence and above all the 7notion9 of
such a 7benevolent9, pro$vidential /od# )ow NietCsche went about the tas of
replacing the entire 7theory9 and rationale of Classical and Neoclassical economic
theories is the subject of my first boo called 7UmwertungJ In NietCsche%s 8rans$
valuation of All Halues9# @,cerpts from this boo will soon appear in our ;rchives on
this website# Cheers to all#
Y Davies and Y+eCCi U 8han you for your ind replies#

&e note that the ?8 have banned 3ZgaggedZ, in actual fact5 Aoseph 'elbruno until the
end of ;ugust 3V5# .o we will have to as fellow participants to follow us for further
comments at our own ongoing online commentary site on ?8 and stories from major
world media sources on a new website that will start in days at www#eforum!1#com
&e note that Martin &olf%s Column today analyses 3impeccably $ after all, if you are
intelligent and fair and you are very nowledgeable on a subject, why should your
analysis be mistaenL5, so we will turn briefly to what &olf does not say# Iver a
number of months now, Aoseph 'elbruno has been pursuing this line of analysis but
basing it on a different theoretical framewor, either in comments to Martin &olf%s
Columns or at the /avyn Davies 'log or at the @conomists[ ?orum $ so you can
follow him there or you can chec his archive in a few days at the site lined above#
&e note in this regard, +aul Erugman%s assessment of his own analytical$predictive
record to date here $ httpJKKrugman#blogs#nytimes#comK!"11K"1K!0K3$B$out$of$-K
Erugman gives himself a 3#B out of - predictive score U failing only on the
7downward rigidity of nominal wages9# &e defy any reader here to loo bac over
our record in the past year, therefore, and tell us whether out score is not a resounding
- out of -V 8he 7downward rigidity of nominal wages9 has been one of our cries de
Coeur, so to speaV
Martin &olf in his latest Column writes correctlyJ
78he '(. is rightJ normalisation of monetary and fiscal policy is needed# 'ut it is
impossible to eliminate structural fiscal deficits until either the private sector
structural adjustment is complete or we see big shifts in the e,ternal balances# (t is
impossible, finally, for this e,ternal adjustment to occur without big changes in the
surplus economies#9
8he 6uestion is thenJ if what &olf suggests is right, then why is it not ZimplementedZL
&hat are the ZobstaclesZ and ZwhoZ is posing themL (n a nutshell, the obstacles are set
by the fact that the world economy through the /reat Moderation was operating on
the basis that what was produced cheaply in China and other Zemerging economiesZ
3'2(Cs, for instance5 could then be Ze,portedZ in large part to the United .tates
where real and nominal wages could remain low 3no inflation5 and the capital
accumulated could be re$invested through the &estern financial institutions 3in ZcoreZ
centres lie New *or and London5# 8he upshot was that much of this capital could
simply no longer be invested ZprofitablyZ by producing real goods for consumption $
because this would entail a rise in living standards of worers, which in turn would
ZemancipateZ them politically and cause 3you guessed it5 inflation and political
upheaval#
Not used to such largesse, ?inanCapital had to invest the capital earned on the blood
and sweat of poor worers in China and other places by beginning a phenomenal
wave of ZspeculationZ on Zreal assetsZ, from mortgages to commodities, because when
there is such a ZsurplusZ of capital it is better to Zgo for safetyZ and buy Zreal assetsZ
instead that are essential to the reproduction of capitalist society# ;nd this is precisely
what happened, initiating a speculative wave that gathered tsunami strength until
inevitably it hit the shores of &estern capitalist financial institutions $ resulting in the
/reat ?inancial Crisis# Ince you understand this new Zframewor of analysisZ, the
rest pretty much follows# 'ut rather than bore you further here, we will as you to
follow us at the /avyn Davies 'log and, again in a few days, at the website lined
above# Cheers to all#
Y 2DD U No doubt, the old loss of 7.euritat9 by middle classes 37petty
bourgeoisie95 was one of the major historical factors behind the rise of fascist
movements in @urope between the wars# 8his is a long and intricate argument and we
will not enter it here todayW 'ut 7things have changed9# 8he composition of social
classes, the role of the Crisis$.tate, and above all the capitalist world economy have
changed# If course, 7greed9 never e,plained anything 37.euritat9 had nothing at all
to do with 7greed9 U the (talian 7s6uadristi9 and the NaCi fellow$travellers were not
7greedy9 U on the contraryV 8hey truly 7believed9 in the 7socialist9 part of 7National
.ocialism9V 'ut the issues you raise are 6uite significant, and we will address them
shortly#
XXXXXXXXXXXX.omething went by entirely unremared by commentators in the ?8
the other dayJ the '(. 2eport signed by .tephen Cecchetti that said 3no tongue in
chee thereV5 that Zthe world economy is growing too fastZ, that inflation is a growing
threat, that there is little Zspare capacity utilisationZ#
8he remarable thing is that such a remarable set of lies could pass undetected
beneath the een olphactory nerves of ?8 commentators# $ 'ecause of course there is
no truth whatsoever in what Cecchetti and his legion of myrmidons are saying $ not if
you consider that the U., if anything, is on the verge of deflation, that commodity
prices are plunging and the dollar strengthening at every /ree sneeCe, and that Znear
full capacity utilisationZ means that 3"\ of (talian youngsters are out of wor,
together with some -"\ or so in .pain 3but, hey $ who[s countingL5 and
unemployment in @urope 3the official figures, not including ZprecariousZ, part$time
worers and people who have just given up5 still hovers at around 1"\#
.o there we have it, againJ the productive potential of our 3still capitalist5 society
cannot ZabsorbZ the human resources available# .omething has to give# ;nd Aean$
Marc Hittori at Les @chos today nows this all too wellJ writing about the @uropean
crisis he says that the star choices are either Zfraying at the endsZ $ meaning a general
and gradual @uropean decline followed by a serious political conflict#### or an
e,plosion in short order# 8he crowds in ;thens, the indignados in Madrid, the
dissatisfied (talian and (rish voters are all propense for the latter $ the e,plosion, that
is#
.o why can[t the @uropean bourgeoisie ZresolveZ itself to tae decisive action to avert
a catastropheL *ou would have noticed what a fun time &en Aia 'ao is having visiting
the various @uropean capitals# *ou see, it is much easier to deal with these s6uabbling
idiotic @uropean bourgeois on a one$on$one basis than it would be to deal with them
if they showed some real unity of purpose and of political willV &ith the conse6uence
that millions of Chinese worers get e,ploited by these latter$day )itlers and
@uropeans iss their hands each time they visit $ so much for /oethe and 'eethoven,
let alone ZLiberte[, @galite[### et ceteraZ#
8he @uropean bourgeoisie can[t decide on who should pay for the financial crisis#
8heir economic science and ideology tells them that Zeconomic rationalityZ must be
adhered to# 'ut economic rationality says that
self$interest is the only and the best solutionV .auve 6ui peut, thenV ?or it is too
difficult to as these bourgeois to show ZsolidarityZ when their entire livelihoods
depend on selling the gospel of economic self$interestV &hither @uropeL Hittori is
rightJ the nerves will fray or there will be an e,plosion####
(n discussing the vicissitudes, the swings and roundabouts of @uropean Union we
need to rise, so to spea, Zau dessus de la meleeZ, to be super partes, and to judge the
view below in terms of the broader ZforcesZ that ZconditionZ this historical movement#
@urope has difficulties not merely at Z@uropeanZ level, but also at the ZnationalZ levels
$ and that is because a truly Z@uropeanZ bourgeoisieZ is not yet born and the e,isting
ZnationalZ bourgeoisies are also too wea# ;s a result, it is difficult for the e,isting
Znational bourgeoisiesZ to determine how to share Zthe burden of adjustmentZ that the
ZimbalancesZ of the /?C have e,posed $ especially in the sector of Zfinancial capitalZ#
8he problem of ZresolutionZ of the crisis is compounded by the very ZideologyZ of
maret capitalism that places ZcompetitionZ and not ZsolidarityZ first and foremost on
the ladder of bourgeois values# (t is difficult for the @uropean bourgeoisies to agree
Zto helpZ one another according to a Zmaret competitiveZ logic, which is the
ZrationaleZ they universally share, when that ZlogicZ dictates that Zthe common goodZ
is for wach to pursue their ZindividualZ interests# 8here is no Zinter$esseZ 3no
Zcommon beingZ5 in this ZinterestZV
(t is difficult therefore to find an ZinternalZ force that can push toward greater
@uropean Union# Mercifully, however, there is a forum e,ternum, a force majeure, an
Ze,ternal dynamicZ that will mae the result inevitableJ and that is the fact that the
@uropean bourgeoisies are confronted by ominous challenges that they need to face
virtually by themselves 3as 2obert /ates has told N;8I5 $ and also there is the
Ze,ternalZ force of the dynamic needs of @uropean capital itself created by its growing
and irreversible Zinter$dependenceZ and ZconcentrationZ# 8his is the framewor within
which this entire process must be viewedJ these are the ZforcesZ whose ZbalanceZ we
need to weigh and measure# Cheers to all#
Y mar $ Mr# 'elbruno has been banned from maing further comments on the ?8#
)e thans you for your ind words# 8he answer is ZyesZ# ;s you can see from Mr#
Eing[s comments on ?riday, the 'an of @ngland perceives 6uite rightly the need for
the @C' to play a role diametrically opposed to that dictated to it by @uropean
?inanCapital# Mr# 'elbruno[s further views on this may be gathered or discerned
from his latest contributions 3until banned5 to the /avyn Davies 'log and the
@conomists[ ?orum#
Mr# 'elbruno wishes to than all readers and participants for their encouragement and
support# (t is his current intention to initiate an independent 'log with running
commentary on news and opinion from the ?8 and from other sources 3N*8, &.A,
Les @chos, ?;:, Die :eit, (l .ole !- Ire, Corriere, ?igaro, Le Monde and major
blogs such as +aul Erugman[s5 $ so that participants may have an opportunity to
pursue views alternative to those of the ?8 so obviously inspired and constrained by
the interests of @uropean ?inanCapital#
8han you again, and regards to all#
Dear Mr# &olf,
You may or may not be aware that : ha,e been banned from po$tin# comment$ on the 3T.
There may well be #ood rea$on$ for doin# thi$ G it i$ a matter of indifference to me/ really/
althou#h there i$ no doubt that many fellow reader$ were readin# my comment$ re#ularly and
were e,en po$tin# fa,ourable comment$ to that effect.
;y late$t contribution$ had been fairly re$trained/ : would ha,e thou#ht/ with the occa$ional
8$parrin#9 or 8robu$t9 exchan#e here and there. Bhere my re$traint wa$ not exerci$ed/ to put
it mildly/ wa$ in the direction of Ben 2ia Lao and the !hine$e dictator$hip. Be mu$t all a$%
our$el,e$/ and our con$cience$/ whether $ome abu$e hurled in that direction i$ really $uch a
$in after all when we con$ider the far more $ub$tantial 8abu$e9 in e,ery $en$e of the word that
in,eterate criminal$ $uch a$ Ben and hi$ henchmen in !hina exerci$e at the expen$e/
$ufferin#/ torture/ unlawful detention/ intimidation of many !hine$e fellow$ toward whom/ ala$/
: can only feel admiration and $ympathy >: dare not $ay empathy/ of cour$e?.
: belie,e that the real explanation behind the deci$ion to ban me ha$ little to do with the
occa$ional 8$parrin#9 with fellow reader$ G that i$ a daily occurrence between participant$ and
$ome e,en find the exchan#e $timulatin# and 8pro,ocati,e9 e,en in the better $en$e of the
word.
Fo. The real explanation ha$ to do with the fact that ob,iou$ly many reader$ G and : dare $ay/
the more intelli#ent and per$picaciou$ amon# them G were be#innin# to follow my
contribution$ clo$ely and >Ood forbidU? were e,en be#innin# to a#ree with me/ to loo% into my
rea$onin# >: ha,e $po%en often of an 8analytical framewor%9?/ and rea$on accordin#ly. : ha,e
no doubt >and : certainly do not flatter my$elf here? that my out$po%en ,iew$ and analy$e$
were becomin# 8incommodiou$9 to ,ariou$ people who$e intere$t$ were ob,iou$ly ne#ati,ely
impacted by them.
You may be plea$ed to learn that in any ca$e none of thi$ hurt$ me per$onally: apart from
bein# =uite wealthy/ : am al$o far ad,anced in the writin# of my $tudy on FietK$che and
parallel $tudie$ of the hi$tory/ interpretation and criti=ue of capitali$t $ociety and it$ economy.
4ecently/ : had reflected on the fact that commentin# on the 3T wa$ di$tractin# me/ albeit to a
$mall extent/ from the$e other $tudie$ that : belie,e will ha,e a far more la$tin# and wei#htier
impact on our politic$ and $ociety.
et u$ be fran%. 0ome of u$ do not $tand on the $ame $ide of the barricade$ G and tho$e
barricade$/ you need no reminder/ are #oin# up hi#her and fa$ter/ and not ju$t in Europe but
all around the world/ than they were in recent time$. : happen to be on the $ide of tho$e who
had to endure lon# and hard the oppre$$ion of a $ocial $y$tem to which : $hall ne,er
$urrender/ and to which : ha,e $worn undyin# hatred. Feither the 3inancial Time$ nor the
intere$t$ that $tand behind it will be able to $top u$: we are too many/ we are too cle,er/ and
we are too determined. Be $hall pre,ail.
2o$eph Lelbruno
That paper by Oauti E##ert$$on i$ here:
http://www.newyor%...report$/$r)CC.html
: ha,e di$cu$$ed the Bolf matter$ with a lin% to $ome literature in !omment$ to hi$ !olumn.
Lut : di$a#ree that thi$ could happen in the U0 + rather/ there would be a lot to do for the li%e$ of me
or#ani$in# a re,olutionU >Lut : would ha,e to find the time for that + : am bu$y writin# a hu#e boo% that i$
a blueprint for oneU?
-nd on the Vparadox of toilV proper: + :$ that not the perfect ar#ument for $tartin# to plot a re,olution
anyhowH VThe nature of wor%V: how we produce/ what we produce and how we apply the productV: that
i$ what we need to chan#eU
The di$cu$$ion of Vthe paradox of toilV that : mentioned concerned preci$ely thi$ fact: that "ru#man and
E##ert$$on >the latter i$ al$o at Princeton/ : thin%/ and certainly at the 3ed? Vwor%V from within the
pre$ent con$traint$ of what capitali$m ta%e$ to be Vwor%V/ namely/ that wor% ha$ to be VprofitableV. :t i$
entirely ob,iou$ that/ #i,en the fact that VprofitabilityV i$ nothin# more than Vpolitical control o,er
wor%er$V/ if exi$tin# employee$ wor% VmoreV/ #i,en the a$$umption that they would not be able to wor%
VmoreV unle$$ their wor% wa$ VprofitableV/ the con$e=uent con$triction and reduction of VdemandV or
con$umption on the part of tho$e who are out of wor% would tend to reduce the $hare of Vprofit$V that #o
into the expan$ion of employment throu#h new in,e$tmentUU
7ence/ the VparadoxV i$ not one that applie$ to Veconomic$V in ab$olute + but rather and crucially one
that applie$ T6 - !-P:T-:0T E!6F6;Y + which i$ the VeconomyV that we ha,e now/ not nece$$arily
the 6FY VeconomyVU -$ E##ert$$on ri#htly note$/ thi$ i$ the ob,er$e of "eyne$W$ Vparadox of thriftV + if
e,eryone $a,e$/ there will be le$$ for e,eryone to $a,eU 6b,er$ely/ if exi$tin# employee$ Vwor% moreV/
there will be le$$ VincomeV #oin# to the le$$ employed + and becau$e con$umption >$pendin#? decline$
a$ income$ ri$e... there will be le$$ a##re#ate demand/ more a##re#ate V$a,in#V and therefore le$$
Vin,e$tmentV and VemploymentV.
6f cour$e/ there are a number of a$$umption$ here + the mo$t important bein# that it would be
VunprofitableV for capitali$t firm$ to expand employment becau$e the #reater production from exi$tin#
wor%er$ wor%in# VmoreV could not be $old... VprofitablyVU
The V"eyne$ianV non$en$e lie$ all in thi$: that we are told that we >the wor%er$? would not be able Vto
con$ume enou#hV e,en if capitali$t$ decided to in,e$t and produce moreUU The idiocy of thi$ thin%in# i$
too be$tial to contemplateU
6"/ fol%$ + here it i$ from the V!onclu$ion$V $ection in the E##ert$$on paper + read carefully/ plea$e:
VThe lo#ic i$ that the increa$e in labor $upply lower$ a##re#ate wa#e$/ which in turn #i,e$ the wor%er
lower income to $pend on #ood$ and $er,ice$. The$e deflationary pre$$ure$ increa$e the real intere$t
rate/ and thi$ cannot be off$et by the central ban% cuttin# the nominal intere$t rate. Thu$ le$$ #ood$ are
demanded.
Lecau$e the firm$ will employ labor only to $ati$fy any con$umer demand for #ood$/ thi$ reduce$
a##re#ate employment. Bhy doe$ the $ame lo#ic not apply under normal circum$tance$H The rea$on i$
that/ normally/ when there i$ an outward $hift in $upply and downward pre$$ure$ on wa#e$ and
price$/ the central ban% will off$et thi$ by cuttin# of the nominal intere$t rate by more than one+to+
one ratio becau$e XY Z ( in it$ policy rule. 7ence/ the real intere$t rate will decrea$e/ ma%in#
$pendin# today cheaper and increa$in# output and employment. -t Kero intere$t rate$/ howe,er/
thi$ i$ no lon#er po$$ible due to the Kero bound. 7ence the paradox.V
Fow/ notice T7E !6F2U4:FO T4:!" that the$e economic #eniu$e$ >who canWt $ee farther than their
bour#eoi$ no$e$U? come up with...
oo% at that all+important $entence: VLE!-U0E T7E 3:4;0 B: E;P6Y -L64 6FY T6
0-T:03Y -FY !6F0U;E4 QE;-FQ 364 O66Q0/ T7:0 4EQU!E0 -OO4EO-TE E;P6Y;EFT.V
Bhat E##ert$$on i$ $ayin# i$ that Vbecau$e we produce moreV/ the capitali$t firm$ that Vappropriate
what wor%er$ produceV will not be able VT6 0E T7E O4E-TE4 P46QU!T L-!" T6 U0VUU + becau$e
it i$ not profitable to do $o #i,en that intere$t rate$ are already at Vthe Kero boundV + in other word$/
capitali$t in,e$tment.... :0 -4E-QY UFP463:T-LEUU
-0 - 4E0UT >UU? capitali$t firm$ will not expand output if wor%er$ offer to wor% lon#er: 6F T7E
!6FT4-4Y/ a$ E##ert$$on put$ it/
8@tAhe ne#ati,e $hoc% [t >people want to wor% more?/ and the expectation that it will per$i$t/ put$
immediate deflationary pre$$ure on price$ in the -0 e=uation >the ri#ht+hand+$ide e=uation in
the fi#ure? becau$e it lower$ the wa#e co$t of firm$.9
T7E4E364E/ the increa$e in 8toil9 offered by wor%er$ will re$ult/ at be$t/ in a reduction in a##re#ate
employment >whether throu#h lo$$ of job$ or throu#h more 8flexible employment9?. QEQ
Oame/ $et and matchU Fominate me for a Fobel/ people + it ta%e$ T7-T ;U!7 intelli#ence to #et one/ :
a$$ure youUU
-n afterthou#ht: it i$ ob,iou$ from all the fore#oin# that E##ert$$on5$ Vparadox of toilV exi$t$ 6FY if we
accept the a$$umption$ of hi$ V#eneral e=uilibrium modelVUU :n other word$/ the$e complete and utter
;646F0 who pride them$el,e$ in the appellation of Veconomi$t$V $ee a VparadoxV in reality where
F6FE EM:0T0 were it not for their -L0U4Q a$$umption$ built into V#eneral e=uilibrium analy$i$VUU ;y
propo$al i$ therefore that we demoli$h both the analy$i$ and the reality that the$e loon$ :;P60E on u$U
jo$eph belbruno \ 2une (6 1:1'am \ Permalin%
7ere i$ an illu$tration of how capital i$ encounterin# $e,ere problem$ with intellectual property/ which i$
really and truly Vthe la$t frontierV for thi$ mi$erable $ocial $y$tem of production:
http://www.ft.com/...htmlJaxKK(6yE0F9b'
You will notice that a$ VcommunicationV technolo#y $pread$ it become$ more Vinter+acti,eV $o that VweV
#enerate our own content + VtheyV no lon#er #enerate it/ and can no lon#er control it and/ to the extent
that they control it by Vownin#V it/ we no lon#er Vu$eV or VbuyV itUU 0tephen 4oach ha$ a $imilar $tory in
the 3T about the VKombie con$umerV + in other word$/ the $o+called con$umer who refu$e$ to con$ume
and relie$ on Valternati,e$V out$ide the circuit of capitalU
You could wi$h for no better explanation of why Va##re#ate demandV lan#ui$he$ and we are in a ....
Vli=uidity trapV. Lut 0tephen 4oach doe$ not ha,e e,en the fo##ie$t idea about all thi$U 7ey/ #i,e the #uy
a brea% + he i$ with ;or#an 0tanley and lecture$ at 7ar,ard + that $hould =ualify anyone a$ a patented
imbecileU >2u$t loo% at Fiall 3er#u$on/ for in$tance.?
4eportjo$eph belbruno \ 2une (6 ):1(am \ Permalin%
There i$ a wonderful article in the Ball 0treet 2ournal on Vthe three contradiction$ in !hinaV that ha$ to
be read becau$e it $ummari$e$ neatly what we ha,e been $ayin# here + and al$o counter$ the atrociou$
mi$information diffu$ed by that 7uan# #uy on what they call Vthe -+li$tV and that prompted the$e
mi$erable manne=uin$ to ban me: here it i$
http://online.w$j....pp_;:QQTop0torie$
4eportjo$eph belbruno \ 2une (6 ):CCam \ Permalin%
] ; + Quite ob,iou$ly/ #i,en what : ju$t wrote to W-"W/ : a#ree. Thi$ whole area of Vinno,ationV/ by the
way/ which : di$cu$$ in W"ri$i$W in connection with the 0chumpeterian Unternehmer$#ei$t >entrepreneurial
$pirit? and that : $ee a$ a Vrepri$eV of ;ax BeberW$ V$pirit of capitali$mV + thi$ entire =uae$tio of the
meetin# of Techni% with Ter#e$ell$chaftun# >$ociali$ation of production/ the #rowin# di,i$ion of $ocial
labour and it$ Vinter+e$$eV or inter+$ubjecti,ity that we witne$$ on the... wait for itU.... inter+net? + all the$e
matter$ : lin% ultimately to a di$cu$$ion of ;arxW$ W3ra#ment on ;achineryW which i$ in hi$ VOrundri$$eV.
The up$hot i$ + with apolo#ie$ to all the capitali$t canaille that would impo$e it$ copyri#ht re$triction$ on
u$ + the Vcreati,e $urplu$V that i$ #enerated come$ into ine,itable conflict with the need of capitali$t
Vin,e$tmentV >u$e of $ocial re$ource$? to #enerate Vprofit$V/ $o that Vprofitability+capitalV become a
VbarrierV to $ocial pro#re$$/ they $tifle and $mother our li,e$ + ju$t in the way that the canaille that run
thi$ new$paper $ee% to doU
Fext/ we will be joinin# the crowd$ in 0ynta#ma 0=uare in -then$ + then in Puerta del 0ol/ ;adrid
>where : li,ed for a while?/ and then...to Time$ 0=uareU
V3ir$t we ta%e ;anhattan..... then we ta%e Leijin#UUV
4eportjo$eph belbruno \ 2une (6 &:C6am \ Permalin%
P0: : may al$o a$% fellow participant$ to help me cut and pa$te my commentary from the independent
blo# web+$ite $o that we can circum,ent any e,entual ban$ on my$elf + they canWt ban u$ all/ can theyUU
4eportjo$eph belbruno \ 2une (6 &:C)am \ Permalin%
Oi,en that the ma##ot$ at the 3T are tryin# to $ilence me/ : am thin%in# to $tart a $eparate blo# that we
can lin% to indi,idual 3T $torie$ $o we may run unexpur#ated commentarie$ on their $torie$ and
commentary. To date/ : ha,e focu$$ed my effort$ on the Oa,yn Qa,ie$ Llo# and the Economi$t$W 3orum
+ but ob,iou$ly it i$ preferable to ha,e independent lin%$ rather than rely on the 3TW$ $y$tematic
mi$information on ,ital area$ of intere$t. !heer$ to all.
4eportjo$eph belbruno \ 2une (6 (&:&(am \ Permalin%
] -" + Ye$/ : thin% Paul "ru#man in hi$ own di$tincti,e fa$hion >Veconomic clu$ter$V i$ an analo#ou$
cate#ory that loo%$ at economic in$titution$ V$yncreticallyV? ha$ called thi$ Vthe mobili$ation of
re$ource$V: in other word$/ what -$ian countrie$ ha,e done i$ Vmobili$eV exi$tin# factor$ of production
>wor%er$ from country to citie$ or Vurbani$ationV and capital imported from the Be$t? to achie,e the
impre$$i,e rate$ of V#rowthV we ha,e $een.
The problem with thi$ >"ru#man $till? i$ that limit$ will $oon be reached in term$ of Vproducti,ityV and
Vinno,ationV and other Vintan#ible$V. : would put it $li#htly but $i#nificantly >exe#etically? differently: what
-$ian economie$ do not ha,e are the ,ery $ocial Vin$titution$V that #i,e Be$tern capitali$m it$
inno,ati,e+producti,e dynami$m >the 0chumpeter factor/ if you li%e? and it$ politico+in$titutional V$tabilityV
>it$ 4oo$e,eltian/ Few+Qea democracy or $ettlement?. Unle$$ and until -$ia i$ able to match the
capitali$t Be$t with the$e/ it will remain a bac%water/ a mere VfactoryV for the re$t of the de,eloped
world.
The problem i$/ howe,er/ that there i$ an una,oidable Vanta#oni$mV at the centre of capitali$t V#rowthV: +
the intere$t$ of capital and wor%er$ do not coincide< ultimately/ capital >that i$/ the owner$hip and
Vor#ani$ationV of production/ from the firm to intellectual property? become a VbarrierV to production >Vlow
capacity utili$ationV/ 6%unW$ aw and Terdoorn+"aldor aw/ V$ta#flationV? unle$$ we Vdemocrati$eV our
in$titution$ further. That mean$ that V#rowthV will ha,e to be Vmea$uredV in ,ery different and far more
pro#re$$i,e way$ + $ocial e=uality/ en,ironment/ welfare/ emancipation of wor%.
8Bhile there may be no hope of endin# the exce$$i,e pay habit/ pointle$$ re#ulation would ideally be nipped
in the bud. -nnual $tre$$ te$t$ for ban%$ and meddlin# with pay+out ratio$ i$ a ca$e in point. The ori#inal
$tre$$ te$t in early &''9 wa$ a flawed but u$eful way of forcin# the ban%$ to rai$e another ^*1bn of tier one
capital. Lut $ince then capital buffer$ ha,e reco,ered to le,el$ that could ab$orb another financial cri$i$. :f
re#ulator$ want ban%$ to be e,en $afer/ they $hould $imply in$i$t on le$$ le,era#e. -$ for dictatin# di,idend
payment$/ the 3ed i$ unnece$$arily complicatin# thin#$. 0et capital le,el$ and let ban%$ #et on with it.
Le$ide$/ a company i$ worth the $ame with a low pay+out ratio or a hi#h one. Bhether !iti pay$ a di,idend
or not ma%e$ not a cent of difference to the ,alue of ;r Pandit5$ ^('m worth of preferred $toc%9.
4eportjo$eph belbruno \ ;ay &C D:&&am Utter/ de#enerate and culpable non$en$e from WexWU :f Vle,era#eV
were all that i$ wron# with the financial cri$i$/ then the $olution would be $imple indeed + ju$t a$ WexW would
induce u$ to belie,e. The reality i$ far more Vintere$tin#V than that + becau$e it be#in$ with
Vdi$intermediationV/ that i$/ prexi$ely the #rowin# VindependenceV of credit creation that ma%e$ it Vimpo$$ibleV
for monetary authoritie$ to control + becau$e it i$ Voff balance $heetV/ or becau$e of Vinno,ation$V or becau$e
of $imple a$$et+price Vbubble$V.
Lecau$e Vban%in# and financeV ha,e now become Vmar%et+ledV form$ of credit creation/ nothin# $hort of
acti,e V$uper,i$ionV + that i$/ $trict re#ulation and control + of credit by the monetary authoritie$ will achie,e
anythin# at allU
Bhich lead$ u$ to the next point: i$ $uch V$uper,i$ionV compatible with the V$ur,i,alV of capitali$mH : am with
the youn# Vindi#nado$V of 0painUU : am Voutra#edV/ tooU
2eportjoseph belbruno ] May !1 1"J"1am ] +.J In the alarming state of @uropean youth and the direct
responsibility for it of Z?inanCapitalZ 3with the culpable and reprehensible complicity of the @C'5 see this
e,cellent review in Les@chos $ and the less direct review by 'orio et alii in Zvo,eu#comZ# Ine ZerrataZJ it
should read Zle mort ne saisit pas le vifZ below#
httpJKKwww#vo,eu#o###e,#phpL6MnodeKB!0<
httpJKKwww#lesecho###pagnols$111"10#php
8he absolute ?(2.8 8)(N/ we must do when considering Zfinancial repressionZ is to get rid of this
idiotic e,pressionV &hat is ZrepressionZ to some is ZliberationZ to othersV (ndeed, this is so even if we
consider that the whole operation of Zli6uidating government debtZ 3which is how the infinitely clever
Carmen 2einhart Zre$baptisedZ this silly notion of ZrepressionZ5 is not a ZCero$sum gameZ $ a simple
matter of Zre$distributingZ income and social resources between social classes#
.ome are trying to disguise this ZredistributionZ as an Zinter$generationalZ tussleJ some even try to
argue that Zgovernment debt is a burden on our childrenZV &ell, in that case, that is all the more reason
why governments should try to short$change current ZbondholdersZ 3that old, putrefying, smelly,
cadaverous heap of filth represented by ZagedZ capitalists and moribund over$se,ed (M? heads and
(talian prime ministersV5 to the people who represent the living labour, the true future of humanity $
8)@ *IUN/V
&hat financial liberation does is ZfreeZ the abuse and ZmortificationZ, the paralysis of social resources
in favour of young people by generating employment and income redistribution away from decrepit
and disease$infested geriatric ZpensionersZ or ZrentiersZ### to the young#
8hat is why ( ended a recent post with ZLe mort ne saisit pas le vifZ# 'ecause 8);8 is the real
ZmeaningZ of a ZbondZJ it is an Zobligation, a promise, a bond to repay the holder with future resources
for the loan of present resourcesZVV ;nd it is clear that we have come to a Zcrisis pointZ where this
ZpretenceZ of Zinterest$bearing or fructiferous capitalZ is being e,posed ruthlessly and pitilessly for
what it isJ $ the ZmortgagingZ of our future by the holders of capital, the owners of our resources who
do not now what to do with these resources e,cept to force mostly the young and the disinherited $ at
gunpointV $ to slave and spit blood to repay fictitious ZdebtsZ that financial institutions incurred in their
haste to mae Zfictitious profitsZV
2eportjoseph belbruno ] May !1 -J!1am ] +ermalin
Y 2DD $ 'rilliant riposteV *ou have read my mind### ( was actually thining about what to mae of
Aohn )icsV &hy would such a brilliant mind ju,tapose ZMr# Eeynes and the ClassicsZL 'ut then,
many great minds 3mainly in Cambridge, from Aoan 2obinson to Nicholas Ealdor to Lord Eahn $ even
+iero .raffaO but also in the U., from )ansen to .amuelson to MinsyV5 almost venerated Eeynes
despite the fact that ZintellectuallyZ they were at least his e6uals# ( guess they confused ZeconomicsZ
with what ( call ZsociologyZ# /unnar Myrdal wrote a wonderful boo on Z8he +olitical @lement in
@conomic 8heoryZ that goes a long way toward e,plaining this Zcon$fusionZ of disciplines# (t is easy to
Zcon$fuseZ them because their boundaries are virtually non$e,istentJ as you may recall, my saying is
Zeconomics is a concentrate of politicsZ 3the converse of what Lenin ^of all peopleV_ wrote5#
2ecently, even Nobel +riCes have been going to ZsociologistsZ $ to members of the ZNew (nstitutional
@conomicsZ from Douglass North to Aohn &illiamson to 2obert Coase $ and soon, why not, even to
)arold DemsetCV
'ut again, you are most perceptively rightJ what ( cannot forgive Eeynes is the fact that ZpoliticallyZ he
did a lot of good, but ZstrategicallyZ 3that is, intellectually and theoretically5 he did a lot of harm by
ZnarrowingZ our focus from Zthe long termZ 3the origins and dynamics of capitalism5 to the Zshort
termZ#### ZpolicyZV &orse still, he covered up the whole thing with ZaphorismsZ, good for afternoon tea
at the .avoy but no match for the rigour of an ;lec +igou 3who was Zburied aliveZ in Cambridge5#
(ncidentally, one ZaddendumZJ perhaps the greatest ZdiscoveryZ to come out of the /reat Depression
was (rving ?isher[s notion of Zdebt deflationZ, which Minsy wrongly attributes largely to Eeynes#
Now, it is true that Eeynes[s approach to capitalist finance largely ZimpliesZ the concept of Zdebt
deflationZ $ but he never articulated it, whereas ?isher did# Minsy[s own merit was to combine
Eeynes[s and Michal Ealeci[s notion of Zaggregate demandZ 32oosevelt[s Zwe have nothing to fear but
fear itselfZ5 with ?isher[s Zcontract asset$price implosionZ $ which leads to Z+onCi financeZ, where we
are now# 'on fin$semaineV
2eportjoseph belbruno ] May !1 !J3<am ]
Y aufsteiger $ /ood one# (f we wished for the definition of an Zintellectual nullityZ, Niall ?erguson
would not be a bad place to startV
Y ;E $ .imple, sigillum veri 3simplicity is the seal of truth5# ?or a long time humanity laboured under
this Zdouble lieZ, as NietCsche called itJ $ first, because the truth is not simpleO and second because what
is simple is not the truthV 3Ine third of my [NietCschebuch[ is dedicated to his ZattacZ to the
conventional notion of ZtruthZ#5
.o, what maes a great economistL 8here are three broad areas of Ze,cellenceZ in what we may broadly
agree is the ZstudyZ of the production of human needsJ the philosophical, the sociological 3it includes
finance, politics and business history5 and the ZtechnicalZ 3all forms of mathematical ZapplicationsZ to
economic concepts $ eg Zmarginal utilityZ, general e6uilibrium, game theory, ris assessment,
econometrics5#
*ou can see that Eeynes was a giant in the ZsociologicalZ sphere# )e contributed little or nothing to the
other two# 8he sphere that ( hold in least regard is the ZtechnicalZ one 3( am speaing of .amuelson,
&alras, Modigliani, Nash5 $ because really these people belong in mathematics rather than economics#
My wor on ZErisisZ 3of which the [NietCschebuch[ is only a chapterV5 will cover the precise ZpracticalZ
or ZstrategicZ role that logico$mathematics plays in so$called Zeconomic scienceZ $ what serves Zto dis$
guiseZ ideologically this area of social reality as a ZscienceZV 8o understand this, we have to invoe the
services of NietCsche and &ittgenstein#
If course, people lie .mith, 2icardo, Mar,, and )aye and .chumpeter were giants in the first two
ZareasZ $ which is what maes them far and away superior to Eeynes# 8he greatest economists were,
without the shadow of a doubt, 2icardo and Mar,# +eople lie /ossen and Aevons were moving already
toward the ZtechnicalZ pole#
&e mentioned the New Deal, which led Eeynes to the ZsociologicalZ discovery of the institutional role
of Zthe collective capitalistZ 3the .tate5 in the capitalist economy 3aggregate demand5# 'efore that,
Eeynes[s wor in the Zmonetary treatiseZ is remarable for the conclusion that an Zunderemployment
e6uilibriumZ is possible, contrary to .ay[s Law $ which leads straight into the falling Zmarginal
efficiency of capitalZ 3a silly notion in Eeynes[s hands5, Zli6uidity preferenceZ and ZtrapZ, and $ most
important of all $ the downward rigidity of monetary wages# 8his led Eeynes to a reassessment of the
entire conception of Zthe interest rateZ 3ZnaturalZ, from &icsell, to ZnominalZ5 and its role in the
capitalist investment decision 3Zthe tail wags the dogZV5# ( will return to Zfinancial repressionZ ne,t $ too
important a ZthemeZ to be left alone# Cheers to all#
Y aufsteiger $ *ou are absolutely right# ( commented on this very fact recently $ that Eeynes owed the
ZinsightsZ in the [/eneral 8heory[ to the Zpolitical geniusZ of ?D 2oosevelt and the New Deal 3in fact (
wrote a whole thesis on this !B years ago5# )ere is a 6uote from +aul .amuelson to summarise 3and
further to evince5 my point $ made in reply to Zma,imusZ about two months agoJ
Z(n fact, the 6uote is from .amuelsonJ Z&hile Eeynes did much for the /reat Depression, it is no less
true that the /reat Depression did much for Eeynes# (t provided challenge, drama, e,perimental
confirmation# )e entered it the sort of man who might be e,pected to embrace the /eneral 8heory if it
were e,plained to him# ?rom the previous record, one cannot say more# 'efore it was over, he had
emerged with the priCe in hand, the system of thought for which he will be remembered#9 3!# +#;#
.amuelson, 8he /eneral 8heory, in 2# Leachman, Eeynes[ /eneral 8heory, op# cit#, p# 3!<Z
&hat .amuelson is arguing 3most tactfully5 is that without the New Deal, Eeynes[s Zgeneral theoryZ
would have remained a pious ZvelleityZ $ precisely because it was not and has never been a ZtheoryZV ;
set of propositions that ends with Zanimal spiritsZ and ZuncertaintyZ and with Zmoney is a bridge
between present and futureZ and 3apocalyptic this one5 Zthe interest rate holds itself up by its own
bootstrapsZ $ and it only gets worse after thatV $ such a set of Zgenial and creative aphorismsZ can never
amount to a ZtheoryZ for the simple reason that it does not even begin 3V5 to tacle the historical,
political and economic 3let alone philosophical5 foundations of capitalist society#
'y contrast, whilst we are diametrically opposed to the intellectual underpinnings of the ;ustrian
.chool 3that are found both in Eant ^with vonMises_ but above all in the Znegatives DenenZ starting
with .chopenhauer[s Zcriti6ueZ of Eant5, there can be no doubt that ZanyZ of its members 3from Menger
to &ieser, 'ohm$'awer and .chumpeter5 far surpassed Eeynes in cultural ZpreparationZ, in
intellectual ZdepthZ as well as in the ZsweepZ of their analyses of capitalist society#
8here is no denying the Zfinancial and political perspicacityZ of Eeynes# 'ut he laced the preparation,
the culture, the intellect and, most of all, the Zmental disciplineZ re6uired of someone who sets out to
understand the e,tremely comple, ZoriginsZ 3Ursprung,)erunft und @ntstehung5 of capitalist social
relations of production# 8o give but one e,ample, Eeynes was all but ZinnocentZ of the writings of Earl
Mar,# .chumpeter, on the other hand, wrote a voluminous Z)istory of @conomic ;nalysisZ that
remains one of the greatest compendia of intellectual reflection in human historyV Despite sharing in
the philosophical origins of neoclassical theory, )aye wrote the most penetrating and destructive
Zcriti6uesZ of &alrasian general e6uilibrium that e,ist to this dayV
'y comparison, Eeynes[s musings and levities in his Z@ssays in 'iographyZ are the stuff of leisurely
readings while punting on the CamV 8he Z/eneral 8heoryZ is a concoction of loose, incoherent ideas
hurriedly stitched together for the sae of impressing one[s friendsV Ine gets the suspicion that the
main reason why Eeynes[s ideas ZsucceededZ so effortlessly is#### precisely the fact that they re6uire so
little mental ZeffortZ from the people who espouse themV Eeynes simply spared them the effort of truly
coming to grips with the profoundest reality of capitalist society $ a reality as ZdifficultZ to comprehend
as it is e,ploitative, which e,plains its ZideologicalZ and politico$economic longevity### /russ gutV
2eportjoseph belbruno ] May !" 11J"!am ] +ermalin
Davies has really opened up the proverbial +andora[s 'o,# 8here are so many ZthemesZ that cry out for
discussion here that 3( confess5 ( really do not now where to beginV 'ut ( will try to be ZlapidaryZ $
that means Zlaconically terseZ and Zmournfully elegiacZ, as with an epitaph on the ZgraveZ of
capitalism#
If course, ( disagree with Davies $ and with 'ill /ross# ;s ( have said Ztoo oftenZ, finance capital $ call
them ZbondholdersZ or, with the ?rench, Zle mur d[argentZ 3the wall of money5 that engages in Zcapital
stries and flightsZ whenever it disapproves of government policies $ this time Z?inanCapitalZ has very
few ZrefugesZ left where it can see Zsafe harbourZ# $ Least of all the Chinese ZprincelingZ dictators,
really, because China is one of the Zleast safeZ places on earth where to hold your capital right now and
for the receding future#
'ecause of growing social antagonism, of which government deficits is only a ZsymptomZ and an
Zescape routeZ, capitalist .tates have no choice but to engage in Zfinancial repressionZ for two
ZcircuitousZ reasonsJ $ first, public debt and deficits are needed Zto eep the patient 3the capitalist
economy5 aliveZ, and second, higher public debt can be paid ZonlyZ by siphoning off social resources
from capitalists $ and all this results inevitably in Ztransfer paymentsZ to the rst of society 3that means
ZusZ5 which means that capital loses more ZpowerZ 3political and financial5 and so forthV
Z8he /reat ModerationZ was made possible by the opening of ZChina (nc#Z $ but this one, lie Aapan
(nc#, will soon go Zto the wallZ 3see the ?8 Le, Column today ZlamentingZ the immovable tendency of
Aapanese capital### Zto sit on its handsZ# .tagnation is the future of capital# (n the meantime, though,
&estern capital has fed the biggest monster since the .oviet Union in the Chinese dictatorship $ and
now, in order Zto slay the DragonZ, &estern nation$states are having to feed it with a lot of Zgreen
paperZ to which some heroic Z.igfriedZ will light fire until the monster choes on the inflationary puff
of smoeV 38his is happening as we spea $ even as ( gobble a delightful Maltese pastiCCi#5
;gain $ there is no need for Zcapital controlsZ to discipline Zbond vigilantesZ because they have
nowhere left to run, as .amuel 'rittan reminded us in his last Column, and +aul Erugman eeps
shouting from his Ilympus#### ;nd last### Ih, the central bansV &ell, they have Zmandates enshrined in
statutesZ, but these can be ZcircumventedZ with a little Z2ooseveltian 2esolveZ 3just as our friend 'en
$ see his various advices to the 'oA5 $ and in any case there is a growing consensus that Zprice stabilityZ
means ;L.I Zavoiding debt$deflationZ or even Zprice deflationZ 3just chec 'ernane and Mishin
and even &oodford[s wors of the last few years $ not to mention our own beloved +osen at the 'o@V5#
In the Zpolitical economyZ of capital movements, here are two lins that elucidate what is Zat staeZ in
all this, and the Zcat$and$mouseZ games entailed thereinJ $ Maurice Ibstfeld,
httpJKKdocs#google###/ef-+116C=FD-Tn"Fw
;nd here is a paper from one of my erstwhile teachers at Cambridge, Aohn 3now Lord5 @atwell, which (
will discuss ne,t in connection with Zcapital movementZ or so$called Zfinancial globalisationZJ
httpJKKdocs#google###IieT-(6!:rhE81'g+w
2eportlduende ] May !" 1"J--am ] +ermalin
] Iptions
Z2entier 2esolutionZ is a more precise term#
2eportjoseph belbruno ] May !" !J!"am ] +ermalin
] Iptions
)urrah for /avyn DaviesVV Aust as ( was going to write a piece on Z8he )oriCon of @conomicsZ,
complaining about the Zshort$termismZ of economists, that is to say, the e,cessive and obsessive focus
on what the Dow will do tonight or what 'ernane will eat at dinnerV )aye complained 3in [8he +ure
8heory of Capital[, about page -""5 that it was all very well for ZMr# EeynesZ to throw out one$liners
about Zin the long run we[re all deadZ, but what this did for economic ZscienceZ was e,tremely harmful
$ because it turns ZeconomistsZ into####businessmenVV
&hich is 6uite right $ so it was timely also for Davies to discuss Zfundamentals and speculationZ,
because now there is much too little ZspeculationZ on the ZfundamentalsZ of Zeconomic scienceZ and
too much Zfundamental interestZ in####Zspeculative activitiesZVV 3/ive me a priCe for that oneV5
( will try to write something on Zfinancial repressionZ# 8hose who wish for a little ZbacgroundZ should
read the Carmen 2einhart paper 3with 'elen .brancia5 on Z8he Li6uidation of /overnment DebtZ that
/illian 8ett lins in her article and ( lined and discussed in a Davies 'log only last wee# )ere is the
linJ httpJKKwww#imf#org###Kres!KpdfKcrbs#pdf
'ac to my [NietCschebuch[V (t will be titled ZUmwertungJ NietCsche[s 8ransvaluation of ;ll HaluesZ
and it will be ZbasedZ on NietCsche[s Zeconomic theoryZ# *es, you read right# Ine of the most neglected
topics in philosophy and economicsJ $ NietCsche[s entire Zgenealogy of moralsZ was founded on
ZbarterZ### and nobody noticedV ( will mae Ze$copiesZ available to our ?8 friends# Cheers and good
wee$end to all#
XXXXXXXXXXX8he horrid sight of this incomprehensible piece of pseudo$science is almost too hard to bear# Not
because it distresses me, but because it throws me into uncontrollable fits of laughter every time ( even attempt a
furtive glance in its directionVV
(n all honesty, despite my deep aversion at anything ZbourgeoisZ, my relative geographical distance from @urope
and North ;merica has spared me the anguish of that almost cosmic insouciance that characterises the &estern
upper class and its idiotic saraband of academic acolytes# 'ut if ( wished to be reminded of the ind of cataclysmic
stupidity that now reigns in academic institutions all over the world $ a stupidity that is utterly impotent and
discomfited in the face of the truly Zglobal magnitude of the dangerZ 3and this is a phrase, believe it or no, that
comes from Aacson 'rown, a singer and not such a great lyricist after all $ it[s from Z'efore the DelugeZ in ZLate
for the .yZ5 $ it gives you a sense of the trouble in which we truly are#
( would dearly lie to comment, but the ?8 has found the best answer to readers[ commentaryJ the 6ui,otic
metaphors of 'aron MunchhausenV ; mi,ture of blood and moneyV /ive up all hope, ye who enter hereV 8his is
the bourgeois hell $ from it there is no escapeV No amount of reasoning or logic or nowledge will save youV
8his ind of lunacy is perhaps the future of capitalist societyJ $ not the Z'ig 'rotherZ totalitarian truculence of the
Irwellian aotopiaO not the anodyne anaesthetic delirious dystopia of ;ldous )u,ley####noV &hat we get in the
end is the insane asylum of ZIne ?lew over the Cucoo[s NestZ####a neuroscientific nightmareV
XXXXXXXXXXXXX( am running out of words to describe the sheer gutlessness, the unspeaable cowardice and
conceit of this manJ Christopher Caldwell#
8he blood boils, one[s stomach turns, every cell bursts out with rage at the 3can ( still find the wordsL5 the sheer
truculent brutality of this infamous e,emplar of humanityV
Civility restrains me, but my conscience curdles at the distastefulness of your foul perversion of any simulacrum of
grace that even the lowest forms of life must share in creation#
'ehold this worm, this filthy bastardV 'ehold him as he completely distorts Zthe idea that [terrorism can be
eradicated by educating children[Z $ which is as true as the truth that mil is essential to the sustenance of babies $
as he twists this most basi, and fundamentally humane thought into this, into an ZimpostureZ, into a Zbrave,
nonconformist and optimistic idea that, at heart, ^is_ platitudinous and naiveZVVV
Christopher CaldwellJ you are indeed fortunate that you do not, at this moment, stand in front of my frail little
body#### because otherwise ( could not vouchsafe for your physical safetyV
joseph belbruno ] ;pril 10 -J1=pm ] +ermalin
++.J LooV ( am utterly ecstatic at the averment of all my propheciesVV +lease bear with me an instant more# Aust read
and reflect on the profound imbecillity of even the finest ZanalystsZ $ the sheer, cosmical, unutterable Z+owerlessnessZ
3NietCschean ZIhnmachtZ5 of none other than Mohammed @l$@rian in the ?8 todayVV Listen allV Listen allVV
Z8he U. also riss eroding its standing at the core of the global monetary system#
8he world loos to ;merica for a range of 7global public goods9 N including the reserve currency, the deepest and
most li6uid government debt marets, and the 7ris free9 standard# &ith no other country able and willing to step into
this role, the result would be global efficiency losses and a higher ris of economic and financial fragmentation#
.>+%s warning should be heard loud and clear in &ashington DC, hopefully acting as a catalyst for faster convergence
on a credible medium$term fiscal pacage# (t is also a reminder of ris to the global economy, as well as the generaliCed
deterioration in the sovereign credit 6uality of several advanced economies#Z
(N I8)@2 &I2D.VV &hat @l$@rian is saying is that Z8)@ &;2N(N/Z from .>+ to the United .tates is in fact Z;
+L@; ?I2 )@L+ZVV ; plea to help ensure that the ;dministration 3pleaseV pleaseV5 DI .IM@8)(N/ to rescue Zthe
global economyZ 3read, Zthe capitalist world maretZ5 from complete, total, annihilation and destruction and implosion $
call it what you willVV .o the people who need help are not the U. ;dministration or the U. economy, but rather that
system of ZabuseZ named Zthe public goodZ of the U. providing a Zworld currencyZ for the capitalist world maret and
for the entire capitalist economyVV
8hat[s all, folsVV
1# 2eportjoseph belbruno ] ;pril 10 -J"!pm ] +ermalin
Y aufsteiger $ &aling and shopping in Eobe this afternoon 3and what a ravishingly modern city is thisV enough to test
the lies of Lugano and /eneva, let me assure youV5, ( thought of a ?rench e6uivalent for '2(Cs, and ( found itV (t reads
Z'alords, 2a6uins, (ndigents et Co6uinsZV 3( hope you lie the joe#5
;s you can well see from my lins below, at long last most ZanalystsZ are catching up with ZrealityZ or, as AE /albraith
used to call it, Zthe march of eventsZ and stating openly that not just Z'2(CsZ but also the Z/!"Z are absolutely
meaningless e,pressions $ regardless of how many ZsummitsZ and Zcommuni6uesZ they may schedule and reachV
8he entire bagarre would be worthy of a hearty laugh, were it not for the timely intervention of .tandard and +oor with
their Znegative outlooZ on U. debt# Now, if you have a creditor threatening to shoot a debtor on whose prolonged
e,istence his very survival depends 3V5, then you realise the meaning of Zmoral haCardZ and Zcredible threatZ all at onceV
3( am rolling in laughter at this point#5 (magine a weather forecaster whose very survival depended on forecasting rain
who actually turns around and affirms his undying faith in sunshineV
Let me e,plainJ .tandard and +oor[s are doing what they are paid to doJ Zrating sovereign debt and risZ# 'ut what we
see happen under our very noses 3the metaphor 'ill /ross used5 is that the entire Zfoundations and meaningZ of things
lie Zsovereign debt and risZ, ZinflationZ, Zasset$price bubblesZ $ all of these benighted Zconcepts from a moribund era
of Zeconomic$financial analysisZ are being overturnedVV *et people insist on seeing these ZrealitiesZ with the
ZinstrumentsZ of a bygone era, of a different worldV
Aust read carefully this short e,cerpt from the ?8[s current headline on .>+[s downgradeJ
78his certainly is a message to &ashington,9 said David ;der, strategist at C28 Capital# 78he message is clear even
though, we note, there%s are not a lot of higher rated sovereigns to invest your money#9
Do you get itL 3( as once more5 Do you get thisL#### Z@ven though there is not a lot higher rated sovereigns to invest
your moneyZVV
(ndeed, there is even less sovereign debt that has got a .8;8@ with the military and political power of the United .tates
of ;mericaVV 8)(. is why ZphilosophyZ is so important in this gameV 'ecause ZeconomicsZ involves a lot of
ZphilosophyZ, even before it involves a lot of ZpoliticsZV ;nd those who refuse to face this ZrealityZ will never be able to
understand, let alone Zcom$prehendZ what is happening all around themV )ere is the lin to that ?8 headline story#
Cheers#
httpJKKwww#ft#comK###htmlRa,CC1A.Cb:*D'
+.J 8his downgrade, incidentally $ and ( will try to draw out the implications by and by $, vindicates everything ( have
been preaching for a whileJ this is the Zcome$uppanceZ that the mercantilist capitalist countries deserveJ this will blow
from eye to eye the fact that the capitalist world maret needs Za state of last resortZ, even before it has a reserve
currency and a Zlender of first resortZ in the ?edV Ciao#
joseph belbruno ] ;pril !1 3J-Bam ] +ermalin ++.J ( am really sorry to do this, but ( beat +aul Erugman to itV
3Aoing, of course#5 )ere is his latest 'log that ( just discovered 3was flying intercontinentally5 and that basically
repeats my argument word for word $ with one important differenceJ $ the ZanalysisZV 3( doubt that Erugman would
ever wish to borrow from my bag of trics###5 )ere is the linJ read it, please $ it[s important#
httpJKKrugman#blo###s$were$hooligansK
joseph belbruno ] ;pril 0 <J33am ] +ermalin /ood, balanced analysis $ provisos and distinguos are in order because
3duhV it[s Eeynes again, just as ( was about to discuss himV5 Zit is better to be broadly right than be e,actly wrongZ 3or
words to that effect5# Iverall, ( agree with +rester Aohn below#
8he point ( was going to mae about Eeynes arises out of his Z@ssays in 'iographyZ $ the one on (saac Newton $ on
how Newton spent most of his productive life as a researcher tampering with ZalchemyZ and blac magic, then locing
these demonic indiscretions in a bo, that he left behind at 8rinity College, Cambridge, before donning the vest of
ZscientistZ and be anointed one by the 2oyal .ociety# ?ew people would now that he headed the the 2oyal Mint, tooV
&hat was an ZalchemistZ doing at the 2oyal MintL
.o ( wonder how much of an ZalchemistZ or ZmagicianZ Eeynes thought he himself wasV 2emember all those writings
starting with Z8he @conomic Conse6uences of###Z $ Zthe +eaceZ, ZLLoyd /eorgeZ, Z&inston ChurchillZ $ and so on#
Maybe $ just maybe $ Zeconomic conse6uencesZ stood for Zwe do not understand how the economy worsZ# ;nd so we
ought to infer that Zeconomic### categoriesZ also are subject to review $ because the Zconse6uencesZ are not ZunivocalZ
with the ZactionsZ that pro$duce them or pro$voe them# (ndeed, especially where monetary policy is concerned, there
may be Ztoo few instruments for too many targetsZV
Did someone mention ZinflationZL ZNatural rate of unemploymentZL &hy, ( wonder, does the former seem to emerge
sooner and sooner and the latter rise and rise#### ;nd what on earth is this thing central baners call Zmonetary
transmissionZL 8hin about itV
] lar% and $un$etmoment + 0orry to %eep par$in# your contribution$ + which are $urely the mo$t
VtrenchantV $o far. -ctually/ whil$t it i$ correct to $ay that Vmacroeconomic cate#orie$V do not ta%e into
account VpoliticalV realitie$/ thi$ i$ not to $ay that they are Vinternally con$i$tentV and only Vpolitical
interferenceV cau$e$ them to be VinapplicableV to capitali$t reality.
Tho$e Vpolitical realitie$V are the ,ery V$ t u f fV or V$ubject+matterV of Vmacroeconomic cate#orie$V/ but
the$e Vab$tractV from tho$e Vpolitical realitie$V + co,er them with an Vob$cure ,eilV of contra+diction$ that
are ea$ily Vunma$%edV but that $er,e to turn Vmacroeconomic$V into a V$trate#icV >or Videolo#icalV/ if you
prefer? VtoolV of the bour#eoi$ie/ of capital.
:n the in$tant ca$e/ for example/ when Bolf treat$ the V!hine$e economyV + by which he ou#ht to mean
the capitali$tic exploitation of !hine$e wor%er$ by the Politburo dictator$hip + a$ if it were Vplayin#V or
Vnot playin#V by Vthe rule$ of the #ameV/ he i$ a$$umin# >=uite incorrectly? that the V#ameV >the capitali$t
V#lobal tradeV? i$ really a Vco+operati,eV one or that it VcanV be $o. Lut you and : %now that it VcannotVU
-nd it VcannotV for the $imple and preci$e rea$on that at the VcoreV of thi$ V#ameV lie$ the ineluctable
anta#oni$m of wor%er$ and capital epitomi$ed by the Vwa#e relationV + or/ in Vbour#eoi$V
term$/ by the conflictin# intere$t$ of Vfirm$V >capital? and Vhou$ehold$V >wor%er$?.
>Oame theory ta%e$ a different approach in that it pre$ent$ Vthe #ameV a$ one who$e Voutcome$V are
already mathematically VimplicitV in it$ Vaxiom$V + and therefore it$ VconflictV i$ repre$ented only by
different Voutcome$V that are V=uantitati,eV in nature and $cope. Oame theory/ in other word$/ i$ a
Vlan#ua#e #ameV that ha$ Vno meanin# or purpo$e what$oe,erV becau$e it$ VoutcomeV i$ pre$ent
VinexorablyV in it$ Vrule$V + exactly in the $ame manner a$ Ve=uilibriumV in which the Vpurpo$eV of
achie,in# Ve=uilibriumV i$ already Vpre+emptedV and Vexhau$tedV by the fact that the achie,ement of
Ve=uilibriumV from a po$ition of Vdi$+e=uilibriumV.... i$ already VimplicitV in the VdefinitionV of the axiom$ or
$et of e=uation$ to be $ol,edU Thi$ i$ not/ a$ 7aye% belie,ed/ $imply a matter of Vtimele$$ne$$V: it i$
rather/ a$ ;yrdal and Qem$etK and oa$by ha,e pointed out @with partial in$i#ht$A/ that Ve=uilibriumV
doe$ not ha,e any Vmeanin#V or Vpurpo$eV what$oe,erUU :t$ Vpurpo$eV i$ Vextin#ui$hedV the ,ery Vin$tantV
that the axiom$ are Vpo$tulatedV: 2anu$+faced/ it enter$ a$ it exit$ and exit$ a$ it enter$ + and $o Vannul$V
it$elfU?
-nyhow/ enou#h of the$e di$=ui$ition$ for the moment. ;y !ambrid#e don ex+friend/ Tony aw$on ha$
tac%led the$e problem$ + but fall$ $hort/ ala$/ becau$e hi$ approach ha$ the $ame VaimV a$ mine but
u$e$ ,ery different premi$e$. : can a$$ure you mo$t Vcate#oricallyV that/ ala$/ he i$ =uite wron#. !heer$
to all.
jo$eph belbruno \ -pril ) (':)(am \ Permalin%
: am rather heartened by the re$pon$e$ below + nearly e,erybody a#ree$ to what i$ blindin#ly ob,iou$: +
that the finance indu$try >: call it W3inanK%apitalW? i$ runnin# riot and will yet be the ruin of u$ all/ if we fail
to control it. 6f cour$e/ my me$$a#e #oe$ beyond thi$: : treat the V$y$temic ri$%V po$ed by 3inanK%apital
a$ bein# inherent and intrin$ic to capitali$m it$elf >7yman ;in$%y wa$ the mo$t lo,eable economi$t
apo$tle to warn a#ain$t VPonKi financeV and : would ur#e reader$ to $earch for hi$ eminently le#ible
article$ on the matter?.
FP ha$ ob,iou$ly read thi$ paper by Profe$$or ;i$h%in + or/ if he ha$ not/ he may care to read and
a#ree with him.
http://www.%an$a$c...*/pdf/$9*mi$h%.pdf
Barren LuffettW$ =ualitie$ a$ an in,e$tor need no hi#hli#htin#. 7i$ wi$dom can be deli#htfully illuminatin#
+ a$ when he $po%e of Vderi,ati,e$ a$ weapon$ of ma$$ de$tructionV. There i$ no $pace or time here/
e,en if there wa$ the need/ to expound on why hi$ de$cription wa$ brilliantly appo$ite and appropriate.
The fact that Vfor e,ery winner there i$ a lo$erV in deri,ati,e$ >Vcounterpartie$V? i$ neither here nor there.
Qeri,ati,e$ are complex Vcontract$V or V$ecuritie$V that are VpricedV on the income+$tream attached to
a$$et$. :t i$ thi$ VexpectationV of income $tream$ that/ once undermined by di$parate e,ent$/ cau$e$
financial Vpanic$V $imply becau$e the Vinterconnectedne$$V of the obli#ation$ in,ol,ed en$ure that.... to
put it with Lob Qylan in V-ll -lon# the Batch TowerV/ Vno+one of them alon# the line/ %now$ what any of
it i$ worthVU
;y point i$ rather + and : in,ite participant$ to de,ote $ome thou#ht to thi$ + that the PonKi pyramid of
capitali$t finance $i#nal$ the enterin# of a deci$i,e new pha$e in the hi$tory of capitali$m/ one that call$
for the thorou#h Vdemocrati$ationV of our $ocietie$ and of the u$e of our $ocial re$ource$. Fow more
than e,er/ we mu$t beware of people who tell u$ VTru$t u$U Thi$ i$ too difficult for you to under$tand + but
you are in $afe hand$.V Yeah. 4i#ht.
XXXXXXXXXXXX/illian 8ett uses word 7fracture9 in ?8J 70ome -merican$ may di$a#ree. -fter all/
-ndrew !uomo/ #o,ernor of the $tate of Few Yor%/ for example/ mana#ed to cut a bud#et deal thi$
wee%/ which did impo$e $ome au$terity. Fe,erthele$$/ : thin% 4ohatyn ma%e$ an important point: the
level of anger and fracture in American society today is indeed striking. Fe,er mind all the $houtin# you
hear on U0 chat $how$/ what i$ notable i$ the $cale of ,itriol and tribali$m that permeate$ $o much of
the ca$ual/ behind+the+$cene$ political debate. . . . BhyH The ri$in# le,el$ of economic ine=uality may
explain $ome of thi$< $o mi#ht the $tructure of political life or the $hort+term cycle of the media. Lut :
$u$pect there i$ another/ more $ubtle i$$ue at wor%/ too: namely that -merican $ociety ha$ relati,ely few
cultural practice$ or in$titution$ that can $hare pain in a way that i$ percei,ed to be 8fair9. :n a country
built by pioneer$/ where re$ource$ $eemed abundant and #rowth eternal/ no one ha$ worried about how
to di,ide up the pie G after all/ e,eryone a$$umed that pie would $well. Fow/ howe,er/ -merican$ can
$en$e that the #ame ha$ chan#ed< a fi#ht for limited re$ource$ i$ under way. 7ence the an#er and
paraly$i$ that are infectin# politic$ from Bi$con$in to Ba$hin#ton. The #ood new$ i$ that many
-merican$ are appalled by the trend. ;any de$perately want to find $ome rational middle #round. Lut if
4ohatyn i$ ri#ht/ thi$ could be elu$i,e. Particularly if that economic pie continue$ to $ta#nate in an oh+
$o+unfamiliar way. httpJKKwww#ft#comKcmsKsK"K3=e<131c$Bb31$11e"$b!a1$
""1--feab-<a#htmlRa,CC1(=jB&1,t
+lease allow me one final note, because it is very important# *ou will notice how /ross has changed his
tune between his last ZoutingZ 3the one lined by Davies5 httpJKKwww#pimco#comK+agesK8wo$'its$?our$
'its$.i,$'its$a$Dollar#asp, and the latest newsletter# &hen ( commented on him in a previous post, (
described /ross as Za little boy who refuses to play and taes the ball homeZ 3or words to that effect5#
Now, in the latest newsletter, the one lined by ZaufsteigerZ below, he virtually Zgives the game awayZ $
he almost concedes defeat in that he admits that $ yes, Zthis time (. differentZ and there are ways in
which the U. is different from a ZU.; (nc#Z, and that it can Zsuccessfully evadeZ the strictures of Zbond
vigilantesZVVV Lest you should thin that ( am maing this up, let me 6uote in full what he says $ and
you draw your own conclusions#
Z(f so, and if the U.; were a corporation, then it would probably have a negative net worth of 43B$-"
trillion once our 7assets9 were properly accounted for, as pointed out by Mary Meeer and endorsed by
luminaries such as +aul Holcer and Michael 'loomberg in a recent piece titled 7U.; (nc9# )owever
appro,imate and subjective that number is, no lender would lend to such a corporation# 'ecause if that
company had a printing press much lie the U. with an official 7reserve currency9 seal of approval
affi,ed to every dollar bill, that lenderKsaver would have to now that the only way out of the dilemma,
absent very large entitlement cuts, is to default in one 3or a combination5 of four waysJ 15 outright via
contractual abrogation U surely unthinable, !5 surreptitiously via accelerating and une,pectedly higher
inflation U liely but not significant in its impact, 35 deceptively via a declining dollarU currently taing
place right in front of our noses, and -5 stealthily via policy rates and 8reasury yields far below
historical levels U paying savers less on their money and hoping they won%t complain#Z V
httpJKKeurope#pimco#comKLeftNavK?eatured`Maret`CommentaryK(IK!"11K.uned#htm
Z.tealth, deception, surreptitiously, unthinableZ $ can /ross come up with ZgrosserZ epithetsL ;nd
what about that delicious final phrase $ Zand hoping they ^bondholders_ won[t complainZL (s that not the
Zpathetic lamentZ of Zprivate capitalistsZ who can sense that#### the game is overL Cheers#
Y aufsteiger and others $ ( confess ( did not have time to read the 'ill /ross newsletter before my last
post# 'ut what /ross is saying points e,actly in my direction# &here we differ is in ZinterpretingZ this
new ZrealityZ# 'ill /ross is saying that Zthis is all a p p e a r a n c eZ# &hat /avyn Davies 3inchoately,
he does not wish to be drawn on this5 and ( are saying isJ Z)ang on# Maybe the [appearances[ a r e the
[reality[VZ 'ut if that is so, then the entire ZorderZ of publicKprivate, of priceKvalue, of
li6uidityKsolvency### the whole way in which the capitalist ZsystemZ wors is changing# (f that is so,
then we need to focus on what ZworsZ rather than on what we believe the 3old5 ZrealityZ is, and what is
ZappearanceZ# (n ZscientificZ terms 3for those who insist on ZscienceZ5, that is the e6uivalent to Za
change of p a r a d i g mZV
httpJKKeurope#pimco#comKLeftNavK?eatured`Maret`CommentaryK(IK!"11K.uned#htm 7(f ( were
sitting before Congress U at a safe olfactory distance U and giving testimony on our current debt crisis, (
would pithily say something lie thisJ 7( sit before you as a representative of a 41#! trillion money
manager, historically bond oriented, that has been selling 8reasuries because they have little value
within the conte,t of a 4=B trillion total debt burden# 4nless entitlements are sustantially reformed3
5 am confident that this country %ill default on its det6 not in conventional %ays3 ut y pic'in$
the poc'et of savers via a comination of less oservale3 yet historically verifiale policies 7
inflation3 currency devaluation and lo% to ne$ative real interest rates& Iur clients, who represent
unions, cities, U. and global pension funds, foundations, as well as Main .treet citiCens, do not want to
be shortchanged or have their pocets piced# (t is incumbent, therefore, in order to preserve the
integrity of the U. 8reasury maret along with its favourable global interest rates, and to promote a
stable U. economy, that entitlement spending be reduced, and that future liabilities be addressed in
terms of healthcare and .ocial .ecurity cost containment# *ou must attac entitlements and mae Sdebt%
a four$letter word9#
XXXXXXXXXXXXXXXEarl Aaspers 3e,istentialist philosopher5 once said that Za little philosophy taes far
away from reality, but a lot of it brings us much deeper into itZ# Ine is led to ponderJ how far are
ZtechniciansZ who never 6uestion their Zworing toolsZ from the penetrating 3Zgo deeper intoZ5 the
ZrealityZ with which they deal every dayL ?or every category or concept we employ, whether
ZscientificZ or not, there is a level of ZrelevanceZ or ZconcretenessZ beyond which the concept becomes
not just ZirrelevantZ but even absurd# 3;lfred North &hitehead called this Zthe fallacy of misplaced
concretenessZ#5
Ine eminent e,ample of this in ZeconomicsZ is Zthe fallacy of compositionZ, which dates from Mar,
and reaches Eeynes### and was last used by +aul Erugman 3lin below5 only yesterday in the N*8# 8his
fallacy is rather simple to summariseJ each capitalist firm wants its own worers to consume less so
they can be paid lower wages, and the worers of other firms to earn more, so they can spend more# (t
is the problem of Zeffective or aggregate demandZ as described by Eeynes# (f we do not isolate the
Zrelevant levelZ of analysis, we become entangled in insuperable contradictions# Now, when we
consider government deficits and public debt, we use these concepts as if they were ZimmutableZ,
ZeternalZ, without history $ especially after the 2ogoffs published Z8his 8ime (. DifferentZ $ indicating
that, at least where public debt is concerned, nothing ever changes# 'ut loo at what Erugman writesJ
ZNow, li6uidationism isn%t the only argument the /#I#+# report advances to support the claim that
reducing employment actually creates jobs# (t also invoes the confidence fairyO that is, it suggests that
cuts in public spending will stimulate private spending by raising consumer and business confidence,
leading to economic e,pansion#Z httpJKKwww#nytimes#comK!"11K"-K"1KopinionK"1rugman#htmlL
TrM1>refMglobal$home *ou see what ( mean $ and he calls this appropriately Zthe confidence fairyZ#
Loo at his argument carefullyJ he is saying that Zgovernment deficitsZ do not Zdiscourage private
investmentZ# ;nd conversely, Zgovernment austerityZ does not Zencourage private investmentZ# 8he two
things 3imagine that ( am screaming this out loud for added emphasis5 Zare not linedV 8hey are
separate realitiesVZ .top there# Now go bac to /avyn DaviesJ $ his two separate replies to readers
belowJ
7 (t is not the ?ed[s language that matters per se,# but the fact that they are promising to eep short rates
at Cero, and that they can bac this with real action# ;s long as they eep short rates at Cero, ( believe
that there is a limit on how high bond yields are liely to rise, because the yield advantage on bonds
rapidly becomes compelling to investors who are currently starved of yield# Ir, to put it another way,
there is a limit to how steep the yield curve can become# 8hat is probably more important than the
amount of bonds the ?ed actually buys in any given period#
.everal people are arguing that ( am underestimating the impact of F@K?ed action in propping up
marets, and that ( am too complacent about its disappearance# ( plead not guilty to these charges# (
thin ?ed action has 3 componentsJ 15 Cero short ratesO !5 a balance sheet approaching 43trnO 35 new
bond purchases of 40"bn per month# 8his blog is about what happens if they eliminate 35, while
eeping 15 and !5 intact 3which is what ( thin they will probably do in Aune5# ( believe that the
evidence suggests that 35 is the least important component of ?ed action# +rovided 15 and !5 remain in
place, ( thin the bond maret can get through Aune intact# (f not, then not#Z
;nd now as yourself the oldest philosophical 6uestionJ how much can you darn a soc#### before it
becomes#### a Zdifferent socZL 8hat is, when does Z6uantityZ turn into Z6ualityZL 'ecause this is what
is happening with Zthe stocZ of public debt, and Zthe flowZ of debt issuance# 8he ZfunctionZ of the
.tate is changing# 8he .tate no longer acts Zas a function ofZ so$called Zprivate sectorsZ# (t is the other
way aroundV ;nd that means that even the ZmeaningZ of Zpublic debtZ has changed $ because Zpublic
debtZ is all there isV 8he ZappearanceZ has become Zthe realityZ $ all of it, or nearlyV (f you are a
ZtechnicianZ, you will delude yourself that Zthis time is NI8 differentZ, you will try to measure every
ripple on the ocean[s surface $ econometrically or otherwise#### 'ut then you will miss the massive
undercurrents sweeping beneath the surfaceVVV 8sunamis have tragically become fashionable of late# (
am told that Zthe impulseZ that propagates the tidal wave from the epicentre of an underwater
earth6uae to our inhabited coastlines is not ZfeltZ even minimally by boats on the open sea# 'ut once
the tidal wave reaches the vicinity of land, it starts Zto rippleZ as the water nearest land gets ZpushedZ
by the ZimpulseZ moving toward the fated land $ and the wave surges to frightening heights#### *ou
now what happens ne,t# &hat do ( meanL ( mean that if we have reached this ZpassZ where
government debt is so high $ it may well be for a reason# (f ZEeynesianismZ is in crisis $ that does not
mean that we will return to Zpre$EeynesianZ capitalist conditionsV )istory may very well ZrhymeZ
3Mar 8wain5 $ but it does not repeat itself 3whatever NietCsche might say on Zthe @ternal 2eturnZ $
incidentally, his assault on ZscientificityZ offers perhaps the greatest insights ever in &estern thought $
challenging even the majestic peas reached by Mar, or Eant, or even +lato and ;ristotleV5# &e may
well be in Zuncharted watersZ# 8he entire ZnatureZ of the capitalist economy is changing# 8he political
ZstalematesZ we are witnessing point to a ZcrisisZ 3remember .chumpeter $ Zcrises are intrinsic to
capitalismZ $ no ZcontinuityZ thereV5 that we need to understand and hopefully ZresolveZ $ even with
'ernane[s Z2ooseveltian 2esolveZ# 3(f you need further elucidation, you may well re$read the
'ernane pieces on Aapan ( lined earlier# Ir even read Minsy ZcriticallyZ# Later, ( will discuss an
e,ceptionally ZvisionaryZ article by Mishin#5 ;bove all, we need a new political institutional and
economic framewor# &e need new ZtoolsZ, new concepts to achieve that# /ood wee end#
Y ma,imus U *ou 3and others5 may be interested in this insightful paper by @ric Nasica on some
divergences between Eeynes and .chumpeter on 7money9, particularly pages 11 and 1!#
(ncidentally 3it[s a long story, but5 ( don[t thin the problem really lies in U. deficits and ZdebasementZ
of the currency# 8he problem is that if you have a ZCompetitive .tandardZ, then we all end up living
lie the Chinese in ?ujian +rovince 3no misunderstanding, ( love the people $ closest to 8aiwan5# (f
instead we have a ZLabor .tandardZ, then we preserve living standards# 'ernane is on a ZLabor
.tandardZV More pithily than that, ( cannot put it# Ciao# httpJKKdocs#google#comKviewerL
aMv>6McacheJHGds/$B$DngAJhal#archives$
ouvertes#frKdocsK""K-1K0BK<3K+D?K.C)UM+@8@2TvsTE@*N@.T!""!#pdf`Maret`and`(nstitutions
`in`@conomic`DevelopmentJ
`@ssaysin`)onor`of`+aulo`.ylos`Labini>hlMen>glMau>pidMbl>srcidM;D/@@.jFLAL0(I/l63N
v1jg2"-@*gj,!w@!&0NvC:fi)CeidT1-H<f*)h1"rUCIhG61<1tB@!d0ssHou!E6i:wouTIsG;
&!)&vpChu2Niu8t8Gel/wscCmw*o(LUrAsE!@B*+A>sigM;)(@tbF"n&!AFcs@n!g,LM@
&cMF*"F!g
Y ma,imus $ CrieyV ( had better watch what ( writeV *our demurral over Eeynes is $ if you allow me
the comment $ genially and germanely apposite and fulminous to boot# &ell done# .o ( must descend to
a further level of ZminutiaeZ# *es, it is true that Eeynes, between the Hersailles Conference and 1<!<
had already sharply challenged .ay[s LawJ there can be Ze6uilibriumZ together with
ZunderemploymentZ $ and the /old .tandard is the Zauri sacra famesZ 3the greed for gold5 that stands in
the way of a better future# 'ut what Eeynes did not say yet, nor conceive, was the e s s e n t i a l role
of the .tate in the recovery of the capitalist economyVV 8);8V 8hat is the crucial element that will
mar the transition from the Z8reatise on MoneyZ to the Z/eneral 8heoryZ $ a veritable Zroad to
DamascusZ 3in the words of +aul .amuelson5 when Eeynes had earlier been a Zvo, clamans in desertoZ
3voice calling in the desert5# &hat finally pushed Eeynes[s train of thought and prompted him to tae
the leap was the 2oosevelt 2evolution $ the role, the necessity of the .tate in ensuring the stability of
Zmoney as a bridge between the present and the futureZVVVV Ine (talian reviewer of Eeynes 3;ntonio
Negri, in a collection called ZIperai e .tatoZ5 put it very astringentlyJ Z(f someone had shown Eeynes a
copy of [8he /eneral 8heory[, he would have embraced it gratefullyVZ (n other words, the e,plosive
was there, but the spar### the spar was the New Deal# Ince again, well doneV Ciao#
(n fact, the 6uote is from .amuelsonJ Z&hile Eeynes did much for the /reat Depression, it is no less
true that the /reat Depression did much for Eeynes# (t provided challenge, drama, e,perimental
confirmation# )e entered it the sort of man who might be e,pected to embrace the /eneral 8heory if it
were e,plained to him# ?rom the previous record, one cannot say more# 'efore it was over, he had
emerged with the priCe in hand, the system of thought for which he will be remembered#9 3!# +#;#
.amuelson, 8he /eneral 8heory, in 2# Leachman, Eeynes[ /eneral 8heory, op# cit#, p# 3!<
XXXXXXXXXXXXXXY Danny 'arrs $ ( am writing virtually a boo on NietCsche[s criti6ue of
ZscientificityZ $ but it was intended to be only a chapter of this ZErisisZ monograph on which ( am
woring# ( have made some remars on these matters at /avyn Davies 'log $ the last two on
Z/oodhart[s LawZ# NietCsche[s Z8wilight of the (dolsZ 3/oetCen$Dammerung5 and Z/aya .cienCaZ
3?roeliche &issenschaft5 are the best things ever written on the ZcharacterZ of science 3that is an
obli6ue reference to .chopenhauer[s version of Eantian Zintelligible freedomZ or Z+ractical 2easonZ5#
.omebody mentioned Zgame theoryZ# 8o ZdecodeZ game theory and the lunatic ZtransferenceZ to
economic matters, one has to understand &ittgenstein[s Zlanguage gamesZ# ;nd to understand those,
one has to have read NietCsche on Z.prache$MetaphysiZ 3metaphysics of language5# @,citing stuff, let
me assure you# (f ( have the time, ( will post another comment in the latest /avyn Davies 'log on the
Zstoc$flowZ distinction and its 3far$reaching5 implications for our understanding of the current ZphaseZ
of capitalism# (ncidentally, graemeTb refers to .chumpeter and the ZcontinuityZ of capitalism 3( also
saw a veiled reference to ZAuglar cyclesZ $ handy for engineersV $ which he discussed in Z'usiness
CyclesZ5# 'ut the greatness of .chumpeter[s theoretical wor rests precisely on thisJ $ that in
distinguishing between Z.tatiZ and ZDynamiZ economic analysis, he was first to tae up Mar,[s
notion of Zdis$continuityZ of capitalism $ of the reality that ZcrisesZ are inherent to it $ though he
disagreed with Mar, on their causes# 8he unpublished Z.eventh ChapterZ of Z8he 8heory of @conomic
DevelopmentZ 3which really ought to be translated as Z8rans$crescenceZ5 was suppressed by
.chumpeter $ because he feared it would compromise his appointment at )arvard on account of its####
guessV#### ZNietCscheanZ characterVVV 3( am giggling diabolically#5 /ood wee end#
XXXXXXXXXXXXX.o let me mae another point# Many imagine that theory precedes practice# Eeynes and
Z'ancorZ are in 6uestion here# Many there still are who believe that Eeynes Zpre$meditatedZ the
historical trans$formation of capitalist institutions that has come to be nown as Zthe New DealZ 3after
?D2[s speech at (nauguration5# (n fact, however, in 1<33 Eeynes was still stuc with his Z8reatise on
MoneyZ# (t was not until 2oosevelt had completed his ZrevolutionZ of Zthe hundred daysZ that Eeynes
thought better to reassess his ideas and draught what became Z8he /eneral 8heoryZ# 8his is to remind
us that political reality $ for that is what ZeconomicsZ must boil down to $ comes before economic
theory $ however much Eeynes might have believed that all policies could be traced to some long$dead
ZscribblerZ# 8he problem with the .tiglitC plan is not so much that it does not identify the causes of Zthe
current instabilityZ, though it certainly taes into account its ZeffectsZ# 2ather, the problem is that
implicit in the whole plan is that a solution may be found in upgrading the current Zpayment
mechanismsZ# (n other words, the .tiglitC plan presumes that a degree of Zco$operationZ e,ists between
countries about Zsharing the burden of adjustmentZ of current imbalances $ that is nowhere to be seen#
8he plan presumes to bring about what is a pre$condition for its e,istence and successV Now, .D2s
may well serve as Zunits of accountZ and as Zmeans of paymentZ# 'ut they will never be Za store of
valueZ for the very simple reason that no nation$state will stand behind themV 32emember that every
bannote and coin has somebody[s head and bust stamped on it#5 ?or that to happen, one must first
advocate and create a global institution that is able to enforce agreements between states#
Unfortunately, that is not liely to happen unless### Unless we have a new ZinternationalistZ world order
that is co$operative instead of destructive or antagonistic or ZcompetitiveZ# &e need Zthe political willZ
for that $ something ain to what happened with @uropean Monetary Union# (f that could be conjured
up, then we would have### a new deal# 'ut something tells me that for that to happen, capitalism has to
undergo a fresh Ztrans$formationZ#
XXXXXXXXXXXXXX(n a sensible world, ideologues of this colour would be dubbed Zstar raving madZ
and consigned to a humane asylum# 'ut the world being what it is, .tar runs the @C' and we can only
comment $ for the moment# Lie someone who has been handed a gun, .tar feels that it is his duty to
use it $ Zshoot on sightVZ )e thins he is still running the 'undesban, but things have changed# @ither
the @C' adjusts to the needs of all @uropean regions $ something that .tar is e,pressly unwilling to do
$ or else a time will come when it will not be safe to enjoy a sandwich near the ;lte .tadt in ?ranfurt#
Ine of two thingsJ either all @uropeans are given a chance to enjoy reasonable living standards, which
means doing away with the Zwage suppression and dumpingZ and the e,port subsidies /erman capital
has perpetrated since &orld &ar 8wo, or else there will be no @uropean Union worthy of discussion or
mention# 8here is no space 3and ( have my theoretical wor to pursue5 to e,pose the brutal unfair and
repressive practices of /erman capitalist elites in @urope here# 2eaders who are interested in a
Zthematic summaryZ of these may see fit to peruse an e,cellent discussion 3relating to China5 by
+rofessor Michael +ettis that ( am lining here# ;ny reasonable critical reader, after reading this, will
agree wholeheartedly with what our friends 3portuguese and others5 have said below#
httpJKKmpettis#comK!"11K"3Kis$loan$growth$in$china$slowingK
Y Don +eppe $ ( agree with you entirely on the ability of capitalism Zto control itselfZ# (f we go bac to
2icardo[s Zuniform rate of profitZ, we can locate already in nuce the Zlogico$historicalZ 3or practical, in
the sense of Zpra,isZ5 Ztrans$formationZ of capitalism from ZcompetitiveZ or ZmercantileZ to ZtrustifiedZ
$ which is what Mar, and then .chumpeter theorised and predicted5# (ndeed, so much do ( agree with
you that ( am dedicating much effort to demolishing the notions of ZcompetitionZ, ZmaretZ,
Ze6uilibriumZ and anything ever touched by Zthe invisible handZ# (n vece, ( am seeing to develop the
notions of Zsocial capitalZ and its ZreproductiveZ pro$duct $ Zthe society of capitalZ# 'ut where
ZregulationZ is no longer ZcompatibleZ with capitalism is when the need for capitalist investment to be
ZprofitableZ clashes with the very ZreproductionZ of Zthe society of capitalZ $ that is, when the
Ze,ternalitiesZ imposed by the essential need to preserve the wage relation become so ZsystemicZ that
the ZpublicZ oversight of ZprivateZ social resources 3industrial and financial5 is so ZpoliticisedZ that the
latter 3the ZprivateZ allocation of social resources5 is no longer tenable### for the very ZsurvivalZ of
society itself $ whether Zof capitalZ or Zof anythingZV ;nd this is where we are getting to# 8hese are
developments that are creating ZconflictZ not just ZbetweenZ social classes now $ conflicts that grow
increasingly ZsystemicZ $, but also and above all ZwithinZ the ruling elite, the hegemonic class# 8o
perceive this much, one need only loo at the capitalist ZmetropoleZ itself $ the U. $ where the
ZfractureZ of the ZCrisis$.tateZ between ZinterestZ 3public debt that was Znotionally private debtZ5 and
Zinter$esseZ 3 the very Zfiscal survival of the stateZ, of essential servicesV5 is absolutely evident and, if
anything, will become more ZpoliticisedZ in the foreseeable future $ with outcomes#### &ith outcomes
that are certainly unpredictable# Cheers#
Y ma,imus $ 8hans for the Draghi 6uote# Z.emi$automaticZ $ genausoV 'ecause this is Za very
complicated game Z indeed# ;nother Zdescendant of MachiavelliZV ( lied the ZparallelismZ you ably
draw between the reality of daily setbacs and Zthe /rand +lanZ# ( could thin of /alileo, Z@ pur si
muoveVZ, or indeed of Count Leinsdorf in 2obert Musil[s Z8he Man &ithout FualitiesZ about Zthe
parallel actionZ when he wrongly attributes to Iliver Cromwell words that came out of /oethe[s
penJZ; man never goes so far as when he does not now where he is goingVZ 8he /oethe original is in
your homonymous collection, ZMa,imen, <"1Z, lined below for your delectationJ ZMan geht nie
weiter, als wenn man nicht mehr weiss, wohin man gehtZ#
httpJKKwww#archive#orgKdetailsKgoethema,imenun""goetgoog
Y aufsteiger $ *es, thans for the reference# ( have the e,act te,t hereJ ZDort wurden die 'edingungen
einer &ahrungsunion fbr die nationale +oliti noch nicht verstanden# Um diese DivergenCen Cu
begrenCen, mbssen nationale (nstrumente genutCt werden, Cum 'eispiel die 2egulierung, die
.teuerpoliti und die @rwirtschaftung von cberschbssen im .taatshaushalt#Z ( could not believe that
.tar has referred to Za currency unionZ in the abstract# *et that is what he has done# ;nd he is as
wrong as wrong can beV 8he Zconditions for a currency unionZ are most definitely not and never were
meant to be $ even theoretically, if you go bac to Mundell and Eenen, McEinnoc and +adoa$
.chioppa, for instance 3( have given lins in the past5 $ that ZimbalancesZ between Zmember regionsZ
were to be a matter of Znational instrumentsZV 8his is fancifulV .o much so that ( will not even repeat
what ( have written in the recent past, e,cept in a nutshellJ @MU was never, never intended as a
ZmechanismZ that would bring about ZautomaticallyZ 3.tar refers to Z;utomatismusZ5 the harmonious
co$e,istence of e,isting national economies# In the contraryV 8he idea from the very start was that the
very ZimbalancesZ that would arise Zbecause ofZ the @MU, would necessitate ZresponsesZ in other areas
3fiscal and trade and other policies5 that would bring about further ZunificationZ 3the Zac6uis
communautairesZ5V .tar is redefining the whole via dolorosa of @uropean Union# Ciao#
XXXXXXXXXXXXX( tae e,ception to people implicating 'ernane with /reenspan $ even if only
ZtheoreticallyZ# 8he Z/reenspan putZ represented a ZsuperstitiousZ belief in ZmaretsZ during Zthe /reat
ModerationZ# 'ernane, by contrast, did raise interest rates when needed# )e faced the 6uite real
possibility of Zdebt$deflationZ in the Crisis, and he responded as a scholar of the /reat Depression
would $ with Z2ooseveltian 2esolveZ# ?or this alone, ( would nominate him as ZDefensor +atriaeZ
3.aviour of the Country5# ;lso on the theoretical front, not only did 'ernane obstinately focus
academic and professional attention on Zthe /reat DepressionZ and Zdebt$deflationZ at a time when his
moronic colleagues were celebrating Zthe end of historyZO but he also began to focus on the e,perience
of Aapan and, above all, on the insuperable difficulties involved with using central$ban Zmonetary
instrumentsZ and Zlegally permissibleZ policies so as Zto pric asset$price bubblesZ and on the
development of ZotherZ instruments that called for#### guess whatL#### Z2ooseveltian 2esolveZVVV ;
cursory loo at most central$ban related thining and research on these matters goes bac to 'ernane
3and his fre6uent co$author, /ertner5# )is conclusion $ 6uite legitimate and responsible $ was that
Zasset$price bubblesZ cannot be ZpricedZ with monetary policy alone# *ou need other ZinstrumentsZ,
other ZpowersZ, such as#### Dodd$?ran 3V5 $ in other words, the re$regulation of the finance industry
3[?inanCapital[5#
XXXXXXXXXXXXXXXXXXXXXX8he comments below have said it all $ ( lie Z&# IccamZ[s 3&illiam of
Icham of ZIccam[s 2aCorZ, of course5 vivisection of the concept ZmaretZ# ( am writing part of a
boo on it and concepts such as ZcompetitionZ# ;nd, of course, Zthe invisible handZ for which other
names have been found in philosophical thoughtJ two important ZprecursorsZ are LeibniC[s Zpre$
established harmonyZ 3which says heaps about the concept5, there is the mediaeval notion of ZDeus
absconditusZ 3the hidden /od $ a pantheistic version of the /ree deus e, machina from theatre
performances5, and then there is the more recent version of neoclassical Ze6uilibriumZ#
&hat is diaphanously growing more Zirredeemably opa6ueZ 3now, ( swear, ( have not encountered
more pre$posterous a phrase in recent times $ but then ( read no .cientology and ( detest Niall ?erguson
and Christopher )itchen $ charlatans e,traordinaires5 $ is /reenspan[s ageing mind# &e must be ind to
the elderly, but really we do not want the ghosts of the past to eep haunting our present and future#
2egards to all#
2eport joseph belbruno ] March !< !J-=am ] +ermalin +.J ;bout the Z;ustriansZJ *ou are entirely
right, of course# &hat these people fail to see is that Zthere is no going bacZV 8he reason why we are
here is that the ZDynamiZ of capitalism 3.chumpeter again5 has led us here# Aust one loo at the
ZremediesZ suggested by )aye and 2othbard is enough to want you migrate to MarsV 'ut to e,pose
this ZDynamiZ, this ZlogicZ 3historical and institutional5 of capitalism is difficult without falling into
the ZtrapsZ of the ZrationalismZ ( discussed just now#
Y in6uiringmind $ Loo, ( agree with you# ( am writing 3would you believe5 a huge wor that weaves
through the ZrationaleZ of capitalism from )obbes to the present# )enri Lefebvre called it Zle royaume
des ombresZ 3the ingdom of shadows $ referring to the Z)adesZ or Z(nfernoZ of ;nti6uity, into which
)omer and Hirgil and Dante descended5 $ what Mar, intended by ZfetishismZ $ but be careful 3V5, so did
NietCsche with the Zdeification of 2easonZ 3which is what Z/od is deadVZ meant5#
(n other words, not only must we combat the ZmystificationsZ of the Zcommodity$formZ, which arise
almost Zuni6uelyZ 3solely and ZsingularlyZ5 from the Z8rennungZ $ the ZseparationZ or ZalienationZ of
living labour from its ZtoolsZ, and so the ZreductionZ of Zsocial labourZ to its artificial wage$form,
Zindividual labourZ#### not only must we e,pose this Zpolitico$economicZ sphere of mystification 3( have
called it Zthe sphere of e6ual e,changeZ5, but we must also be careful in doing this that we do not fall
for Mar,[s own brand of ZrationalismZ, e,acerbated and popularised by @ngels, all the way down to
Luacs[s Z8he Destruction of 2easonZ#
$ 'ecause Z2easonZ has its own ZmalaiseZ 3dis$ease $ an etymology Clive Aames ridicules in one of his
now$ancient Z+ostcardsZ, but in much too facile and dismissive a fashion for my taste5# &e must not
fall for the .irens, having avoided the pitfalls of )adesJ ( am referring to the unspeaable inanity of
)eideggerian and postmodernist fashions that have gotten stupider and stupider from ?oucault down to
Hattimo and ;gamben# 8hese people are not just Ztoo clever by halfZJ they are plain lunatics who
belong in an asylum with ;lthusserV 3( lied the early wor of Massimo CacciariJ his ZErisisZ and
Z+ensiero NegativoZ are wonderful, e,cept for his capitulation to that monster$charlatan, the ZlateZ
)eidegger $ everything after the ZEantbuchZ#5 2egards#
2eport joseph belbruno ] March !< 1!J1-am ] +ermalin Y @6uivocation and Aason $ 8he two
essential things that need to happen in the near term are not happening in western capitalist economiesJ
first, the finance industry needs to be reformed thoroughly so that ZgovernmentsZ 3that includes central
bans5 regain control of credit creation and asset prices# 8his is paramount#
.econd, the outrageous and ferociously damaging ine6uality of income and asset distribution, greatly
e,acerbated by the Crisis, needs to be addressed $ to replenish government coffers and to improve
living and productive standards# Note that the ?ed had nothing to do with the further e,propriation of
the U. middle class that resulted from the CrisisJ there was little the ?ed could do within its powers
e,cept save the ship from sining $ with very limited Zmonetary instrumentsZ#
( agree that Zcentral bansZ are ZpoliticalZ institutions, no matter what their mandate# &e ought to
remember, however, that on occasion they have been able Zto steer the ship of stateZ where
governments and political elites have been divisive and paralytic $ the U. and (taly are e,amples, even
the @U 3though ( do not enjoy the policies of the Z@uro$'undesbanZ5#
8he answer, for the ne,t few decades, is not reactionary measuresJ what brought us here are not the
ZmistaesZ of individuals but the Zfailure of the entire systemZ# 8he ZabusesZ we have seen are not
ZaccidentalZ, they are ZsystemicZ# 8he immediate answer is more democratic participation in decision$
maing by ZconstituentsZ#
&hat we are witnessing in western capitalism is not a /reat Z?inancialZ Crisis, but rather a /reat
Z+oliticalZ Crisis $ as you can see from the unstable and feeble Zgovernment coalitionsZ everywhere
3even the /reens in /ermany may form a government soon5# ;nd this is happening because the old
Zparliamentary systemZ is no longer able to represent the will and interests of our societies# Cheers#
Y aufsteiger $ )ello# 8hese are Zoff$the$cuffZ remarsJ ;s you can tell from /oodhart[s Law, the
behaviour of central bans ZvariesZ over time depending on whether the current ZleadershipZ is Zrule$
basedZ or Ze,pediency$basedZ# (t seems to me that, regardless of what 'ernane says about
ZtransparencyZ, his inclination, and that of the Zempiricist dovesZ 3recall a Christina 2omer N*8 article
( cited and lined earlier5 is to show Z2ooseveltian resolveZ $ in other words, to be Ze,pedientZ in a
Machiavellian sense 3the end $ achieving a desired result $ justifies the means5# ;s Clive Croo maes
clear in his Column today, the unwillingness or inability of the Ibama ;dministration to intervene
effectively and decisively with the ind of fiscal stimulus advocated by, say, Erugman, has meant that
'ernane has had Zto brea the rules, or bend themZ so as to engage in Z6uasi$fiscal policyZV F@, one
and two, are e,amples of such policy and therefore Ze,pedientZ in that they introduce elements of
ZsurpriseZ and possibly asset$price ZinflationZ that maintain employment and devalue government debt
at the same time# 8he conduct of future policy in the U. is very ZaleatoryZ, e,tremely unpredictable
because, as ( have shouted out loud often enough now, there is ZparalysisZ in the ;merican ruling
political elite 3( also lined a 'arry @ichengreen article earlier underlining the significance of this, and
Erugman has remared on it so vehemently as to suggest Zcircumventing the ;dministrationZ by liberal
forces5# ;nd this at a time when unemployment remains e,tremely high and, as a result of the /?C,
the top B\ ;mericans now own 13\ of the national assets and the bottom 0"\ own only 1-\VVV
?riendsJ if this is not the stuff of revolutions, ( do not now what isV .omething has got to give# &hat
Zwill giveZ is precisely that Ze,tra leg of the stoolZ that you so ably invoeJ 'ernane and Co will have
no choice but to continue with present policies# (n my boo, what the current crisis has occasioned is an
unprecedented e,pansion of the role of Zthe .tateZ in the economy $ to such an e,tent that ZweaningZ
the economy out of state deficits has become unthinable# 8he upshot is that the ZprivateZ conduct of
economic policies 3fiscal and monetary5 becomes impossible# Ine way or another, bondholders will
have to get an almighty ZhaircutZ for the ZcapitalistZ economy to survive at all# ;nd asset prices
together with credit creation will have to be brought under control# 8his is simply not happening,
because &all .treet bans are doing as they please# ;nd unless this changes we will have a Zfiscal
crisis of the U. .tateZ with unforeseeable conse6uences# 8he U. government has to be able Zto
governZ# 8hat means that it must counter the reactionary forces that wish to preserve the Zinvestor
rightsZ of the few against the interests 3employment and income redistribution5 of the many# 8he fate of
world capitalism rides on it# Cheers#
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
&e have praised 'ernane before# ;nd Clive Croo dedicates a ZpaeanZ to him in today[s ?8 $ one he
thoroughly deserves# /od alone nows where we would be without the Z2ooseveltian 2esolveZ
'ernane showed in .eptember !""0# 8his is stuff that will go down in world history#
httpJKKwww#ft#comKcmsKsK"K0a1-!<d0$B0a!$11e"$<b0a$""1--feab-<a#htmlRa,CC1)6dsrh?i 'ut Croo,
and 'ig Aim below, raise the problem of ZtransparencyZ# ;nd this leads me to giving a most honourable
mention to one of the greatest central ban economists everJ $ Charles /oodhart at the 'an of
@ngland# 3/oodhart in name and Zgood heartZ in deedV $ ( should say, mindful of the generosity he
showed me on a study visit to the L.@ in summer 1<<"#5 /oodhart[s Law has become deservedly
famous among ZeconomistsZ because it raises a conundrum 3not a dilemmaV5 of central baning#
@ssentially, it says that once a central ban ZpubliclyZ adopts a monetary instrument to achieve a
related monetary target, the ZefficacyZ of that instrument diminishes until it dissipates#
httpJKKcyberlibris#typepad#comKblogKfilesK/oodhartsTLaw#pdf 8he authors discuss /oodhart%s Law in
the conte,t of )eisenberg%s Uncertainty +rinciple 3no lessV ;s if this were a 7cosmological9
conundrumV5 and the Lucas Criti6ue 3of courseV &hat elseL ;re 7rational e,pectations9 how you would
7e,pect9 7private investors9 to behaveL 'ut what does this say about 7rationality9L 8hat what is
7rational9 for the 7private9 is not 7rational9 for the 7public9VVV5# &hat does this tell us about central
baningL Aoseph .chumpeter once famously stated $ without truly pursuing his own insight into
theoretical development $ that Zfinance is the control room of capitalismZ# *es# ;nd the central ban is
the Zpolitical agencyZ in control of the instruments in that roomV 'ut here is the upshot, the cru,# ?or
central ban decisions to be ZeffectiveZ, they must also remain ZsecretZ# (n other words, what is in the
Zpublic inter$estZ goes right against what is in the Zprivate interestZ# Ince more, we have the dichotomy
or antagonism of private ZinterestZ 3the uniform rate of profit5 and the public Zinter$esseZ, the interests
of the community as a whole, the good of the entire society# Now, this is the central$ban conundrumJ
how can you mae decisions Zin the public inter$estZ, when these decisions, once nown, will be
abused by Zprivate interestsZL 8his is the Zarcanum imperiiZ 3the secret of state5O this is the Zmysterium
fideiZ 3the mystery of faith5# ;nd this is where the ZtruthZ of a capitalist society liesJ $ in the
ZirreconcilabilityZ, that is, of the ZprivateZ interest and the ZpublicZ inter$esse# 8hin about itV
httpJKKwww#ft#comKcmsKsK"K!b=b!1de$ddcd$11de$b0e!$""1--feabdc"#htmlRa,CC1)6dsrh?i 3Now he
wors for Morgan .tanley, /oodhart advocates monetary 7restraint9 to deflate the bubbleV5
httpJKKdocs#google#comKviewerL
aMv>6McacheJ@I*A8IdyyCoAJwww#imf#orgKe,ternalKnpKseminarsKengK!""1KmflKjost#pdf`/oodhart,
`Charles`;#@#`31<0B5,
`8he`@volution`of`Central`'ansJ>hlMen>glMau>pidMbl>srcidM;D/@@.h.Lcl-vE=6cBhn/8A)
wIhUtbh2g;oeL$cBr&lac6s=3wrylUv&BGha<mc$
Um8eEfw<Du(urEN:lAGMu@*vp,!:&6+F.gM1CC*1md=:C$
6:pb,8"?'cNM3+8Lrb!U11grcMln>sigM;)(@tb2A+,*1y=e6jo,u)/ipC@v16p/*pw 3Legal
;spects of Central 'an +ayments .ystems5
XXXXXXXXXXXXX?air comment, and well written, too# ?or most people, the teaching of history should
include a ZnarrativeZ, to enable them to mae sense of the world# (n Z/aya .cientiaZ, to cite an e,ample
( encountered last night, NietCsche e,alts .chopenhauer for discovering that Z/od is deadZ 3does not
say so, but that is the thrust5, and then upbraids him for retreating at the sight of the abyss $ Zthe
insignificance of historyZ 3;phorism 3B=, from memory5# Nihilism and scepticism can be countered# (f
we retreat before the abyss, it is because there is a ZfacultyZ we possess that tells us, even
ZinstinctivelyZ 3though ( ought not encourage Caldwell to pander to ZinstinctsZ5 to do soJ $ because it is
abhorrentO because Zwe are trying to mae sense of our pastZ# ;nd that is the ZconscienceZ 3con$scientia
$ ;phorism 3B3L5 that NietCsche eschews $ to his detriment 3he went mad5 and to that of @uropean
civilisation, which did not bal at the abyss### and fell into it#
TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
&ith regard to the instant Ipinion, ( should thin that the advice proffered by the authors to the
Aapanese is impeccable# 'ut the reasons advanced to e,plain the ZpropensityZ of some governments Zto
hoardZ foreign reserves displays the shortcomings of much ZeconomicZ analysis that moves within the
narrow confines of ZtechnicalZ parameters $ especially if those ZparametersZ are the bread and butter of
ZeconomistsZ lie the authors, whose wor is predominantly ZeconometricZ# (t is true that foreign
reserves 3Zhard currencyZ, mainly U. dollars5 are held Zto deal with emergenciesZ# 'ut these
ZemergenciesZ are more ZstrategicZ than narrowly ZeconomicZ or, even closer to the ZstrategicZ aspect
of ZeconomicsZ, ZmonetaryZ# 3( would prescribe a reading of ?ritC Enapp[s Z.tate 8heory of MoneyZ or
/eorg .immel[s Z+hilosophy of MoneyZ, both of which may be found in the lins below#5 /enerally,
the Zchartalist schoolZ of monetary theory 3the spiritual home of many central baners5 is to be
ZcreditedZ 3sit venia verboV5 with this Zhigh$politicalZ approach to the theory of money and the credit
pyramid# (t is not a coincidence that most capitalist economies that were ZdictatorshipsZ until the end of
&orld &ar 8wo e,hibit a pronounced ZtendencyZ to accumulate hard currency# ( refer, of course, to
Aapan, .outh Eorea, 8aiwan 3the military threat from China plays a special role there5, and /ermany#
;side from the ZgeopoliticalZ aspects of this ZtendencyZ, a related rationale for it relates to the other
Znon$coincidentalZ fact that all of these countries run significant current account surpluses# ;nd now
the Zcausal linZ begins to tae definite form# ?or it dawns upon us 6uite clearly thus that the
accumulation of foreign reserves is a direct function of trade surpluses $ and that these surpluses have
to do with Zwage dumpingZ and suppression of domestic demand $ in other words, with the suppression
of the living standards of the woring populations of these ZregimesZ to the benefit of e,port$dependent
corporations# $ ;lmost superfluous to remind participants of who Zthe usual suspectsZ areJ $ starting
with Holswagen, )yundai, ?o,comm, 8oyota#### need ( go onL ( find it a matter of dismay $ growing
rapidly into ZconsternationZ $ that ZeconomistsZ of the repute and renown of our beloved Z2ogoffsZ are
so ZunawareZ of these ZcoincidencesZ, so ZdismayedZ in their turn at the gravity of my thinly$veiled
imputations,#### that they have failed even remotely to refer to these ZrealitiesZ that ought to leap to
anyone[s eyes 3to adopt and adapt an (talian turn of phrase5# /ood night, and good luc# Ih, and good
wee$end# httpJKKsocserv#mcmaster#caKeconKugcmK3ll3KnappKinde,#html
httpJKKwww#archive#orgKstreamKphilosophiedesg""simmgoogRpageKn!=KmodeK!up
( NI8@ that the ?8, much to everyone[s relief, has pulled this Column from the main ZCommentsZ
pageJ (t is a wise acnowledgement of its stultified status and it deserves comment# ; reader below
ased why intellectual superiority matters and how you demonstrate it# (t matters, because it is essential
to e,alt the paramountcy of ZreasoningZ and ZidealsZ over the yoe of the established order 3Zthings as
they areZ5# ;nd you demonstrate it, not by the volume or fre6uency of publication, or by the alacrity of
peroration# *ou demonstrate it by the depth and breadth of thought, by the power of ideas, by the
vitality of ideals# $ 'y the ability Zto forge in the smithy of our souls, the uncreated conscience of our
raceZ 3Aoyce, [+ortrait[5#
2eport joseph belbruno ] March !3 <JBBpm ]#
Y M $ *ou have it the wrong way around, ([m afraid, and so you miss the point entirelyV
( have read and re$read Machiavelli too may times not to have learned the lessonJ
;s ?rancis 'acon put it 3([ll give you the original in Latin $ one to commend to memory5J
Z/ratias agare debeamus Maclavello 6uia nobis monstrat 6uod homines facere solunt nec debeantZ#
Z&e owe thans to Machiavelli for showing us what humans actually do rather than what they ought to
doZ#
(t is a f a c t that the Chinese dictatorship $ however much it may see so to do $ does n o t Zrule the
worldZ# (t is a fact that it is not ZgreatZ in any meaning of the word# ;nd it is just as much a fact that no$
one has Zthrust responsibility upon itZ e,cept itself through the enormity of its crimes, chiefly against
its own people#
8herefore, syllogistically ( conclude that it is Martin &olf who is telling us wistlessly and ZwishfullyZ
what things Zought to beZ and not Zwhat they areZ#
/iven the moral turpitude involved in such a ZcolouringZ of reality, it is &olf you ZoughtZ to accuse of
perverting the course of reality#
3(ncidentally, ( highlight ZcolouringZ because that is how Machiavelli described the ?riar .avonarola[s
sermons in ?lorence $ Zcome 6uesti viene le sue bugie colorandoZ U 7how this man comes colouring his
liesZ# Hery apt for &olf, n[est$ce pasL5
jo$eph belbruno \ ;arch &C
8he more ( read &olf[s Column, the more ( become convinced that it was written in a state of
inebriation $ induced either by alcohol or Zhigh spiritsZ# ( will refrain from parsing its every sentence
even though this effort is so bad that one could demolish it Zword for wordZ# 'ut ( will see to
e,emplify what ( mean with an analysis of the first paragraph $ &olf[s e,ordium, just to show him that
we are not idding, and that he has serious intellectual challengers who will call him to account for any
slips#
&olf starts by stating that 7[^r_eform and opening up[ has been China%s mantra for more than three
decadesZ# *ou will notice immediately that &olf is taing this ZmantraZ $ which is in effect a ZsloganZ
propagated by the Chinese +olitburo $ by taing it Zat face valueZV (n other words, he does not even
Z6uestionZ the fact that the Chinese leadership has ZreformedZ to its own colossal advantage and to the
roughshod detriment of large swathes of its own population in terms of social dislocation, wage and
labour e,ploitation aimed at e,ports, environmental degradation and wholesale destruction, deportation
and disenfranchisement of millions of Chinese people and worersJ &olf mentions none of thisV
Now, this is barefaced, shameless, pure unadulterated### intellectual dishonestyV 3?eel free to reply to
me any time, Martin $ you have an intellectual superior here, rest assuredV5
Ne,t, &olf swallows wholly the Zopening upZ fable# 'ut how on earth has the Chinese dictatorship
Zopened upZL &hy, it was only yesterday that it ruthlessly and truculently slaughtered one thousand or
more of its most beautiful children in 8ienanmen .6uare# &e do not bear Zthe burden of proofZ for
rebutting this outrageous untruth, this pernicious falsehood $ you do, Mr# &olfV ;nd you have not
discharged that burden $ you have simply adopted as your own, and sought to sell to us, this
abominable piece of +olitiburo propaganda#
Z8he result has been not only the emergence of a new economic superpower but of one highly
integrated into the world economy# ; big 6uestion, then, is how China should use its influence#Z Notice
how &olf transits seamlessly from the accepted fact that China has become Zan economic superpowerZ
without telling us ZwhoZ in China has grown ZpowerfulZ, ZhowZ they have done so, and to what end,
and then jumps uncritically to the fait accompli $ Zhow China should use its influenceZ# *et once again,
&olf is addressing ZChinaZ as if it were a monolith, a unit, an identity, when in fact we now all too
well that serious divisions and fractures and antagonisms e,ist within China and are manifested each
day in thousands of insurgent forms against the dictatorship#
.o it is not ZChina[s influenceZ that we are taling about, but rather that of its leadershipV
;nd now for the piece de resistance $ or rather, in &olf[s case, for the most shameful surrender by a
western intellectual since the days when .artre waved pictures of Chairman Mao# Listen to thisJ
ZMy argument was that China has achieved greatness and now has responsibility for the global system
thrust upon itZ#
)ere is the obse6uiousness of the prostrated serfJ ZgreatnessZL Z/reatnessZ is a very loaded word# (t
denotes not just ZsiCeZ 3economic or otherwise5# ;bove all, it denotes ZmeritZ, ZrecognitionZ, ZrespectZ#
Now, we love and respect the Chinese people# 'ut we certainly do not $ now or ever, Mr# &olf $
recognise the Chinese Communist +arty as deserving the epithet of ZgreatnessZ in any manner, shape or
formV ;nd ( defy you to find me a single independent reader of the ?8 who is not an investment baner
who would agree with you on this oneV
;nd &olf does not stop thereJ he actually proceeds in most slavishly subservient
capitulation to insinuate that, whilst ZChina has achieved greatnessZ, on the other hand Zresponsibility
has been thrust upon itZ# Z8hrust upon itZV (n other words, the Chinese dictatorship has passively,
perhaps even reluctantly 3V5, been forced to accept ZresponsibilityZ for its new$found ZgreatnessZ $
achieved, of course, on the blood sweat and tears of hundreds of millions of its ZsubjectsZ from the
Cultural 2evolution onwardsV More sheepish and cowardly an e,ample of intellectual prostration (
cannot recall in recent timesV
8he prosecution rests# 'ut remember, we have only reached the end of the first paragraph yetV
2egards to all#
8oseph elruno ] March !1 1"J10am ] +ermalin Now that /avyn ju,taposes the ZcatastrophesZ that
have befallen us recently and Zthe dismal scienceZ in his first sentence, ( thin it may be an opportune
time to lin thematically the rising incidence of Zsystemic rissZ 3investment, financial and
environmental5 with the very Zmodus operandiZ $ which is in truth the Zraison d[etreZ $ of capitalist
enterprise# 8his is not the place to e,pound on a ZsystematicZ theory of systemic ris in capitalist
economiesO but the review in the N*8 as well as the latest ?8 @ditorial touching on this theme 3both
lined below5 e,emplify the type of ZincomprehensionZ 3due to a variety of ZmotivesZ that we cannot
canvass here5 of this vital connection#
8hat there are Zunforeseeable eventsZ in life as we now it is a fact that cannot be gainsaid 3though we
ought to avoid 2umsfeld[s idiotic o,ymoron, Znown unnownsZ, and the doubly absurd Zunnown
unnownsZ5# 8he innovative metonymy of such events to Zblac swansZ serves merely to rationalise $
that is, to e,cuse and justify ZideologicallyZ $ human disasters that, though perhaps difficult to predict,
are certainly far from ZunforeseeableZ#
8o e,emplifyJ the /reat ?inancial Crisis was eminently ZforeseeableZ 3some people even predicted it $
Minsy, 2oubini5# ;nd so was the ?uushima catastrophe that threatens the biggest metropolis on
earthV
*et, if one reads the N*8 article below, one will not fail to notice that the ZtheoreticalZ debate in
economics isJ $ how economists may be able to predict such blac swan events# Now, the thing to
notice is that the r e a s o n why economists see to mae such predictions is avowedly to enable Zthe
assessment of risZ that leads to Zthe rational allocation of social resourcesZ $ by which is meant Zthe
allocation of c a p i t a lZ#
'ut the reason why both the /?8 and the ?uushima catastrophe, no less than the '+ spill in the /ulf
of Me,ico, occurred was### occasioned precisely by the need of capital to find what it must always see
to find $ namely, ZprofitableZ opportunities for investmentV (t follows therefore that the very Zmaret
forcesZ that impel 3and compel, but that is a larger thesis5 the search for profit sources that occasion
Zsystemic rissZ are the self$same Zmaret forcesZ that see Zto a s s e s sZ this risV 8his is the ;gatha
Christie e6uivalent of asing the murderer to e,plain the plotV
;s the ?8 @ditorial lined here maes almost e,plicit 3it would be a miracle $ a suspension of the laws
of physics $ for it to do so ZentirelyZV5, we have reached a point where the ZprivatisationZ of various
forms of Zsocial reproductionZ 3from energy to the allocation of social resources under the cloa of
Zfinance capitalZ5 leads to the ZcatastrophicZ situation in which the ZagencyZ that has political power
3and only putative ZaccountabilityZ5 $ the government $ does not have ZresponsibilityZ over the use and
deployment of these e,tremely ZrisyZ social resources 3again, finance, energy, food, health5, whilst on
the other hand the ZagencyZ that does have ZresponsibilityZ over these ZreproductiveZ areas of social
activity###, does not have any Zpolitical power and accountabilityZ because it represents Zprivate
capitalZ, Zprivate enterpriseZV
&e have therefore a situation in which there is Zpower without responsibilityZ for governments and
Zresponsibility without powerZ for capitalist enterpriseV ( would love to draw that engrossing argument
that brings out the ZnecessityZ of this ZsituationZ, but it would be inconsiderate to tae so much space
on this blog# ;nd ( must return to my monographic research on the origins, e,egesis and criti6ue of
capitalism# Cheers# +.J ( am lining also a Erugman report on the grilling of @lisabeth &arren in the
Congress# httpJKKwww#nytimes#comK!"11K"3K!"KbusinessK!"ris#htmlLrefMglobal$home
httpJKKwww#ft#comKcmsKsK"K<!e-1f1-$B3!a$11e"$01e1$""1--feab-<a#htmlRa,CC1DLj<r0='
httpJKKblogs#ft#comKgavyndaviesK!"11K"3K!"Ka$maret$correction$or$something$
worseKhttpJKKwww#nytimes#comK!"11K"3K!1KopinionK!1rugman#html
2eport 8oseph elruno ] March 1< 1J-1am ] +ermalin Y Ilaf $ ( thin 'ernane is wisely treating
investments in land similarly to capital$asset investmentsJ capital must yield at least the average Zrate
of interestZ, not merely Zthe rate of inflationZ $ because otherwise the asset 3land5 is simply losing
ZvalueZ and it would have to be sold for more profitable investments# 8he theory behind it is 2icardo[s
e6ualiCation of the rate of profitJ investments are spread evenly across classes of assets to yield an
average profit#
( tae your point on the ZmaterialsZ for housing# 'ut even allowing for that, we are still far from
e,plaining the ZstandardZ of housing# &hen ( wal into a 8oyo furniture shop, ( have to stop thining
it is not a Ztoy shopZV ;nd we have not gone into the standard of ZfoodZ yetV 8here are serious problems
with standards of living in Aapan# 'ut ( should hasten to add that ( am all for a lower yen, even without
these catastrophes, all in an effort to ic$start the economy into ZgrowthZ# ( thin we would agree that
the ZinstitutionalZ problems 'ernane mentions are the real source of the ZstagnationZ of the Aapanese
economy#
( am so enraged by the ?8 @ditorial on ZNuclear .upportZ that $ this is a threatV $ ( might post
something on the Zsystemic risZ theory ( had in mind# (t is a ZtheoryZ because 3as you may guess5
Zsystemic risZ is just that $ ZsystemicZ to capitalist enterprise 3or economy5# My point is that
?uushima, just lie '+ in the /ulf of Me,ico, can be lined directly and rationally 3systemically5 to
the ZfunctionZ of capitalist enterprise in what ( call Zthe society of capitalZ# Cheers#
Y aufsteiger $ ( agree# ;s you now, 'ill /ross ased recently what will happen to treasuries when the
?ed stops buying# )e does not get it eitherJ the ?ed will not stop buying# 8hey can[t# 2ather than outline
the Z8riffin dilemmaZ argument, particularly in the China conte,t 3( am busy writing a chapter on
NietCsche[s ZDie /oetCen$DammerungZ right now $ that translates as Z8wilight of the (dolsZ $
appropriate to central baning, noL5, ( will refer to Michael +ettis[s discussion of the Zpublic goodZ
problem at www#mpettis#com( disagree slightly, and respectfully with +ettisJ it is true that, as ( have
often screamed out in ?8 comments, the U. are ZfedZ up to the bacteeth with playing the Zconsumer
of last resortZ and Zlender of first resortZO but really the capitalist world has no alternative to the mighty
Uncle .am# ?or instance, the Chinese robber barons 3the dictatorship5 have been buying more
treasuries than ever before lately $ they must fear imminent upheaval# *es, because as +ettis shows in
this ?8 Ipinion httpJKKwww#ft#comKcmsKsK"K<-fe-BBe$-e="$11e"$
<0eb""1--feab-<a#htmlRa,CC1DLj<r0=' they have a mighty struggle at home between the forces of
emancipation 3he calls them ZhouseholdsZ5 and those Zrobber baronsZ 3he calls them e,port$dependent
firms5 that will not give up until a guillotine is set up for them in 8ienanmen .6uare# 8he upshot is that
if the U. wish to avoid high levels of unemployment at home, they will have no choice but to bear that
Zpublic goodZ burden that some call Ze,orbitant privilegeZ### and eep printing greenbacs# Cheers#
.ince the days of Calabresi, in a ZprivatisticZ capitalist society, the notion has gained hold of ZpricingZ
ris so that ZindividualsZ can ZinsureZ against it# 8he problem is that, precisely, ZindividualsZ do not
e,ist $ their behaviour and ZrisZ can be ZmeasuredZ# 'ut if one allows the ZmeasurementZ of
Zindividuals as individualsZ, then the ZpricingZ of ris gives rise to Zfree$ridingZ $ so that the less Zrisy
individualsZ subsidise the ZrisierZ ones, so much so that foolhardiness and temerity are rewardedV
&here is the problemL 8he problem and the solution lie in the ZprivatisticZ treatment of what are
Zsocial factorsZ# &hat the @CA is saying is that you cannot ZindividualiseZ ris to such an e,tent that $
you end up defeating the very purpose of ZinsuranceZ, namely, Zto socialiseZ costsV ;nd the solutionJ it
is obvious that if ZpeopleZ live Zas a groupZ, but are Zrewarded or punishedZ### ZindividuallyZ, then you
have a Zconflict of interestZ between the Zindividual and the groupZ $ a chasm that 6uite simply cannot
be filledV ; Eantian antinomyV 8he problem is one of Zlac of democracyZ# ;nd the solution is Zmore
democracyZ $ more ZparticipatoryZ decision$maing# ?i, this problem, and you have the solution#
"oe 9elruno %rote:
Aust a short additionJ Minsy agrees with .chumpeter as to the ZpriorityZ of finance over production#
;nd both espouse Zdynamic analysisZ# 8hat[s where the similarities end, and then Minsy proceeds to
adopt a ZEalecianZ dynamic analysis 3which is profoundly Neo$2icardian5# 8his is where Minsy[s
approach to ZmoneyZ is much more Eeynesian 3the Eeynes of the [/8[, not of the [8reatise[5 than
Mar,ian# *et this is precisely where Mar,ian analysis of the relation between production and finance
prevails over Minsy[s 3though not necessarily in the institutional detail of how the credit pyramid over
capital$asset prices is formed 3.ee The debt Krugman would rather forget, March 1B5#
;nd a note on ZmodellingZ# &hat economic models see to capture is a ZstaticZ economy, given that it
is impossible Zto formaliseZ institutional and political realities# 8hey may have some ZforecastingZ
value $ but they tell us nothing about the ZmeaningZ of social relations#
;n e,ample comes to mind when discussing nuclear energyJ ZmodellingZ can help us forecast whether
a reactor will go into meltdown in particular circumstances# 'ut the model will not tell us that the
principal reason why nuclear reactors are chosen, as against devoting social resources to other forms of
energy, is that they are ZprofitableZJ in other words, they ensure the preservation of the wage relation,
of capitalist social relations of production# 8his is so not least in the sense that whilst nuclear power
also legitimates and ZempowersZ the Znuclear stateZ 3authoritarian and repressive and secretive and so
on5, alternative forms of ZgreenZ energy tend to empower and enfranchise ZworersZ 3actual and
potential5 who are thereby emancipated from the yoe of wage labourV 8hin about itV
8oseph elruno ] March 1! 1J-3am ] +ermalin
++.J ( wrote Zderisive attemptsZ below, when ( meant ZderisoryZ# 'ut then, should (L Maybe some
central baners are laughing at us after allV 8ae a loo at this beauty from Le, today, and tell me if it[s
not saying e,actly what ( have been arguing below# 8he difference, of course, is in how we a r r i v e at
this conclusion#
Z8he impression of intellectual confusion ^at the 'an of @ngland and other central bans_ is enhanced
by disagreements within the Monetary +olicy Committee# Ine member 3;ndrew .entance, who is
leaving5 thins the case for higher interest rates is clear# ;nother 3;dam +osen5 feels the same about
even more stimulus# 8he other members seem to be struggling to find what is sometimes called a
coherent narrative#
The MP is perhaps at no more of a loss than most of the global monetar! establishment" discomfited
as it is by the failure of the old model of political independence and an almost exclusive focus on
overnight interest rates# $ut there is no replacement in sight# Unless one is found soon" the $o% will
not know how to approach its new responsibilities in bank and macro&prudential regulation#
&hen the current, near$Cero interest rate phase began it was widely considered a temporary measure to
be abandoned as soon as feasible# 8hat time may now be at hand, if someone could come up with a
better alternative#Z
&hat do they sayL 8he truth lies in Zthe middleZ# (t[s that middle paragraph that ( lie to read again and
againV
4eport *oseph be$br+no \ ;arch (& (&:C&am \ Permalin%
] Qanny Larr$ + :n the la$t few Oa,yn Qa,ie$ Llo#$/ : ha,e tried to $how >$ummarily/ of cour$e? how
deri$ory are the effort$ to di$tin#ui$h between inflation and a$$et price ri$e$. :ndeed/ my la$t po$t/ on
Padoa+0chioppa/ pithily illu$trate$ the Vutter ban%ruptcyV of attempt$ to i$olate monetary policy throu#h
Vtechnical in$titution$V >central ban%$? from Vthe play of mar%et force$V... Be ha,e ju$t had the bi##e$t
cri$i$ $ince the (9C'$/ for hea,enW$ $a%eU
] Too ate + Bell $aid. That i$ in part what : am tryin# to $how + that Vminimum #o,ernmentV i$ a
mira#e/ a fanta$y/ a myth con$tructed to $ell u$ Vthe play of mar%et force$VU
: hope your reference to Bolf i$ not $ardonic + he doe$ an excellent job. The Fomura 4eport i$ lin%ed in
hi$ la$t !olumn on VEuropeV. ;y !ambrid#e friend Qr. Paola 0ubacchi played a part + and itW$ a ,ery
warm VhelloV from me if $he i$ readin#: ma%e$ me ,ery proud.
: a#ree with the #eneral tenor of ;ichael ;ac"enKie$W$ ne#ati,e reaction to Lill Oro$$ + whom :
$onorou$ly derided in my penultimate po$t/ but one ha$ to mar,el at the Vincomprehen$ionV of the
important Vforce$V at wor% here. et me illu$trate. ;ac"enKie write$:
VLeyond the bull+,er$u$+bear ca$e of ownin# Trea$urie$ at any one time/ the$e $ecuritie$ are a beacon
for people and countrie$ with lot$ of money that are intent on pre$er,in# their wealth.V -b$olutely ri#ht/
and $omethin# Oro$$ i$ wilfully i#norin# Vat hi$ perilV. Lut then he add$:
VThen there i$ the 3ed. !ontrary to many expectation$/ the late$t wa,e of =uantitati,e ea$in#/ or QE&/
ha$ been bad for Trea$urie$/ becau$e the 3ed ha$ been pu$hin# in,e$tor$ into ri$%ier a$$et$ $uch a$
e=uitie$ and commoditie$/ which in turn hurt$ appetite for #o,ernment bond$.V
Bron#/ wron#/ wron#/ ;ichaelU The $witch to e=uitie$ wa$ exactly/ preci$ely/ exclu$i,ely what the 3ed
wa$ aimin# at with QE&UU Bho but who on earth would buy trea$urie$ when you %now the 3ed i$ rai$in#
their price$H You would $ell/ $ell/ $ell in$teadUU -nd then thi$:
V6nce the 3ed i$ no lon#er a bi# buyer of Trea$urie$/ and thu$ artificially pumpin# up ri$% a$$et$/
in,e$tor$ will boo% their profit$ and par% their money bac% in #o,ernment bond$.V Exactly/ preci$ely ri#ht/
;ichaelU Fow youWre tal%in#U
The article i$ here: 4e#ard$ to all.
http://www.ft.com/...htmlJaxKK(Qj9rD*L
P0: 0orry/ : for#ot to mention that deliciou$ final excerpt from ;ac"enKie:
V-head of the 3ed endin# QE&/ the central ban%5$ manipulation of a$$et price$ i$ already $howin# $i#n$
of bac%firin# a$ the rapid ri$e in food and ener#y price$ $ince la$t Fo,ember hit$ emer#in# mar%et$
hard.V 6nce a#ain/ that i$ exactly what Lernan%e i$ aimin# at: a $pi%e in inflation in !hina and other
export+dependent countrie$ that will induce them to rai$e their exchan#e rate$ and ea$e the U0 pu$h
into export mar%et$ + $omethin# the U0 ha,e not done $ince the (9C'$ >,ery clo$ed economy? much to
their own detriment in term$ of Vindu$trial $tren#thV and/ abo,e all/ employment.
6n !hina/ here i$ ;ichael Petti$ on 8$witch9 from infra$tructure to dome$tic con$umption
http://www.ft.com/cm$/$/'/9)fe)11e+)e*'+((e'+9Deb+''())feab)9a.htmlJaxKK(Qj9rD*L
IN +;DI;$.C)(I++;J ;mong economists, central baners are those who are at the interface of
economic theory and politics# (t should not surprise, because they deal with money U and money is the
pivotal 7institution9 where use value 3let us call it loosely 7social need95 and e,change value or capital
3the 7need9 to ensure that only those use values that are 7profitable9 are pursued5 U where these two
opposing forces meet or collide# Money is the institution that, if well understood, will tell you
une6uivocally that 7economics is a concentrate of politics9# Money is that 7object9 on which 7the
sovereign9 is imprinted, even when it is commodity money such as gold# ;nd central baners 7juggle9
economic concepts in a curious mannerJ they are aware that the 7concepts9 they are using are not
7eternal9J they are 7transitory9 and 7specious9 3a play on 7species money95J $ because politics is its real
social substance# 8hat substance is 7value9, but ( will not go into that now#
;mong economists, 8ommaso +adoa$.chioppa was a central baner, and of all central baners he was
one with an (talian S2enaissance% education U with an insight into that period of 7capitalist9 history in
which finance and money still ruled over industrial capital and in which the co$e,istence of a doCen
7principalities9 in (taly made money and finance very interesting indeed# .o ( could not help but be
struc recently, upon re$reading one of his papers, by the following passage that, if you forgive the
presumption, truly deserves to be 6uoted in fullJ
7If the other factors ( mentioned, ( shall only recall the powerful role played by two ideas that became
popular in the 1<0"s, one in the economic field and the other in the monetary field# (n the economic
field, it came to be held that public intervention in the economy should be reduced and more scope
allowed to the play of maret forces, which can be summed up in the e,pression [minimum
government[# (n the monetary field, the paradigm gradually prevailed that monetary policy should be
primarily concerned with price stability and central bans made independent# 8he two components of
this paradigm are clearly related, since an independent central ban is much more acceptable if it is not
entrusted with politically sensitive choices such as that between more employment and more price
stability, which was how monetary policy was usually presented in the 1<B"s and 1<1"s# 8he two ideas
of minimum government and an independent central ban oriented towards price stability were very
important in facilitating the acceptance of monetary union since they tended to minimiCe the shift of
sovereignty# (f the central ban is not entrusted with politically sensitive decisions, it becomes a more
technical institution, one that has to mae sure a metre is always a metre long, neither more nor less,
and the transfer of this function from the national to the @uropean level is thus less politically chargedO
governments would be less inclined to feel that they were relin6uishing something that was theirs by
right# &hat is ironic is that a prominent opponent of @MU, Margaret 8hatcher, and the monetary
institution that has supposedly most to lose from monetary union, the 'undesban, were in fact strong
supporters of these two ideas, which ultimately helped to create a climate favourable to the entry of
@MU into the 8reaty#9
Now, ( believe that these words should be etched inW gold 3if you forgive the allusion to commodity$
money par e,cellence5# &hat +adoa$.chioppa is saying is that 7two ideas9 3ideasV5 7became popular9
3popularV5 in the 1<0"sJ and they both 7can be summed up in the e,pression Sminimum government%9#
.o somewhere, someone decided that 7minimum government9 was neededJ $ which meant that 7public
intervention in the economy should be reduced and more scope allowed to the play of maret forces9#
+lease note this beautiful e,pressionJ $ 7the play of maret forces9# ;nd then +adoa$.chioppa continues
by stating that the 7other idea9 in the 7monetary field9 was that of 7technocratic9 central bans
7oriented toward price stability9#
8o cut a long post short, ( would invite participants to thin long and hard about 7the meaning9 of these
propositions# 'ecause what we have had with the current crisis is precisely thisJ the total, irrevocable
and ignominious collapse of the 7idea9 or capitalist 7strategy9 of 7minimum government9 and 7the
play of maret forces9# Not only has 7public intervention9 been necessary U but the assumption of
3Martin &olf5 7notionally private debt9 by the .tate into 7public debt9 means that those 7maret
forces9 have failed in the most 7catastrophic9 or 7systemically risy9 mannerVV
8hin about it when you reflect on the 7options9 available to 'ernane and 8richetV 2egards and good
wee$endV
2eport joseph belbruno ] March 1" 0J30am ] +ermalin
++.J ; 6uic apology for writing ZI+;Z rather than ZIC;Z# +lease note that after 'retton &oods,
from 1<=1, the world economy went into a ZLabour .tandardZ 3Aohn )ics5 whereby nation$states
could deal more easily with domestic wage conflict by letting the e,change rate ZfluctuateZ# 8his
allowed governments Zfle,ibilityZ in terms of wage policy depending on the politically tolerable level
of unemployment re6uired to bring domestic inflation under control# 8hat is why Milton ?riedman was
probably the father of IC; theories 3see lin below5#
8he problem with Zfle,ible e,change ratesZ in @urope is that they caused enormous problems in terms
of the circulation of goods and capital $ which is why @MU came about# Now that we have @MU, some
people are feeling nostalgic about Zthe good old daysZ of national currencies# 'ut returning to floating
e,changes would return us to all the e,cesses and imbalances of the past 3not least currency
speculation5V (ndeed, it is not ZunityZ that has created problems for @uroland, but disunityV (t is the
height of folly to believe that national currencies would solve the problems that @U disunity is causingV
;nyhow, here is that paperJ
httpJKKdocs#google###HICTAc.=B0w1MdAc;
Y aufsteiger and others $ If all the matters discussed in connection with @uroland, and they are many
as you can see from the comments below, the role of the Zbond maretZ is fast becoming the most
controversial# (t had to do so, because the biggest outcome of the /reat ?inancial Crisis was $ and this
is why ( stressed this crucial sentence in &olf[s article right at the start of this thread $ Zwhen private
lenders tighten the noose, notionally private debt tends to turn into public debt, as governments try to
rescue imploding financial systems and sustain activity in collapsing economiesZ# &hat does this mean,
Znotionally private debtZL &hy the
ZnotionallyZL
Nowhere as in the study of ZeconomicsZ, e,cept perhaps in philology 3been reading too much /adamer
lately5, is the use of ZwordsZ more deceiving 3earlier ( referred to &ittgenstein[s ZnotionZ that Zideas are
lie spectaclesZ5# @special care should be taen when we use words lie ZcompetitionZ, ZmaretZ,
ZmoneyZ, even ZcreditZ that is made up of bonds and other debt instruments# &e need to go beyond the
terminology $ and its ZlegalZ mystifications 3ZcreditorZ, ZdebtorZ $ just as Eant smuggled in judges and
accused in his ethics5 $ and peer into the heart of the realities involved#
;s you now, the ?reiburg .chool sought to define Zthe rules of competitionZ# 8he problem isJ if
ZcompetitionZ needs ZrulesZ $ why, then it is no longer ZcompetitionZV 8hen it is a game# ;h, but an
ZantagonisticZ game $ in other words, a ZgameZ whose very aim is to bring Zthe game and its rulesZ to
an endV Iur friend Ilaf below may well wish to reflect on this#
Now to ZprivateZ and ZpublicZ debt# (t is inappropriate to write a chapter on these matters here 3but ( am
for a boo, and ( am ZsmugglingZ surreptitiously some ZideasZ here $ a little lie )egel who gave his
lectures looing circumspectly around### Zas if someone might understandZ5# 'ut ( will cut to the 6uic
with a ind of riddle, just to imitate 'ill /ross whose +(MCI fund just e,ited U. treasuries#
( understand that there was a ZgoldenZ time when ZprivateZ money financed .tates# 'ut now that .tates,
even through the ?ed in the U., have control of the money supply and $ as a result of large budgets and
deficitsV $ play such a large, nay, determinant role in Zthe economyZ, is it not rather the case that
ZprivateZ debt has become Za function ofZ the institution that issues ZpublicZ debt $ that is, the .tateL
&hich then is the dog and which is the tailL 8he answer ought to be obvious $ for those who, lie
'ernane, believe in Z2ooseveltian resolveZ# .o you might loo forward to the ne,t bout of
6uantitative easing# 8hat is why Zprivate debtZ has become only Znotionally privateZ $ in reality it is as
ZpublicZ as the .tate#
8he reality remains that ZbondholdersZ no longer call the shots $ vi rerumV by force of thingsV ;nd
/ross may Ze,itZ as much as he lies, but Zyou[ve got to be in it to win itVZ &hen ZprivateZ debt e,its
the field, taes its ball from the pitch and refuses to play, then it has lost Zthe gameZV 'ecause Zthe
rulesZ have changed, because Zthe goalpostsZ have been moved# *ou might say, to ape 'ill Clinton $
Z(t[s the .tate, stupidVZ 2egards to all#
XXXXXXXXXXXXXXXXXXXXXXXX
'ehind the smooth, flawless writing style, &olf almost riss hiding some pivotal concepts that he has
diligently utilised# Z(deas,Z said &ittgenstein, Zare lie spectaclesJ they shape the worldZ 3( 6uote from
memory5#
8he first ZideaZ is that of ZelitesZ or ZleadersZ# 8here are divisions within and between @uropean elites#
'ut what will bring them together is, to 6uote the astute 'enjamin ?ranlin, the realisation that Zwe
will a l l hang together, or we shall most certainly hang separatelyVZ 3'y the way, ( heard that a
Chinese military helicopter nearly bumped into a Aapanese military ship yesterday near a disputed gas
well#### ( will say no more on this### or and there is that little distraction in North ;frica5#
8he other ZideaZ or ZconceptZ &olf uses is contained in this wonderfully revelatory sentenceJ Listen,
Zwhen private lenders tighten the noose, notionally private debt tends to turn into public debt, as
governments try to rescue imploding financial systems and sustain activity in collapsing economiesZ#
Don[t you just l o v e that Znotionally private debtZL ZNotionallyZL &ait$a$minute### but ( thought it
was ZprivateZ debtV +rivate, private, privateV
.o it turns out that there is little that is ZprivateZ about debt### e,cept the profits for the lendersV
3Z)ouston, ### capitalism has a problemVZ5
8he ne,t ZideaZ is the untenability of governments repaying debts on the (rish model# (t simply ain[t
gonna happen, because t h a t 3V5 would tear the @U apart# )ere is a little treat from Michael +ettis to
illustrate the pointJ
httpJKKmpettis#comK!"1"K11Kthe$rough$politics$of$european$adjustmentK
?inally, there is the idea of Zdebt deflationZ $ an old (rving ?isher number still outrageously fashionable
3rightly so5J ( have it here $ regards to allV
httpJKKfraser#stlouisfed#orgKdocsKmeltCerKfisdeb33#pdf
Y 2i $ *ou will recall Davies[s recent discussion on China# )ere is a piece from Aohn +lender that
pretty much confirms most of the things ( argued bac then#
httpJKKwww#ft#comKcmsKsK"Kdee11bde$-<ab$11e"$acf"$""1--feab-<a#htmlRa,CC1DLj<r0='
8he following paragraphs are particularly poignantJ
Z8here is also a political cost to any decline in the value of the dollar# Chinese nationalist feeling runs
high when government investments turn sour# (ndeed, Chinese sovereign wealth funds caused a public
outcry when they invested too early in U. investment bans during the financial crisis####
China is, in effect, a neurotic trillionaire, stuc on a treadmill seeing to resist the structural tendency
of emerging maret currencies to appreciate# 8he leverage that comes from being the world%s biggest
creditor scarcely 6ualifies to be described even as soft power# Most of the time it amounts to little more
than impotence# ;lternatively it can lead to mutually assured destruction####
8he two probable outcomes are more protectionism from the U. and, ultimately, a huge currency loss
for China on its dollar reserves#Z
If course, global imbalances are only the symptom of a far deeper malaise that goes to the heart of
capitalist industry and society $ something that needs to be analysed by changing the categories and
concepts of orthodo, economic analysis, such as ZcompetitionZ and ZmaretsZ, Zprivate and public
sectorsZ and so on# &e will find is that what ails capitalism is its essential lac of participatory
democracy in reaching decisions about the use of resources and, indeed, even the definition of what
ZresourcesZ are 3that is, the ZpricingZ of e,isting ZassetsZ5# Cheers#
2eport joseph belbruno ] March 0 1!J3"am ] +ermalin
Aust a rider on literature# 8he novel is a literary form that is fast falling into desuetude $ and rightly so,
if you allow# .ince .t# ;ugustin[s [Confessions[ made introspection a literary mode of projecting
ZindividualZ emotions onto Zthe public sphereZ, the novel $ which burst prepotently to mass readership
in the 1<th century $ has provided most of us with Zdelusions of grandeurZJ &ho needs politics when
we can stand for an entire world of e,perienceL 3( remind participants of the worlds of Aoyce or &oolf
or, indeed, Marcel +roust#5
(n reality, these are ultimately pathetic ways for ZindividualsZ to tell themselves that, despite their
Zpower$lessnessZ, in spite of all### their ZfeelingsZ still countV NoV Z( actually willed it thusVZ
3NietCsche[s [:arathustra[#5 &hich is what has inspired hordes of delusionaries from Madame 'ovary to
/ermaine /reer 3Lord, she is ;ustralianV5 to blurt out, Z8he personal is politicalVZ
8hin againV (t[s the political 3V5 that is ZpersonalZ $ painfully so, as /ideon has just reminded us#
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
8he ?ed and the @C' are not on Zdivergent pathsZ $ they are on a collision courseV 8he difference is
that 'ernane is driving one of those )ummies, whereas 8richet is on one of those ?(;8 B""s $ cute,
but###
.hort of a declaration of war, one is bemused by all the musings and speculation about ZintentionsZ and
ZsignalsZ from powerless technocrats in a global financial 3and even political5 reality that is fast
slipping away from any sort of ZleadershipZ, economic or political#
;t the two$day meeting of the 'an for (nternational .ettlements in 'asel,8richet confirmed that
central baners around the world are becoming increasingly concerned about rising inflationary
pressures# )e saidJ
ZIf course, the additional tensions observed on oil and energy are giving additional importance to the
message we delivered in Aanuary# &hat is clear is that, in emerging economies, you see strong signs of
inflationary threats#Z
8richet is under a strict mandate $ and the 'C@ is under virtual /erman dictation 3see this editorial by
Les @chos5# httpJKKwww#lesechos#frKopinionsKeditoK"!"11<=-"<11"$la$bce$sous$influence$
allemande$#htm
'ut 'ernane is showing the /ermans the middle finger $ and he is Zmagnificently rightZ, to echo
Eeynes[s commendation of +resident 2oosevelt when he too the dollar off the gold standard in 1<33#
8o paraphrase an article in the ;ustralian 'usiness .pectatorJ
'ernane will continue the 4U.1"" billion bond buying program U dubbed F@! U until Aune as
scheduled, and even go well beyond it, taing advantage of that Ze,orbitant privilegeZ to print the
world[s currency# 'ernane has told Congress that monetary policy would only be tightened when the
ban was confident that the U. economy was enjoying a sustainable recovery, the jobs maret was
improving, and inflation was edging towards the ban%s ! per cent target# .ome worry that the U.
central ban may be tempted to continue with ultra$loose monetary policy in order to counteract the
drag to the U. economy from rising oil prices# ;nd overnight, a top U. central baner said that the
ban%s bond$buying program might be e,panded if current instability in the Middle @ast and North
;frica led to growing U. economic uncertainty#
*ou see, 'ernane has Z2ooseveltian resolveZ $ ZballsZ in other words# ;nd he is going to blast the
/erman and Chinese leaderships out of the water without any pity whatsoever# (t[s what those
miserable political elites and their technocratic henchmen deserveV
2eport joseph belbruno ] March = 1!J"<am ] +ermalin
Z8he central ban,Z writes Munchau, Zis the only institution that taes a euroCone$wide perspectiveZ#
*esJ but that ZperspectiveZ is blinered by its ZmandateZ and by its ZcultureZ $ and we now what those
are# 8he ZcredibilityZ of the @C' in terms of Zfighting inflationZ is in reality an overriding imperative
to preserve the party of ZinterestZ as against the party of Zinter$estZ 3Latin, inter$esse, the common
good5# 8he party of ZinterestZ is represented by the governments whose bans would suffer most if
inflation too off in @urope $ /ermany and ?rance, the ZfinanciersZ of @urope#
&e now that low inflation means the inability of @uropean ZdebtorsZ to repay their debts in inflated
eurosO and we now that easier money would also e,pand employment and support e,ports outside the
@U# .o we now why the @C' mandate is absolutely deleterious for the @U as a whole# &orse still, it
has also become ZirrelevantZ $ because, as ( am arguing at the /avyn Davies 'log, ZinflationZ can no
longer be confined to consumer goods but must tae into account the Zasset$price volatilityZ that allows
[?inanCapital[ to siphon off ZprofitsZ and revenue from the part of capital properly called ZindustryZ#
;s ( have indicated in a Comment to Clive Croos[s Ipinion in today[s ?8, the battlelines are drawn#
'ut we now that history stands on our side#
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
?or months now, ( have been preaching that we have a ZfractureZ in the polities of advanced industrial
capitalist countries# 8his fracture is due to the fact that these countries are less ZindustrialZ and more
ZfinancialZV 8he ZfractureZ can be symbolised by the difference between ZinterestZ and Zinter$estZ# In
one side, we have a class of [?inanCapital[ owners who want their ZinterestZ paid rigorously by the
.tate that bailed out the borrowers $ by which means the lenders were also bailed out#
'ut here the .tate has got a huge problem# *es, because the .tate is supposed to represent the Zinter$
estZ 3the common good, in Latin5, which is very different from the ZinterestZ owed to the lenders
3?inanCapital5# ;t the moment, the U. and the @U are run by representatives of Zthe party of i n t e r e
s tZ# *et three things are certain in lifeJ death, ta,es, and no ta,ation without representationV
Now, the reality is that the party of Zinter$estZ is not represented by the .tate# *et, the .tate is
increasingly and e,clusively the o n l y Zinter$estZ in capitalist society 3V5 $ because only .tate deficits
can eep Zthe society of capitalZ functioningV
.o the big fight now is between these two parties $ that of ZinterestZ and that of Zinter$estZ $ that are
increasingly ZrepresentedZ by a ZfractureZ in the governing elite, a ZfractureZ most palpably evident in
the metropole of capitalism $ the U. of ;#
(t is no e,aggeration to say that the coming struggle will mae 2oosevelt[s New Deal loo derisory in
comparison# Listen to me, folsJ ( am calling Z8he .econd ;merican 2evolutionZ# 'ecause anyone
who nows anything about ZrevolutionsZ in &estern countries since 11-" also nows that they are
Zalways and everywhere a fiscal phenomenonZ 3with apologies to Milton ?riedman for mauling his
famous monetarist ma,im5#
)ave ( any doubts as to who will prevail in the frayL 8he party of borrowers, of course# 8he party of
the .tate# ZNo ta,ation without representationZV ;nd the reality is that those who are most Zta,edZ are
those who ZworZ# 8hat, ( assure you, cannot go on for long####
httpJKKlecercle#lesechos#frKeconomistesKenneth$rogoffK!!1133="!Kglobal$imbalances$without$tears
Y cdsf $ ( thin ( was being harsh and judgemental $ just a refle, response to some of the garbage the
?8 publishes much too fre6uently for my liing# 'ut really, if ( were reviewing this article ( would tell
him to mae it much tighter, less rambling, and above all, give us an idea of Zwhat the topic isZ $ in
other words, Zwhat is your argumentZ, what are you trying to demonstrate# ( have not read anything
about :imbabwe in perhaps years 3pity, because ( could not reply to that awful ZhelmutgolpeZ below5,
but just by looing at ZCuriousZ and at Z?eli, DrostZ ( have learned more than from 2ussell[s ramble
3forgive the alliteration and assonance5#
;ctually, ( was thining last night of the perfect historiographical ZmodelZ that 2ussell could peruseJ $
Machiavelli[s Z8he +rinceZ# Now, t h a t is a wonderful e,position of how ZanecdotesZ can be
ZsuperimposedZ on tyrannical and demagogic practices# 8here is such a Ztechni6ueZ, alas, just as there
are techni6ues for torture and brutality and terror# ;ctually, on the subject of ZterrorZ $ Mugabe does
now about this $ could ( tae the liberty to lin )annah ;rendt[s Z8he Irigins of 8otalitarianismZL *ou
will find Holume 3 very absorbing, but the entire wor is a gift to humanity# Cheers#
httpJKKwww#archive#orgKstreamKoriginsoftotalit""arenRpageKnBKmodeK!up
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Mihail /orbachev will go down in history as one of the great reformers of the century now past# (t
was a tragedy for 2ussia and for his own political fortune that he came to prominence as the leader of
a political structure that was rotten and crumblingJ this fact alone deprived him of the opportunity to
lead his people to a better future $ a gift that the goddess ?ortuna handed to Zl[homme des tabernesZ
3*eltsin $ a play on Zman of the cavesZ ^cavernes_ and taverns ^wine$bars_5#
8hose of us who had the proud fortune to wal in and breathe the free air of 'erlin reunited, and to
discover that +rague was indeed closer to free @urope than Hienna, owe much to the artificer of
glasnost# 8he united @urope of the future will devoutly immortalise Mihail /orbachev as Z+ater
+atriaeZ#
2eport joseph belbruno ] March B 1"J"-am ] +ermalin
Y cdsf $ &ait a minuteV ( am a trained historian 3M; at the University of Melbourne $ if they did not
train me properly, it is entirely my fault because the academic staff there were and are first ran5# ;nd
loo, 2ussell obviously means well, but he really ought not to try to emulate that charlatan$in$chief,
Niall ?erguson#
&hen drawing historical parallels, you have to start with a ZtopicZ 3/ree topos, a landscape5 that
maes historical ZcomparisonsZ both ZpossibleZ amd ZmeaningfulZ# Now, the unfortunate thing with the
ZtopicZ 2ussell has selected is that Zhistorical parallelsZ are neither possible nor meaningful#### on the
basis of mere ZanecdotesZ $ whom Mugabe rang on Christmas night, why he cancelled a holiday at an
opportune moment### and so forth#
.o in the end, it seems to me that 2ussell wrote this in a fit of thoughtlessness and is lavishing praise
on a dictator, 2obert Mugabe, who certainly deserves none#
My 6uestion is $ why waste time on a despicable character, unless you have something truly
remarable to say about himL Ine e,ampleJ ;ugustus 3or Ictavian as he then was5 on the battle at
+harsalae, having defeated the 2oman 2epublican army led by CassiusJ he turns to his centurions and
saysJ Z)oc volueruntVZ 38hey willed it thusV5 Now, that is historically instructive and devastating#
Caesar upon crossing the 2ubicon to march on 2omeJ he said Z;lea jacta estVZ 38he die is cast5
8hese are two simple e,amples of Zanecdotal historyZ that is 6uite significant $ even if we stic to the
notion of history entertained in the time of )erodotus and 8hucydides as Zamethodon hyleZ $ that is to
say, Zformless matterZ#
(f you were referring to my Zeconomic viewsZ, then ( than you for your appreciation# (f you meant
someone else, ( promptly apologise for my presumption# /ood wee$end#
2eport joseph belbruno ] March B 3J-"am ] +ermalin
Y ;E $ +erhaps it is some### Zsmart ;lec 32ussell5ZL
Y lawrenceab $ /ood point# (t is p o s s i b l e for dictators to be indeed very ZcleverZ# ?orgive me for
saying so, but ( find the study of the NaCi dictatorship, from its inception in the 'eer )all +utsch,
through to its manipulation of ideologies, symbolism and even choreography 3the Nuremberg rallies5,
to its orchestration of /erman society 3mass propaganda, the use of terror5, to its ZcircumventionZ of
the /erman elites 3industrial and military, the &ehrmacht5 $ can anyone deny the 3sit venia verboV5
abominable ZfascinationZ that all this induces, even in the most prudish historianL
'ut tell meJ where oh where is the ZanalysisZ in this pieceL &here are the ZcriteriaZ for the supposed
phantomatic ZanalysisZ#### in short, to cut to the bone $ what do ZweZ learn from thisL )ow to be
Zdiligent dictatorsZL 8he prosecution rests#
;nd here is +aul Erugman[s cheey reaction to the 2omer articleJ
httpJKKrugman#blogs#nytimes#comK!"11K"!K!0Kinflation$theoristsK
Ine weeps for the times when /reenspan assured us that monetary policy cannot target asset prices#
&hat has changed is the ability of central bans to affect lending activity through the discount window
rather than through much less effective open$maret operations# 8his is why ZinstitutionalZ changes
must occur# 'en 'ernane, who is a political animal in the ;ristotelian sense, must have hoped for
Z2ooseveltian resolveZ upon Ibama[s (nauguration similar to his own in pushing the boundaries of ?ed
intervention 3see paper lined below5# 'ut Ibama dithered, and the momentum has dissipated#
'ernane is now having to compensate for the ;dministration[s Zlac of resolveZ#
8hese ZpoliticalZ glimpses into processes and decision$maing that are often couched in ZtechnocraticZ
mysti6ue are symptomatic of the need to re$e,amine all those ZtechnicalZ economic categories and
ZtransmuteZ them into political and institutional realities# Erugman has even called for ZcircumventingZ
the impassive Ibama politically# &hat everyone fails to e,plain is why we are still using technical
categories that mutilate our ability Zto actZ when the reality calls insistently for their ZsupersessionZ $
because they no longer mae ZsenseZ, e,cept as straitjacets that paralyse us into a state of
ZunderemployedZ debility and waste and misallocation of resources#
(n contrast, 2oosevelt[s Zwe have nothing to fear but fear itselfZ maes perfect sense in this conte,tJ we
have to jettison the categories of Zeconomic fear and paralysisZ and confront a reality pregnant with
possibilities# )ere is that 'ernane paperJ
httpJKKwww#piie#comKpublicationsKchaptersTpreviewK31<K=iie!0<G#pdf
Y ;le,ander M and 2DD $ 'oth your observations refer to the ZtelosZ of the capitalist economy $ not
of ZallZ economies if by ZeconomyZ we mean purely a mode of human productive activity# (t is
abundantly clear that the aim of ZcompetitionZ in a capitalist economy is to realise ZprofitsZ and, in
order to do this, Zto destroy the competitionZ# .o from the outset the ZantagonisticZ aim of
ZcompetitionZ is evident# @conomic analysis believes that ZcompetitionZ taes place Zbetween
capitalistsZ# 'ut this is simply not accurte because Zthe rules of capitalist competitionZ are very
rigorously fi,ed by most legislatures $ even internationally through the &8I# (f there are ZrulesZ to a
game, then we have to as Z&ho sets the rules, and whyLZ
3)ere is a lin to the Z?reiburg .choolZ that raised these matters $ to be read critically, of courseJ
httpJKKdocs#google#comKviewerL
aMv>6McacheJ6IesB;I=1:*AJwww#econstor#euKbitstreamK1"-1<K-3-3K1K"-T11bw#pdf`the`freiburg`
school`walter`eucen`and`ordoliberalism>hlMen>glMau>pidMbl>srcidM;D/@@.gIm*=)I1grl(
;2M$3m&+rF"iM*DgTFd$
?wU-n.UAj3*1Aop)pbD288r.)oaNbLy3rtU=,?cv.y<!cew;+etrpjU$)AnL$
8g2ELTdE(B!o6/Mo=3,C0s01piw*.dIT6fB'c1>sigM;)(@tb.BB"d3vDp!mh<r01$?t:Fg0gcHp;
8he real antagonism in a capitalist economy is not in the sphere of distribution 3Zthe competitive
maretZ5 but rather in the sphere of productionJ it is the antagonism between worers and capital# .o
the Zvicious circle of competitionZ $ the fact that ZcompetitionZ, far from being Zself$regulatingZ, will
lead to the destruction of society 3and that includes Zthe society of nationsZ5 arises from this
fundamental antagonism over the control of productionJ not just Zwho gets whatLZ, but also Zwhat is
produced, how is it producedLZ 8he classic study on these themes is still Earl +olanyi[s Z8he /reat
8ransformationZ, hereJ
httpJKKwww#scribd#comKdocK301=-000K8he$/reat$8ransformation$Earl$+olanyi
Capitalists have one way of gauging the level of antagonism in a capitalist society $ inflation# 8he
reason why inflation is vital is that it signals to capitalists Zthe willingness of worers to submit to the
discipline of the wage relationZ# )igh inflation means high insubordination $ that is why we have the
Znatural rate of unemploymentZ or N;(2U# In this, see 'ob 2owthorn[s classic study ZCapitalism,
Conflict > (nflationZ# Note that this Znatural rateZ is rising $ so there is nothing ZnaturalZ about it, but
there is a lot that is ZpoliticalZ#
.o we get bac to Zsovereign debtZ# (t is in seeing to intervene or Zto mediateZ this conflict, this
antagonism, that Zthe sovereign .tateZ intervenes# (t runs ZdeficitsZ $ ultimately, the ZdeficitsZ turn into
a dog$fight between ZcreditorsZ and ZdebtorsZ over control of social resourcesJ the creditors 3finance
capital5 want to hold the debtors 3worers and .tates5 to their promise to pay interest and principal# 8he
debtors realise that Zthe promiseZ was all a sham, and what matters really is Zwhat is to be produced,
when and how and by whomLZ and Zwho gets what, when and howLZ
Now we have reached this ZshamZ point# 8he reason why we need to understand Zwhat this means,
reallyZ is that our future depends on the answer# My answer is, in one line, that we must tae control of
our living activityJ capitalist ZprofitabilityZ can no longer serve as a criterion for the allocation of social
resources $ because ZprofitabilityZ clashes and collides with Zsocial needsZ that can no longer be
ZsatisfiedZ by ZprofitabilityZ# 8hat is the ey to ZdeficitsZ# 8hat is where we must looJ why must we
wor so hard to produce ZthingsZ that we do not need and that threaten the biosphere in the processL
2egards and /ood wee$end#
+.J ?or your delight, ( am lining a review of the Ztheoretical stanceZ on inflation inside the ?ed# (t
could be titled Z8hey[re ;ll )aws NowVZ# &hich reminds me of an amusing anecdote recounted by
/eoff )arvey at Cambridge about how Aohn Eenneth /albraith, standing well above si, feet tall,
complained about the lac of serious intellect in economics, disdainfully blurted out to Aoan 2obinson,
a measly one metre seventy, $ Z8hey[re all +ygmies nowVZ
/eoff pointedly refused to e,pound on 2obinson[s reaction# )ere is that linJ
httpJKKwww#nytimes#comK!"11K"!K!=KbusinessK!=view#htmlLTrM1
; 6uic theoretical comment# ?or us to resolve these problems involving inflation and sovereign
deficits and debt, we need to re$theorise the entire ZmeaningZ of economic concepts $ from
ZcompetitionZ to ZmaretsZ to ZmoneyZ to ZinflationZ to Zlabour$powerZ, even down to ZtechnologyZ
and ZproductivityZ# +rofessor &ray provides a stimulating introduction to the greatest concept needing
redefinition $ ZvalueZ# )e is wrong in his analysis, but his study throws up the inds of 6uestions that
we need to answer $ invoing people from Mar, to Eeynes to Minsy# .omewhere around there lies the
answer# )ere is the linJ
httpJKKwww#scribd#comKdocK1=0-!B-=K&ray$L2$8heories$of$Halue$and$the$Monetary$8heory$of$
+roduction
++.J ;t 2DD $ ( did you the injustice of not acnowledging one of your main 3perhaps implicit5 pointsJ
$ namely, the fact that ZdebtZ denotes a ZprojectZ for future production# *ou are 6uite right, and this
raises the problem of the relation between ZpricesZ 3even in terms of income$flow from investments5
and ZproductionZ 3the use value to be derived from monetary investments5# )aye famously dealt with
this problem 3see Chapters ! and B in the lin below5, and so did .chumpeter 3see +art 3 of
ZCapitalism, .ocialism > DemocracyZ5 with very different answers# Neither had the right answers, but
.chumpeter[s is by far the more interesting one and at least points us to possible answers# )ere are the
lins for bothJ
httpJKKwww#scribd#comKdocK01=1"<1KA$a$.chumpeter$Capitalism$.ocialism$and$Democracy
httpJKKmises#orgKboosKindividualismandeconomicorder#pdf
Y Martian (mporter $ ;bsolutely right# &hat is stopping the U. from going the way of (reland is its
Zmonetary autonomyZ and the reserve status of the greenbac# 8hat will last for so long as the U.
remains ZCapitalist CentralZ, because bond holders have nowhere else to go 3the euro may even cease
to e,ist soon $ imagine if anyone would trade it against the dollar in a serious geopolitical crisis, either
trade or military5, and because the dollar is the only 3not unit of account, not just means of e,change,
but above all###5 store of ZvalueZ# ZHalueZ stands for the ultimate form of capitalist Zli6uidityZ $ even
gold does not have the U. Marines to enforce it as ZmoneyZV If course, there is no need to mention the
yuanJ Chinese capitalists are already speculating against it, because as soon as it appreciates they will
6uicly realise their windfall by reverting to U. dollars or treasuries 3the irony is that even the Chinese
dictatorship is afraid of losing its beloved treasury holdingsV )ow else will they finance their beloved
[princelings[ studies### in U. collegesL5#
(f all else fails, there are two further remediesJ Zune,pected inflationZ $ a short sharp shoc that halves
the real value of the debt# ;nd the other one is domestic reformJ deleverage and curtail the wasteful
financial sector 3&all .treet and its acolytes that absorb most U. talent5, and impose ta,ation on U.
corporations 3what will they do $ move to 'eijingL5#
2emember that e,port$dependent countries are not more ZproductiveZ than U. industryJ they merely
cheat on wages and domestic welfare and technological ZcopyingZ to subsidise their e,port industries#
Ultimately, a tariff on imports from such countries would hurt where it really hurts $ the profits of
monsters lie the Chinese .tate$Iwned @nterprises 3.I@s5# .ee how they get around that one when
Chinese employment collapses and 8ahrir .6uare 3Cairo5 loos lie a stroll in Central +ar#
8he important bit, though, is the theoretical framewor of analysisJ why do capitalist .tates get
indebtedL ;nd what does that mean ZreallyZL 8he answer is long and comple,# &hen ( find a valid and
concise way to formulate it ( will be happy to share it# 2egards#
8oseph elruno ] March - 11JB0am
Y 2ichard & $ +recisely# ;part from the theoretical 6uestions that are foremost in my mind $ just as
febrile as the pace of developments in the global political economy 3let us remember that Zeconomics is
a concentrate of politicsZ $ yet amaCingly it was Lenin who stated the opposite Zscientistic Mar,istZ
profanity5 $ we must not forget the geopolitical priCes at stae# Aust as /ermany has always enjoyed
those e,ports to the U. 3due to the 8riffin dilemma whereby the reserve currency $ the greenbac $
inevitably tends to be overvalued and its issuing country absorbs imports to issue li6uidity for world
trade5, so now it finds it difficult to join the U. to confront the Chinese dictatorship which grows into a
portentous danger to humanity Zby the hourZV
8he game /ermany is playing is a threat not just to our well$being, but above all to our security $
because the only thing that will save western economies now is to inflate their way out of debt
obligations and bury the Chinese dictatorship under an avalanche of hot money# +rofessor Michael
+ettis in his latest post reminds us 3how clever5 that it is above all Chinese capitalists themselves 3VV5
who are buying yuan to perdition in e,pectation of the inevitable revaluationV 8he &est simply cannot
import unemployment from ;sia any longer# 2ather it must impose a democratic regime on the Chinese
leadership by isolating and encircling it# 8he alternative will be a global conflagration with unthinable
outcomes#
(n the words of Martin &olf and +ettis, Zwe cannot e,port to MarsZ# @ven worse, China is a Zplanet
MarsZ with a billion worers e,ploited by a dictatorship een on accumulating resources that it
promptly deploys to build up its military$industrial comple,# &e must confront it, and confront it now#
;nd for that we must dilute its ability to purchase U. dollars with cheap e,ports# ;nd we must put all
our resources to worJ we need growth for all not just for a few e,port$dependent countries 3lie
/ermany and Aapan5# 8hat means confronting the western finance sector which is debilitating the
productive power of our economies by seeing Zfictitious profitsZ and diverting those to itself#
+.J Aust a 6uic lin to that 'ill /ross letter to investors asing what may happen when the ?ed stops
buying treasuries# ( thin the answer to that 6uestion 3to the very fact that we are asing that 6uestion5
will re6uire a radical new approach to the role of the .tate in the capitalist economy as it has developed
in recent decades#
httpJKKwww#busines###cument>srcMrot
@,cellent summary from Davies because, if read correctly, it brings together lots of nots 3if you pardon
the assonance5 that will come painfully and catastrophically to the teeth of the comb the way the @C' is
going $ and the party to get hurt will be inevitably the @C'# 8he insuperable difficulty for the @C' is in
its mandate, which was obviously meant to replicate the 'undesban[s rigid anti$inflationary stance in
the old 'undesrepubli# 'ut you and ( now that the fable of Zdefending the DMZ and maintaining a
Zstrong currencyZ and low inflation in /ermany was always a fable that e,ploited the advantage of
/erman industry over the rest of @urope to eep the DM undervalued by s6ueeCing domestic demand
and eeping e,port prices low#
8he trouble is that now the game is up# ;nd the ;mericans do not give a trifle about the U. dollarJ it[s
beggar$thy$neighbour in a big way# &ith the euro flying and the ?ed buying treasuries, with the rest of
@urope grossly indebted and being Zcom$+actedZ into austerity $ a lot of things have got to give# 8his is
not a debacle that the @C' is in any position to negotiateJ its mandate is strictly ZtechnocraticZ when
what you need is ZpoliticsZ, and a lot of it#
.o far, we have all concentrated on the Zimpossible 6uartetZ 3+adoa$.chioppa5 that boils down to the
impossibility of conducting a @uroland monetary policy without an @U Zeconomic governmentZ and a
common fiscal policy# 'ut now we see that @C' restrictions and monetary policies will mae life
absolutely intolerable for the @uropean periphery# No amount of fiscal harmonisation and co$operation
will fi, this impasse, because monetary policy is the most direct instrument of coping with### 3( have to
scream this out5### c r i s e sV ; bunch of technocrats in ?ranfurt 3( have been involved with central$ban
functionaries in the past5 are light$years away from the huge political problems that the @U is facing $
that is not their gameV (n any case, as in [Ulysses and the .irens[ 3not Aon @lster[s boo, the piece ( wrote
last year for Zwolfe,changeZ5, the @C'[s hands are tied, its Zflag is nailed to the mastZ#
8he point here is that the @uropean, and especially the /erman, elites thin that it is possible to have
Ztechnocratic governmentZ in @urope# 8hat was possible in the 'undesrepubli, because Zthe gameZ was
riggedV 3; lot of central$ban policy lends itself to game$theoretic analysis, from moral haCard to free$
riding to prisoner[s dilemma#5 'ut with the periphery unable to e,port to the rest of the world and to
absorb any more /erman e,ports $ a higher euro and higher interest rates will sound the death$nell#
Z)ar 8richetV 8hat is thy bellK that summons you to heaven#### or to hellVZ
httpJKKwww#businessspectator#com#auKbs#nsfK;rticleK'ill$/ross$bonds$economy$debt$?ed$F@$
pd!"11"3"3$@L!E/Lopendocument>srcMidp>emcontentTas,Tfinancial$marets
8oseph elruno ] March 3 !J--am
&hen ( lined that .tephen /renville article in one of my previous comments, ( meant to warn against a
definition of ZinflationZ that may well not reflect the changing institutional realities of capitalism# 8o
paraphrase Milton ?riedman, Zinflation is always and everywhere an institutional phenomenonZ# .tephen
Eing issues the same warning in today[s ?8 hereJ
httpJKKwww#ft#comK###htmlRa,CC1DLj<r0='
(f indeed as Eing and /renville underline, the stirrings of inflation we are e,periencing are due to
Ze,ternal shocsZ, it may well be wise for the &est not to absorb it with austerity measures, but rather by
ensuring that it does not translate into asset$price bubbles# (nflation is absolutely essential to the &est
right now in a few regardsJ first, monetary e,pansion creates far greater inflationary pressures in
countries lie China 3see Le, Column today on the U. dollar5, forcing those ZregimesZ to relent on their
slave worers, raise their e,change rates and help contribute to the demise of the Chinese dictatorship $
now truly between a roc and a hard place# 8his means that these countries will bear Zthe burden of
adjustmentZ through re$alignment of e,change rates and lower e,ports $ which will help the U. e,port
its way to greater growth#
.econdly, both Zre$alignmentZ and inflation will reduce the real cost of servicing the mountain of debt
western governments have accumulated to rescue Zprivate lendersZ 3?inanCapital5 at the e,pense of both
foreign lenders and bondholders 3debt is denominated in U. dollars, of course $ how elseL5#
8hird, inflation itself puts a damper on financial speculation and ZinnovationZ because it raises Zlenders[
risZ# ;nd finally, as ;dam .mith jocularly put it, rising prices mae oligopolistic entrepreneurs saunter
with glee at the prospect of charging more for their goods than they paid as wages and capital$asset
obligations depreciate 3in the face of low employment and capacity slac5#
TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
+recisely# ;nd foreign affairs will be one other area of Zsocial interactionZ in which the interests of the
Chinese people will clash ever more dramatically with the interests of the Chinese dictatorship# +illing
has stopped half way $ understandable, given the limitations of space#
'ut the ZclashZ will become evident with each passing dayJ $ the paramount importance of maintaining
Zworld peaceZ and international co$operation $ even when defined as the ZglobalisationZ needs of the
capitalist Zworld maretZ 3in other words, the freedom of capital to move across ZmaretsZ5 $, all this will
soon clash violently 3literally5 with the most vital need for the Chinese dictatorship to eep its own
population enslavedV
( would invite +illing to draw a parallel here with the dissolution of feudal regimes at the dawn of
capitalist industry# 8here it was ZmoneyZ that dissolved the old bonds of feudal society# .imilarly,
capitalist industry and trade will confront the Chinese dictatorship with the need to engage more
ZcommerciallyZ with the rest of the world, whilst at the same time its domination of Chinese people will
come under insurmountable pressure# 3( would invite readers to compare ;libaba[s response to the
uncovering of corruption among its rans $ a clear sign of how Zshareholder democracyZ itself is
incompatible with dictatorshipV5
8oseph elruno ] March ! 1"J!=am
Y aufsteiger $ ( thin large part of the answer has to do with Zsocial corporatismZ $ the ability of /erman
capital and trade unions to negotiate wage and employment policies that allowed for stable economic and
monetary conditions# 8he political cohesion of the /erman bourgeoisie and the historical defeat of
/erman worers, together with the e,perience of hyperinflation in the &eimar period, helped seal this
Zgrand bargainZ# @mployment, social welfare and re$training policies also help and are part of the deal#
2emember also that the /erman woring class always had a strong Zcorporate and silledZ /elernte
tradition, which was consolidated with the rise of /erman .ocial Democracy under 'ismarc# )ence the
strength of /erman ZengineeringZ# .trong universities and training institutes helped too#
'ut my persuasion is that /erman industry gained enormous advantages from the Marshall +lan and the
need to maintain Zsocial peaceZ in the 'undesrepubli to avert the advance of ZcommunismZ from the
.oviet bloc# Ince this advantage became entrenched and aided by the e,act opposite conditions in (taly
and ?rance 3fractionalised bourgeoisies, poor baning institutions, antagonistic woring classes
radicalised by the ZresistanceZ to NaCi Iccupation5, the Deutschemar became clearly undervalued $ and
the 'undesban[s Zdefence 3Herteidigung5 of the DMZ against inflation served only to e,acerbate its
undervaluation in the face of Zcompetitive devaluationsZ from @uropean competitors and also helped
suppress domestic demand and encourage savings 3through higher relative /erman wages5#
Ine must read the ?reiburg .chool of Irdo$liberalists partly in this conte,t# ( am lining a study co$
authored by 'ob 2owthorn for 6uic reference# Cheers#
httpJKKwww#scribd####c$.ystem$?ull$'oo
8oseph elruno ] March ! 1!J"=pm
Y 8om $ .orry, 8om# ( was writing very hurriedly there# Aust a clarification# New technologies are taen
to be Zlabour$power saving technologiesZ# 8he reduction in employment saves capital in nominal wages
whilst the conse6uent reduction of prices for goods 3including machinery5 together with lower real
wages 3greater productivity, lower cost, of new technology5 allows capitalists to e,pand employment
utilising new machinery# ;gain, discussion in Minsy p!B0# 8he &icsell [Lectures[ you can find hereJ
httpJKKmises#orgKl###Mauthor>(dM!BB
abd 2icardo[s [+rinciples[ are hereJ
httpJKKoll#liberty###nM-B>(temidM!0
8oseph elruno ] March ! =J11am ] +ermalin
Y 8om $ *ou[ve got it the wrong way around# *our argument was first advanced by &icsell 3in his
[Lectures[, Hol 1, pp# 133$1--5# Capitalists will only utilise less efficient methods if money wages fall#
'ut they don[tV ?urthermore, once technologies become obsolete, they are rapidly discarded 3where is
that typewriter when ( need itL Damn these computersV5# Aust loo at .chumpeter[s theory of Z'usiness
CyclesZ in the homonymous wor#
&hat happens through reflation, very roughly, is that effective demand is held up and investment in new
technologies can tae place $ which is what oligopolistic industry does in the face of Zrigid money
wagesZ# 8he higher productivity of new technologies lowers the real wage and induces higher absorption
of labour power# 38he classic statement is in 2icardo[s Z+rinciplesZ, Ch# 31 [In Machinery#5 ; more
recent restatement is in Michal Ealeci Z.elected @ssays on the Dynamics of the Capitalist @conomyZ
and a useful review is in +aolo .ylos$Labini[s ZIligopoly and 8echnical +rogressZ# 8he financial side is
covered by )yman Minsy in Z.tabilising an Unstable @conomyZ U see especially discussion on p!B0#
)appy readingV
'ut, alas, the world is a lot more comple, than even thatV ( am woring on a fresh approach that
combines various insights on the forces at wor in this area# ( will see if ( can smuggle in some of the
concepts at a later date# 2egards#
Could ( lin a short piece by .tephen /renville 3e, 2'; in ;ustralia5 on the ZpoliticalZ implications of
all this on central bansL
httpJKKwww#busines###ument>srcMsrch
2eport joseph belbruno ] March ! 3J"-am
/uttenberg is precisely the ind of /erman politician we would rather not see# 8he recrudescence of
/erman elitism, particularly of the 'avarian brand, combined with ZaristocraticZ pretensions, is
precisely what @urope does not need at this juncture# No doubt, there are still die$hards in the /erman
elite who long for a return to 'ismarcian pan$+russian glory, but that is the ind of micidial mi,ture of
mediaeval nightly tradition and capitalist proto$fascist corporatism that led /ermany and @urope to
the catastrophic vorte, of the last century#
/uttenberg[s peculiar brand of ZarrivismeZ, his to,ic addiction to the Zaristocratic born to ruleZ creed is
what the shabby tale of his imposture and plagiarism have blown into full view# Unspeaably
ignominious is the role of populist rags lie Z'ildZ in defending /uttenberg[s gut$wrenching dishonesty
and arroganceJ once again, this shows the dangers that certain forces in /erman elites still pose for our
future#
8hat ought to concentrate our attention on another perverse anachronismJ the other ZaristocraciesZ in
@urope# (t is an item of the utmost importance for us to get rid of themJ $ because they are an atavistic
throwbac to the ignorant obse6uiousness of feudal servitude, a slavish antedilivian accoutrement that
we have to trash and burn with the utmost urgency
joseph belbruno ] March 1 11J!1pm
.entimental twaddle, of course# (n reality, ZcapitalismZ is not a ZgameZ, and it is not played by
ZindividualsZ# 8he reality is far more comple,# 8he ZentrepreneurialZ or ZinnovationZ mythology of
capitalism was perfected and promulgated by Aoseph .chumpeter $ without doubt, one of the greatest
theoreticians ever to grace the discipline of economics# ( have written on him at length at ZMartin
&olf[s @,changeZ $ ( may be able to place the lin a little later#
'ut the upshot is that it is a ZmythologyZ of very comple, theoretical provenance, but one that is easily
Zshot downZ $ so ( will not mae the attempt here# .chumpeter himself offered one of the most
insightful criti6ues of his own conception of Zthe entrepreneurial spiritZ 3Unternehmergeist5 in
ZCapitalism, .ocialism and DemocracyZ, which ( also hope to lin later# (ndeed, he was one of the great
analysts and theoreticians of Zmaret concentrationZ# )is own students, from +aul .weeCy to +aolo
.ylos$Labini, all went on to be great scholarly analysts of what became nown as#### that[s right, you
guessed it#### ZM o n o p o l y capitalismZV
httpJKKblogs#ft#comKmartin$wolf$e,changeK!"1"K"BK!-Khow$liely$is$financial$repressionKRrespond
joseph belbruno ] March 1 1"J3=pm ] +ermalin
Y ganastasiadis $ ?orgot to addJ (n the conte,t of ZadjustmentsZ to higher living standards rather than
toward a downward spiral of misery, may ( also commend your reference to ZChinaZ# ( strongly believe
that it is absolutely imperative for &estern capitalist countries Zto persuadeZ the Chinese dictatorship
not to follow the unsustainable path of /ermany and Aapan and Eorea and 8aiwan 3Ze,port
dependenceZ and domestic demand suppression5 $ which otherwise have dire conse6uences for all#
2egards#
httpJKKwww#lesechos#frKopinionsKanalysesK"!"110-<1-1=-$6uand$le$monde$arabe$met$pein$sous$
pression#htm
2eport joseph belbruno ] March 1 1"J3!pm ]
8hans to ?8 @ditors for being a little more ZinterventionistZ# ( have noticed lately ZintrusionsZ by a
number of ZparticipantsZ writing under pseudonyms that have absolutely nothing to contribute to
discussions e,cept 3often 6uite hideous5 personal attacs on other participants# 8his ZcannibalismZ, as it
is nown, undermines the integrity of the discussions and lowers the tone to a point where, as with
/resham[s Law in economics about ZmoneyZ, Zbad commentators drive out the goodZV 8his really
ought to stop to prevent ?8 discussions deteriorating to &.A standards# &ell Done ?8V
Y ganastasiadis $ @,cellent comment# ( lie the reference to Zburden of adjustmentZ that you use# ;s
you now, it is a phrase used in economic analysis to indicate that when e,change rates become Zmis$
alignedZ 3that is, no longer reflect Zfair e,changeZ on a number of criteria5, then ZsomebodyZ, that is,
one of the two parties involved in the Ze,changeZ must Zbear the burden of adjustingZ the
ZmisalignmentZ# ?or the reasons ( have elencated below, it is for /ermany and other surplus countries
Zto adjustZ so that Zeconomic activityZ can e,pand across @urope rather than contract in an endless
downward spiral of austerity where lower employment and investment chase lower consumption and
effective demand#
;nd ( ZlovedZ your reference to Z@uropean elitesZ $ because that is what matters in large partJ they
started this process of @U 36uite rightly and with considerable foresight in the case of people lie Aean
Monnet and 2obert .chumann5, and now they have to continue it for the sae of Z@uropeZ $ of the
values of our great civilisation and of its populations#
Y/ree (nvestor $ 8he above begins to answer your 6uestion# ?ar from not giving us clear directions,
Munchau is telling us loud and clear what the real options are $ as distinct from the self$defeating
stratagems and obscurantism and rationalisations coming from our political 3so$called5 ZleadersZ# 8he
main thing to avoid is confusion, especially in economic policyJ$ you need Zthe right instruments for
the right goalsZ#
(t is clear that Munchau is a devout Zpro$@uropeanZ who wants to see a strong and united Z@uropeZ
emerge from this process# 8he people who are doing their level best to divide us are some of those
ZelitesZ ( was pointing to $ because they see to protect their individual short$term gains rather than the
collective long$term good#
2eport joseph belbruno ] March 1 <JB=pm
; far$sighted and most sensible editorial which shows how ZcapitalismZ 3or the ideology of it5 is
breaing its own classical Zmodus operandiZ where the [?inanCapital[ is concerned# 8his is
symptomatic of a much greater pandemic that is afflicting the capitalist worldJ $ the deleterious
preponderance of finance in capitalist industry#
Leaving aside (reland, for a moment, we need a new framewor of analysis of capitalism that helps us
understand the real transformations happening all around us, because the old ZideologicalZ or
ZstrategicZ 3for capitalists5 framewor is clearly less than useful to ZusZ, and becoming harmful even
for the party of ZcapitalismZ# 8his is evinced by this @ditorial[s own call Zto mae capitalism worZ,
which points to the ineffectiveness of current analyses to understand, let alone resolve, the current
crisis#
8he call is goodJ Mae bond$holders pay, because we cannot have the intolerable situation where Zle
mort saisit le vifZ $ the Zdead handZ 3mainmorte5 of debt seiCes the living labour and hopes of (rish
worers and people at large#
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( do not thin it is fair to draw a malign connection between possible hedge$fund windfalls on renewed
bond maret tensions and Munchau[s diligent journalism# ;part from the fact that financial agents play
bets Zeither wayZ 3that is the entire point to CD.s $ but remember, there are ZcounterpartiesZ, people
willing to bac the other side5, neither our opinion of Munchau[s e,cellent wor nor the fate of the @U
ought to be decided by the activities of a few speculators#
'ut another point of relevance, now that finally many comments bring into play Z@uropean elitesZ $ and
here, for people who thin it is ZracistZ to inveigh against national elites, ( could spare one or two
words for the (talian elite, who are all too eager to cast nostalgic glances at their fascist lunacies 3just
mention 'erlusconi and we all burst out laughing5 $ is the reality that these ZelitesZ face a major threat
from a ZpincersZ effectJ their own populations wishing to defend their living standards on one side, and
new capitalist elites 3the Chinese dictatorship above all5 using hundreds of millions of virtual slave
labour and all manner of ZcheatingZ 3from rigged e,change rates to technological theft and spying5 to
obtain insuperable trade advantages# ( say ZinsuperableZ because no sooner has a western firm come up
with superior technology than the Chinese dictatorship steals or copies it, with much lower labour
costs# 38he ?8 has an e,cellent lin above, called ZChina and /ermanyJ 2eflected /loryZ that traces
and supports this argument#5 (f this is what is meant by ZcompetitivenessZ, then we are all doomed if
we believe that Zfairy taleZV
'ecause of this ZpincersZ effect, ( am convinced that the much$maligned /erman elite really will have
no choice Zam @ndeVZ but to proceed along the path of @uropean union# 'ut the point about
ZcompetitivenessZ remains# (n fact, it is a contradiction in terms to call it a Z+actZ $ because the whole
point to ZcompetitionZ is that there are Zno pactsZJ the aim of ZcompetitionZ is Zto destroy the
competitionZV
/iven the vast advantage that /erman industry derives from the @U 3its 1!"$billion$euro surplus last
year is Ze,actly e6ualZ to the aggregate deficit of the +((/. and ?rance5, we certainly need Za rebootZ
of sorts rather than a ZpactZ concocted by the sole beneficiaries of ZcompetitivityZ#
.o let us be wary of ZincantantionsZ such as ZcompetitionZ because when they come from the mouths
of capitalist elites they mean invariably Zlowering our standards of living and life styles to the slavery
that goes by the same name in ;siaZ# 2emember that most ;sian Zemerging economiesZ were led by
brutal dictatorships until yesterday 3and China still is5# Now, either we tell these beastly leaderships that
they have to amend their repressive methods, or else we will have to imitate them, *ou pays your
money, and you taes your choice#### 3Mar 8wain5#
Y baslip $ 8here is very little that is ZracistZ about assigning historical responsibilities to a highly
specific group of people, not for their ZraceZ 3we are all one race $ the human race5 but for their
ZinterestsZ and their ZactionsZ $ interests and actions designed to erect a fanciful ZdiscrimenZ between
Zthe first of the classZ and ZlaCy /rees or .paniards or (taliansZ, between ZsaversZ and ZspendthriftsZ,
between ZwinnersZ and ZlosersZ#
8he very notion of a ZCompetitiveness +actZ must be seen in this ZantagonisticZ perspectiveJ the law of
the jungle, Zsurvival of the fittestZ, Zmors tua, vita meaZ# 8hese are the vitalistic and proto$fascist
ideological notions that lie insidiously under the seemingly innocuous concept of ZcompetitionZ# ?ar
from redressing the ZimbalancesZ in @urope, this ZpactZ would actually entrench them# ?ar from
ZhelpingZ fellow @uropeans in need, it would assign blame and wrest control over their destinies by
committing them to Zbalanced budgetsZ that are neither feasible nor desirable $ unless the abuses that
led to these ZimbalancesZ are perpetuated# 3+aul Erugman had a recent post on Z8he Myth of
CompetitionZ in the N*8#5
; useful introduction to the issues involved is in this lin from &illem 'uiter, whose wor ( came
across in Cambridge a while ago $ il miglior fabbro# Cheers#
httpJKKwww#nber#orgKdwbuiterKDoN#pdf
2eport joseph belbruno ] ?ebruary !0 <J1"am
Z/ree ta,payerZ has been too busy filling out forms and has neglected to consult current affairs let
alone logic# 8he point to the Zcompetitiveness pactZ is not at all to reform /ree public administration#
@ven if it were, it would be a monumental mistae to entrust 'russels 3noV 'erlinV5 with achieving that
goal, difficult as they are if you were in ;thens three days ago#
8he point is rather to eep in place everything that has given rise to the imbalances, including the
profligate behaviour of /erman bans, but to have policies in place that mae damn sure that /reece,
lie (reland and the rest, pay every euro of the debt obligations that they owe# 'ut these so$called Zbail$
outsZ are not bail$outs at all because $ here is the crunch, literally $ the debtor countries will be paying
hefty interest rates on what they owe and, to mae this deal even more palatable, have their Zausterity
measuresZ designed to immiserate and pauperise their woring populations even more $ these
ZmeasuresZ to be supervised and directed at the behest of 'erlin with the complicity of a compliant
+aris#
8oo bad Z/ree ta,payerZ does not now all this# Nor will he find outJ he is not readingJ he is filling
out his formsV 'ut then, ignorance is bliss###
+.J ?or /ree 8a,payer[s further enlightenment, may ( tae the liberty of recommending a little
reading in half a doCen @uropean languages, in declining order of importanceL )ere goesJ$
httpJKKwww#corriere#itKeditorialiK11TgennaioT!<KgiavaCCiTmerelTdecideTB!e13""0$!b1d$11e"$0fBd$
""1--f"!aabc#shtml
httpJKKwww#project$syndicate#orgKcommentaryKsinn31K@nglish
httpJKKwww#spiegel#deKinternationalKeuropeK",1B10,=-B303,""#html
httpJKKblog#Ceit#deKherdentriebK!"11K"!K!1Ksind$deutschlands$oonomen$blindT!=<=
TTTTTTTTTTTTTTTTTTTTTT
(f nastiness there be, it is to be found not in the people who point to it 3Munchau or myself5, but rather
in the ZinterestsZ that occasion it $ surely and palpably in places where the /erman bourgeoisie reside#
(t is futile to blind ourselves to a truth that is visible to allJ
8here is a ZprojectZ, clear and unmistaeable as it is short$sighted, miserable and oppressive, on the
part of the /erman industrial and financial and political elite to reduce the ZperipheryZ of @urope to a
state of servitude in servicing ZdebtsZ that have been accrued in large part by the intransigence of
/erman industry to e,pand domestic demand and reduce its trade$surplus profits, and by the idiocy
and greed of /erman finance capital in procuring the loans to deficit countries that simply could not
afford to repay them in the absence of serious Zre$balancingZ of the /erman economy#
( do not have to produce the evidence to prove this case because it is all around us $ manifold and
indefeasibleJ Z.i monumentum re6uiris, circumspiceVZ Loo around youV
Nor is it appropriate or accurate to blame ZdivisionsZ on ZpeopleZ# 8he culprits for this denouement or
for what we hope is only a Zpresent predicamentZ are to be found amongst those /erman industrialists,
baners and financiers and their acolyte politicians who daily mislead the /erman public about the true
state of affairs#
Not only is this a grave concern in @urope, it is now foremost in the minds of the ;merican
;dministration that by now is fed up to the bacteeth with the mulish obstinacy of the /erman elite to
act as if the 'erlin &all were still standing and shots were e,changed across ?riedrichstrasse# 8he days
of the Marshall +lan, the days of DM undervaluation, the days of Zsocial peaceZ and .oCiale
Martwirthschaft are over# @ither the /erman bourgeoisie learn to become true citiCens of @urope or
else they will find themselves isolated, land$loced, and ZsurroundedZ because $ so far as anyone cas
see $ the former .oviet satellites are as reluctant as the Mediterraneans to relin6uish the eys to their
cities to /erman ?eldmarshals#
&olfgang Munchau deserves high praise for having the courage to state loud and clear what are the
crucial issues at stae in @urope and for pointing fearlessly at the political and business interests
responsible for them# 8his is no mean feat when you are writing for an influential financial newspaper
3to put it mildly5#
8wice before in recent @uropean history, /erman political and industrial capitalist elites have been
responsible for the worst crimes this world has ever seen# Ince again, they show that they have not
abandoned their miserable inclinations# 2est assured, that this time they will not even have the ability
to implement their nefarious designs $ because this time they are far more dependent on the rest of
@urope, financially and industrially and commercially, than they ever were#
(ndeed, /erman intransigence will lead to one unavoidable outcomeJ the isolation and growing
irrelevance of the /erman elite in @urope 3particularly in the Mediterranean which has come of age as
recent developments amply display5 and in the world at large, because /ermany is simply too small,
land$loced and militarily insignificant to have any influence whatsoever#
.o let us @uropeans deal with this elite bluntlyJ reform your ways or condemn yourself to impotence
and decline#
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Caldwell[s reference to Mancur Ilson[s Z8he Logic of Collective ;ctionZ is interesting because it
reveals his stultified thining# Ilson[s point was to establish that through Zcollective actionZ it is
ZindividualsZ who are still pushing their egoistic agendas $ e,cept that the ZunionZ is a more effective
means to achieve their ends#
+olitical beasts lie Caldwell and Ilson now precisely what they are doingJ they are ideologues good
at manipulating concepts# &hat they are doing $ the reason for my anger $ is that they are portraying
human beings as unavoidably ZindividualZ 3literally, indivisible5, as ZatomsZ 3literally, unsplittable5 $ so
that Zby definitionZ any ind of Zcollective actionZ has to be s e l f i s h#
*ou and ( and most reasonable people now that this is a dangerous lie# &e are not individuals because
nothing we do from cradle to grave is individual $ from the moment we are ZconceivedZ we depend
already on another human being# .o we are not human ZbeingsZ but rather aspects of Zbeing humanZ#
Looed at this way, Caldwell[s and Ilson[s arguments go out the window and into the garbage bin
where they belong# 3)ear that CaldwellL &e can wipe our shoes with your fae intellectV5 (n reality,
both these beasts are trying to tell us that Zcollective actionZ $ basic human solidarity $ is an act of
impudent selfishness# 'easts lie that deserve all the opprobrium they can getV
TTTTTTTTTTTTTTTTT
Iver the last few wees, almost alone because, mercifully, no$one but Cealots lie me seem to read
Caldwell[s columns, ( have literally taen to pieces his filthy prejudices and insolent presumptions $
again, not because anyone reads them, but because ( felt they were so offensive and insidiously
dangerous#
&hat Caldwell does, with the determination and venom of a snae, of one of those sowers of malice
and hatred, is see to reduce human beings from social entities to the level of jacals feeding on
carcasses in the desert of human degradation and depravity#
8hat Caldwell manages to hide his deep$seated malevolent and nefarious vitalistic and proto$fascist
prejudices barely serves to conceal with a thin veneer of civility and philosophical detachment, what
are in fact manifestly perverse and unjustiable views that ought to offend the conscience of every living
and breathing human being capable of anything remotely resembling love and attachment to members
of his or her species#
8here are problems with trade unionismJ no$one dares deny it# 'ut what use does it serve, Mr#
Caldwell, to invoe Mancur Ilson and give yourself the false pretence of intellect $ an intellect that
you sully and ravage with every single one of your thoughts and propositions $O what use does it serve,
( as, we as, if you dare but loo at the comments below $ to attac worers who are trying to protect,
not privileges but civil and indeed human rights won over decades of struggle to protect their living
standards and those of other worers in the processL
*ou now very well that what is at stae here are not privileges, but the right of worers to unite, to
show solidarity in one of those few places where solidarity resists $ in the worplace $ against a bestial
attac meant to destroy, not their privileges, but their legal rights to collective bargaining that you so
flimsily but arrogantly disdainL
2eport joseph belbruno ] ?ebruary !1 3J1!am ]
( now it[s very hard to get around this mental stumbling$bloc# ?ew people below, with the e,ception
of Ilaf have noticed that the actual objective of gradually changing the system of parliamentary
ZrepresentationZ is to overhaul it entirelyV Let us start with some ideasJ ZdelegationZ replaces
ZrepresentationZ so that ZdelegatesZ are far more ZresponsibleZ and accountable to ZconstituentsZ#
.econd, ZindividualsZ no longer form the basis of ZvotingZ# 2ather, Zconstituent assembliesZ do $
covering various functions from local to urban to national levels or possibly even covering various
ZsectorsZ of social and community life, from administration to health to justiceKlaw, to transport# Let us
start actively ZparticipatingZ in the political process rather than answer opinion poll 3or psephological5
surveysV
?orget about this Zone man one vote one idiot occupying a seat at &estminsterZ nonsense# 8hat 7ain[t
woringZ# 8he catastrophic repercussions of the present system are evident# Let us thin outside the
s6uareV
Y 2etired $ ( thin that is one more reason for changeJ ZrepresentationZ thrives on Zpolitical apathy and
disenfranchisementZ# 8he very ZinstabilityZ of coalition governments simply reflects the growing
ZparticipationZ of the public, from mere ZvotersZ to ZconstituentsZ# 8he answer to ZinstabilityZ is greater
participation, not concentration of power# 8he latter only produces ZdistortionsZ and ZirresponsivenessZ
and ZirresponsibilityZ as well as ZunaccountabilityZ#
&hat is particularly harmful is the inability of Zliberal parliamentary democracyZ to accommodate the
reform and transformation of e,isting institutions in response to changing ZagglomeratesZ of power $
because its ZhierarchyZ of power is based on Zindividual votersZ casting their votes once every five
yearsV
?or instance, the Le, Column noted recently that B"\ of the global population lives in cities# *et the
ZvoiceZ of Zciti$CensZ is subdued by the sewed electoral system we have, which concentrates power in
two leading parties which, in turn, are organised in rigid hierarchies espousing Zthe national interestZ#
&e need Zto empowerZ not ZindividualsZ but individuals in their Zcollective capacityZ, because that is
where their ZinterestsZ lieV 2egards#
Y .tocwell and Campbell $ 8he nitty$gritty of parliamentary reform are difficult to canvass in a short
article# 'ut ( thin &olf is merely Zrolling the ballZ# (t is but a start $ but we must start somewhere#
+resent western parliamentary regimes 3and we may include UD presidentialism5 are most evidently
not woring $ because, for one, they manifestly no longer ZrepresentZ the will of a society that has
changed in terms of needs, composition and ZinterestsZ, and, for another much more important factor,
because r e p r e s e n t a t i o n itself 3V5 no longer wors#
(t is fanciful, if not pitiful, to begin to invoe the mythical liberal Zpowers of parliamentZ and lament
nostalgically their authoritarian debasement by usurpatory Z@,ecutivesZ# 8his is the sort of pathetic
nonsense Ma, &eber was intoning about the ZbureaucratisationZ of political life and ZrationalisationZ
of social life 3)annah ;rendt did something similar5# +arliamentary democracy can no longer
ZrepresentZ the will of populations because ZrepresentationZ is now awfully inade6uate, inefficient and
inefficacious# 3?or a review, ( suggest Aurgen )abermas, Z.tructural 8ransformation of the +ublic
.phereZ# ; Mar,ist perspective is in 2alph Miliband[s wors#5
&e need ZparticipationZ, not ZrepresentationZ# &e need Zconstituent powerZ, not Zconstituted
3immutable5 powerZ# ?or raising these problems, &olf deserves high praise# ;s ( have done before,
please forgive the reference below from ;ndreas Ealyvas on Z8he +olitics of the @,traordinaryZ
available here# Cheers#
httpJKKwww#scribd#comKsearchL6ueryMandreas`alyvas
Y goaleeper $ ( just remembered about Minsy[s e,cellent analysis of the difference between Zlac of
regulatory supervisionZ 3espoused by ;rthur 'urns in the ="s5 and the intrinsic tendency of capitalist
finance to swell into speculative bubbles# Chapter 3 in Minsy[s Z.tabilising an Unstable @conomyZ
should be of interest# )ere it isJ
httpJKKwww#scribd#comKdocK111!11-<KMinsy$.tabiliCing$an$Unstable$@conomy$Complete
8o othersJ 8he world economy has been on a ZLabour .tandardZ since at least 1<=1 when 'retton
&oods broe down# 8hat means countries see to e,port their domestic political antagonism through
Zcompetitive devaluationsZ or artificially low e,change rates through suppression of wages and
domestic demand# (t means also that, with free flow of capital, whenever a country has a ZsurplusZ
there will be compensatory flows of capital to the debtor country# (f all debtor countries went for
austerity and wage depression there would be a race to the bottom# &hat has stopped this $ and what
has ept up living standards in the capitalist west $ has been principally the ability of the U. to absorb
the surpluses of countries lie /ermany and Aapan and recently China# 8he conse6uent e,pansion in
li6uidity to finance deficits has led to financial crises of greater intensity $ culminating in the /?C#
Fuite obviously, the answer is for the surplus countries to emancipate their worers and e,pand
domestic demand# If course, the /?C has resulted in the further concentration of property and income
in the U. as well as unemployment because oligopolies increase productivity in a recession and eep
down wages and employment whilst investing offshore $ which worsens U. deficits#
2eport joseph belbruno ] ?ebruary !3 1J1=am ]
+.J Aohn +lender, in today[s ?8, summarises the ZimbalancesZ situation as followsJ
Z;ll this froth is symptomatic of the failure to resolve the problem of global imbalances# 8he world%s
current account surplus countries U most notably China, /ermany and Aapan U are now tightening
policy after the e,traordinary monetary and fiscal pump priming measures that helped put the global
economy bac together again#
; surplus of savings over investment is thus building up in the system and the U. is once again
accommodating the savings gluttons with an ongoing commitment to loose policy# ;ll that has changed
is that the U. federal government has replaced the private sector as the chief engine of debt
accumulation#Z
+lender neglects two thingsJ first, any ZtighteningZ in the U. would simply result in further capital
inflows and higher unemployment# 8he days when western bourgeoisies could as their worers to
depress their living standards Zto out$competeZ starving worers in China are overVV .econd, what
needs to happen is the oppositeJ$ that foreign bourgeoisies 3some of them repressive and even
murderous, lie ChinaOs dictatorship5 must be forced to raise the living standards of their worers and
populations# @ither that, or we should have their heads hanging, lie /addafi[s soon, in some public
s6uare#
2eport joseph belbruno ] ?ebruary !3 1J"=am ] +ermalin
;bsolutely right $ which means correct and laudable# ( now some people have trouble with this, but
they need to get their heads around it before we end up lie @gypt and Libya#
?irst, budget deficits did not cause the financial crisis and public deficits were incurred to rescue
private debt# .econd, with an open global economy with e,port$dependent national bourgeoisies 3not
ZeconomiesZ, because it is the intransigence of national leaderships that causes the e,port dependence5,
fiscal restraint ends up encouraging private debt by eeping interest rates low, which worsens balance
of payments deficits# .ee the wor of &ynne /odley below#
httpJKKpapers#ssrn###st8imeoutMB"""""""
8hird, private debt fuelled by capital inflows from surplus countries gives rise to financial bubbles
because of speculation by finance capital# 3.ee the financial instability hypothesis paper by )yman
Minsy below#5
httpJKKpapers#ssrn###abstractTidM111"!-
&olf says that this will happen again# (t may# 'ut we should not accept it as a fact of life# &hat ( call
[?inanCapital[, the finance industry, has arrogated too large a share of economic activity 3most of it
unproductive, with +aul Holcer saying that its only ZinventionZ in twenty years is Zthe ;8MZ5# 8here is
clear evidence that many governments are beholden to ?inanCapital, especially in the west# 8his is
something that must be addressed# ;s &olf says, Z.tart nowZV
httpJKKwww#project$syndicate#orgKcommentaryKjohnson1=K@nglish
Y @6uivocation $ ( thin your post is far more detailed than mine in that ( was looing very broadly at
the ZconceptZ of Zself$regulating maretsZ# If course, the idea of Zlevel playing fieldsZ is crucial
3unfortunately it is not available online but +aolo .ylos$Labini[s ZIligopoly and 8echnical +rogressZ is
a fundamental wor here#5
'ut you got straight into the heart of the matterJ $ money and finance# ?iat money itself is not the
problem because Zcredit creationZ and Zfictitious capitalZ far outweigh it# ( remember )yman Minsy
complaining that bans had been overtaen by non$ban institutions in Zcreating credit[ so that even
central bans 3which only regulate bans5 could not eep up# 3( will lin that paper here below#5 ;nd
that was even before the repeal of /lass$.teagall and Zoff$balance sheet operationsZV ;nd you
remember 'uffett[s comment about weapons of mass destruction $ derivatives# Note that Minsy
discusses (rving ?isher[s Z1""\ MoneyZ#
httpJKKpapers#ssrn#comKsol3Kpapers#cfmLabstractTidM1""000
.o the problem is the finance industry# (t is out of control and far from acting as a Zconduit to finance
investmentsZ, it is simply a large casino# ;nd it has ZcapturedZ some governments as well, so that now
only Zpolitical actionZ 3of the @gyptian type5 may be needed to correct the situation# ( discussed these
matters at /avyn Davies trying to isolate some of the ZfactorsZ involved here 3esp# my reply to Don
+eppe5#
httpJKKblogs#ft#comKgavyndaviesK!"11K"!K10Kamerica$still$isnt$woringKRrespond
;gain, ( would not underestimate Zglobal imbalancesZ# (f the U. runs current account deficits and
cannot e,pand employment through e,ports, it will then turn to the printing presses and flood the world
with inflation 3it is happening now5# &e cannot start with Zfiat moneyZ $ that is far too ZtheoreticalZ for
the immediate measures that are needed# &hat is needed is truly ZrevolutionaryZ action where finance
capital is concerned# 'ut when ( thin of Ibama, ( turn nostalgically my mind to ?ranlin 2oosevelt
and ;rthur A# .chlesinger Ar[s judgement of himJ Zin everything he did, he was a revolutionaryZ# &ish
we could say the same of the current &hite )ouse# Ciao
#2eport joseph belbruno ] ?ebruary !! 1J11am
Y +aolo $ ;bsolutely right# 8he fatal flaw in what &eber is saying is precisely thatJ his insistence on
Zno bail$outsZ means that @U members remains fiscally discrete units $ and, as you say, credit marets
will ensure that &eber[s stance becomes Za contradiction in termsZ 3not a logical one, but certainly
financialV5#
8he upshot, as everyone nows, is that without a fiscal union we will never be able to eliminate Zthe
source of all evilZ $ the /erman surpluses and the need to finance the corresponding debts from the
periphery#
Despite his best ZtechnicalZ recommendations, the fact also remains that the euro is not a currency with
the politico$economic and military ZhardnessZ 3hard currency5 of the mighty greenbac $ which means
that ZrunsZ on the euro and @urobond desertions are entirely possible and the @C' would be powerless
to stop the haemorrhage 3without ?ed co$operation, as happened during the /?C5#
joseph belbruno ] ?ebruary !! 1!J1"
; fair and wise review from David )ill# (t may be appropriate for me to resubmit my part of an
e,change with +hillip Handamme in another post, concerning a critical approach for alternatives to
capitalism#
8he fact of the matter is that ZmaretsZ, and most disastrously financial ZmaretsZ 3including currency
marets5, are not woring# 8he reasons are comple,# 'ut the essential reason is that### Zthere are no
such things as [marets[Z# 8hey are an invention, or to be generous they are ideological myths to give
legitimacy to Zinstitutional arrangementsZ that preserve and foster a certain politico$economic order#
8he obligatory reference here is Earl +olanyi[s Z8he /reat 8ransformationZ, here
httpJKKwww#scribd####ation$Earl$+olanyi
( am writing 6uite a bit on the subject with the aim of showing the obvious truth that, if the aim of
ZcompetitionZ is the elimination of other competitors, then the notion of Zcompetitive maretZ is
antinomic $ the pursuit of competition leads logically to monopoly and the notion of Smonopoly%
conceptually nullifies that of Smaret%# Concepts lie ZmaretsZ, ZcompetitionZ and ZfreedomZ are used
for ideological or [strategic[ purposes# Ine way of de$mystifying these concepts is to tal in terms of
Zconcrete institutionsZ that better represent social needs#
8he ne,t ZideologicalZ bit is where Zindividual freedomZ is concerned# (n the Zeconomic sphereZ
virtually no ZagentZ acts as Zan individualZJ every agent belongs to one Zsocial functionZ or another#
8he problem is then to focus on the Zrelevant social agenciesZ that can bring about Zdesirable social
outcomesZ#
8he ZmythologyZ of liberalism is precisely thisJ that +olitical @conomy is a ZscienceZ that can reconcile
Zindividual economic needsZ with Zliberal political institutionsZ through the operation of Zthe self$
regulating maret mechanismZ# ;nd that is a myth that is growing more dangerous and destructive by
the hour#
Y Lilly $ (f you bother to read the lin, you will find that ( identify three factorsJ the burgeoning
finance industry 3and related creation of [fictitious capital[5O the [fracture[ in the U. power elite over the
role of Zthe machinery of stateZ 3some readers below have derided the /I+[s return to Zthe days of
horse and buggyZ, but see also ?ran 2ich[s insightful latest analysis in the N*85#
?inally, there is Zthe 8riffin dilemmaZ $ the fact that Zthe global monetary anchorZ regime 3the U. and
the greenbac5 are open to abuse by Zcompetitive devaluationsZ from rogue states that wish to e,port
unemployment and social problems to others#
8he U. can react by Ze,porting inflationZ in return $ the Ze,orbitant privilegeZ as /iscard D[@staing
called it long ago $ by printing greenbacs and so eeping up employment# ;s Martin &olf has argued
recently, if China[s dictatorship, and then Aapan and /ermany wish to cut their noses to spite their faces
by producing surpluses that then rebound bac on them as imported inflation $ well then, Zit[s our
currency 3and ?ed5 and your problemZ, you will hear 8im /eithner chucle one of these days# 2egards#
+.J ( should underline that my focus is twofoldJ $ on Zcapitalist elitesZ 3including governments, of
course5 and on their need 3through what Erugman calls Zthe myth of competitionZ5 to e,port their
political conflicts to other Zelites or governmentsZ through fiscal and monetary policies that form an
interplay of employment, real wages and inflation 3Zmoney illusionZ5# 8he global monetary system is
effectively on a Zlabour standardZ#
.o the 6uestions areJ what, how and when do we want to produceL ;nd, what impact do the decisions
of other ZregimesZ 3not ZpeopleZ, because Chinese and /erman worers would rather spend their
surpluses on themselves in higher wages and social welfare5 have on these choicesL
2ela,, folsV 8he U. government is doing e,actly what it should do in the circumstances# ; bunch of
dictators in ;sia 3from China as well as Aapan, Eorea and 8aiwan $ all recent dictatorships5 have
decided to deposit the surpluses they s6ueeCed out of their van6uished worers into the U. treasury# ;
wave of speculation by financial institutions ensued that nearly sent all of them banrupt# &hat to doL
@ither Uncle .am nationalises the lot of the bastards, or else the ?ed starts printing money lie hell and
unleashes an inflationary wave that will depreciate the real cost of that debt into ne,t to nothing#
;t the same time as higher li6uidity will help employment in the U., the flow of greenbacs to those
delin6uent dictatorships will bump up inflation a lot more in their economies with their hopelessly
undervalued currencies $ hurting mostly their populations which, in retaliation, will hang their heads in
places lie 8iananmen .6uare or vote them out of office in places where they can# 8he conse6uent
e,pansion of domestic demand together with higher nominal wages in ;sia 3plus /ermany, another e,$
dictatorship5 will correct the ;merican current account#
&hat about U. bondholders, you asL 8hey have nowhere to go because the mere thought of paring
their capital in euros or, /od forbid, in renminbi would have them sleepless at night given that only
Uncle .am can guarantee their capital and defend their interests worldwide 3with baCooas, if
necessary5#
8oseph elruno ] ?ebruary !" =JBBam ] +ermalin
;pologies for one 6uic post that ties up my last statement on Ibama[s ZinertiaZ, the fracture in the
;merican power elite $ and /avyn Davies[s topic, the state of ZlabourZ in ;merica# (t is from ?ran
2ich at the N*8, with lin belowJ
Z;n ^2epublican_ opposition this adrift from reality N whether about Ibama%s birth certificate, history
unfolding in the Middle @ast or the conse6uences of a federal or state government shutdown N is a
paper tiger# (t%s a golden chance for the president to seiCe the moment# &hat we don%t now is if he
sees it that way# ;s we%ve learned from his trac record both in the !""0 campaign and in the &hite
)ouse, he sometimes coasts at these junctures or lapses into a pro forma bipartisanship that amounts,
for all practical purposes, to inertia#
Ibama%s outspoenness about the labor battle in &isconsin offers a glimmer of hope that he might lead
the fight for what many ;mericans, not just Democrats, care about N from job creation to an energy
plan to an attac on the deficit that bracets the high$end 'ush$era ta, cuts with serious
MedicareKMedicaid reform and further strengthening of the health care law# &ill he do soL 8he answer
to that 6uestion is at least as mysterious as the identity of whatever candidate the desperate /#I#+# finds
to run against him#Z
httpJKKwww#nytimes###ionK!"rich#htmlLhp
] Qon Peppe + : hope you $aw that cartoon in the FYT today where a be##er at a $treet+corner hold$ a
placard that read$/ VBill wor% + for -4OE L6FU0VU
http://www.nyt$tor...co,ery_p_6&&C.html
Qa,ie$W$ di$cu$$ion of the F-:4U i$ =uite timely. To call it Vthe natural rateV i$ =uite inappropriate/ of
cour$e/ becau$e it i$ an Vin$titutionalV and therefore VpoliticalV reality. 3or that ,ery rea$on/ it i$ far from
VimmutableV >at )_ or at any le,el?/ but i$ rather Vthe re$ultV of ,ery complex political force$. Lut : would
$ide with Qa,ie$ and re+affirm the Vpolitical importanceV of the F-:4U in a$$e$$in# Vthe balance of
force$V between capital and the cla$$ of wor%er$ + a cla$$ that ha$ been VexpandedV recently by the
decline of Vthe middle cla$$V in mo$t countrie$ due to the expan$ion of the producti,e cycle of capital
>what people hide behind the term V#lobali$ationV?.
Lut the middle cla$$ >lawyer$/ teacher$/ doctor$/ accountant$/ $elf+employed profe$$ion$? ha$ been
replaced Vrelati,elyV by employee$ in the finance indu$try. -nd here it i$ impo$$ible not to di# out tho$e
famou$ analy$e$ by 7yman ;in$%y. Fot only ha$ the function and Vwei#htV of ban%in# chan#ed/ but we
mu$t #o beyond and loo% at the way in which VfinanceV >which i$ really Vthe control roomV of capital + the
place where the VdirectionV of in,e$tment$ i$ decided? ha$ VcapturedV the machinery of $tate + a
de,elopment that mo$t people in the $treet >or Von the $treetV by nowU? are painfully aware after the
O3!.
:t i$ at thi$ juncture that "eyne$ian remedie$ >$upremely VpoliticalV? $eem to be Vineffecti,eV. -nd the
ineffecti,ene$$ i$ due to a V$ci$$or$ effectV: on one $ide/ W3inanK%apitalW i$ $teadfa$tly unwillin# Vto face
the mu$icV and return to the proper V,alouri$ationV of capital in the wor%place/ that i$/ in the proce$$ of
production of #ood$ and $er,ice$< on the other $ide/ and thi$ explain$ the former factor/ the a,ailability
of labour power i$ clearly declinin# and/ a$ Qa,ie$ clearly $u##e$t$/ that awful F-:4U i$ #ettin#
VunnaturallyV hi#hUU
ea,in# a$ide for now the horribly complicatin# factor of !hina and #lobal imbalance$ and exchan#e+
rate re#ime$/ the reality i$ that once the O3! finally e,inced Vthe ban%ruptcyV of lea,in# Vthe economyV
to Vthe pri,ate $ectorV/ it i$ the Vpublic $ectorV/ that i$/ the 0tate/ that come$ into =ue$tion + in the $hape
of Vwhat to do about the deficit$ created by the $peculati,e acti,itie$ and creation of fictitiou$ capital by
3inanK%apitalVU
-nd thi$ i$ where the VfractureV that : >and Eichen#reen and "ru#man + illu$triou$ companyU? wa$
referrin# to in my pre,iou$ entry come$ into play. Be ha,e come from the "eyne$ian 0tate+Plan to the
current !ri$i$+0tate where "eyne$ian remedie$ are made problematic by the ,ery $iKe of public deficit$.
-nd the power elite >the bour#eoi$ie? i$ clearly di,ided about what the role of the 0tate $hould be in all
thi$. The outcome of thi$ $tru##le will be decided in fa,our of the $ide that can carry the wor%in# cla$$
and other $ubaltern $ector$ with it. Pre$ident 6bama $eem$ to be con$titutionally incapable of imitatin#
4oo$e,elt >3Q4?. Lut belie,e me/ if he wonWt/ thereW$ other$ willU !heer$.
4eport jo$eph belbruno \ 3ebruary (9 (&:)(am
7ere i$ another example of Vmultipolar di$orderV + from Larry Eichen#reen.
http://www.project...hen#reen&(/En#li$h
-$ you can $ee/ what the #ood profe$$or lea,e$ out >me$meri$in# in $omeone with hi$ hi$torical
bac%#round? i$ the fact that Vmultipolar re$er,e currencie$V will need more than ju$t a mobile phone to
compare exchan#e rate$ in order to wor% >hi$ word$/ fol%$< not mine + hi$ indecent imbecility/ not mine?.
Lut what delu$ionary moron$ $uch a$ thi$ either i#nore or o,erloo% i$ that it i$ :;P600:LE >you read
thatH :mpo$$ibleU? to ha,e a Vcapitali$tV world monetary order without a military+indu$trial and economic
4EO:;E to #uarantee the political V$afetyV of a currency and to fore$tall the implo$ion of world capitali$t
trade in a whirlpool of trade barrier$ and competiti,e de,aluation$.
The denouement of a capitali$t $ociety + and that applie$ 364E;60T to Vthe $ociety of nation$V + in the
ab$ence of $tron# #o,ernment i$.... !:T: B-4UU
4obert Soellic%/ Larry Eichen#reen/ and all the confu$ed be$otted $araband of archimoron$ that blabber
their non$en$e about nowaday$... had better $ee thi$ $hinin# li#ht + for - of our $a%e$UU
jo$eph belbruno \ 3ebruary (D (:(9am \
Soellic% $tart$ with VpowerV/ and he end$ up with V$hareholder democracyV. The incon$i$tency i$ all in
the title to the article: Soellic% want$ Va monetary r e # i m eV that i$ $uppo$ed to $er,e a >capitali$t?
Vmultipolar worldV. The problem i$ that you $imply cannot ha,e Va monetary re#imeV without a V6FE
P6EV world. 3or the $imple rea$on that/ a$ Soellic% correctly point$ out from the out$et/ behind e,ery
VmoneyV there mu$t be a VpowerV >a nation+$tate? ready to #uarantee it/ not only a$ a unit of account/ but
al$o a$ a mean$ of exchan#e/ and abo,e all a$ Va $tore of ,alueV. VTalueV i$ the %ey word.
-$ we all $aw/ durin# the O3!/ it wa$ the U0 3ed that acted not ju$t a$ lender of la$t re$ort/ but #i,en
the Vtoo bi# to failV and the collap$e of #lobal finance/ it al$o became Vthe lender of 3:40T re$ortVU
Bhich brin#$ me to the point: :t i$ e$pecially in Va multipolar worldV that world capitali$m need$ a
Vleadin# poleV. The only $uch pole a,ailable and concei,able i$ for the U0 to lead/ with Europe and
2apan in tow. -ny dream$ of Vproportional repre$entationV accordin# to V$hare of world tradeV + e,en a
renewed Oold 0tandard/ a$ Soellic% pre,iou$ly $u##e$tedU + i$ utter and un$pea%able idiocy.
Soellic% i$ confu$in# the ,erti#inou$ expan$ion of the capitali$t world mar%et with political multipolarity.
There i$ no VmultipolarityV. Tho$e who belie,e that ha,e probably been dia#no$ed with Vmultipolar
di$ea$eV + a $train of Vbipolar di$ea$eV. Bhat there i$/ #rowin# more imperiou$ and peremptory e,ery
day/ i$ the need for a concentration of capitali$t command in one $upra+national entity + which will $ee
the U0/ the EU and 2apan draw clo$er to#ether/ in a world in which bour#eoi$ie$ are #rowin# ner,ou$
about the future of capitali$m it$elf/ ju$t a$ the capitali$t world mar%et brea%$ e,ery concei,able barrier +
indeed/ becau$e of thi$U
The role of the !hine$e economy offer$ the be$t illu$tration of thi$: + #rowin# in Vwei#htV/ but with a
fra#ile and totterin# political leader$hip that world capital wi$he$ it could wipe out >E#ypt $tyle? in about
(D day$. :t could/ and it would/ if it could be certain of the outcomeU Lut it i$ the in$tability of Vre#ime$V
li%e !hinaW$ that illu$trate the difference between trade and the power >military and political and
economic? that i$ needed to bac% up.... a Vmonetary re#imeV.
8o his credit, however, @ichengreen has identified the most probable cause of ;merican decline $
something on which +aul Erugman 3and, modestly, myself5 has also been focusing $ namely, the
ZfractureZ in the U. ruling elite 3or Zpower eliteZ, to echo C& Mills5, which could easily lead to
social upheaval in the metropole of capitalism# )ere is his accountJ
httpJKKwww#project###hengreen!-K@nglish
http://www.iri$heconomy.ie/index.php/&'('/(&/'(/barry+eichen#reen+on+the+iri$h+bailout/Jmore+DDC(
] al#a$e + Be were u$in# the 2 cur,e in !ambrid#e &' year$ a#o: it refer$ to the ob,iou$ fact that/
upon de,aluation of it$ currency/ a country will $uffer a deterioration of it$ trade deficit >wor$e term$ of
trade?/ but the $ub+ and con$e=uent impro,ement in Vcompetiti,ityV will e,entually impro,e the current
account. 0o thi$ #uy ha$ ju$t di$co,ered $andpaperUU
;ore $eriou$ly/ thou#h/ and thi$ would in,ite $eriou$ di$cu$$ion/ we ou#ht to loo% at the way in which
recent de,elopment$ in indu$trial producti,ity and inno,ation and abo,e all Vcommunication and
informationV + brou#ht about by the inability of capitali$t command Vto repre$$V the$e de,elopment$
>throu#h oli#opoly and intellectual property ri#ht$/ for in$tance? + whether the$e are not ha,in# an
appreciable impact on how people/ e$pecially the youn#/ all o,er the world concei,e of Vthe $tateV and
V#o,ernmentV and Vdemocratic or#ani$ation and repre$entationV. ;artin Bolf/ once a#ain/ opened the can
of worm$ with hi$ Ve=uiparationV of mar%et capitali$m and parliamentary democracy + the cla$$ic ,er$ion
of Vliberali$mV. Lut can we mo,e VbeyondV the Vliberal 0tate+formV to a new form of Vextraordinary
politic$VH 3or your deli#ht/ : am lin%in# a boo% by -ndrea$ "aly,a$ >&''9? ju##lin# the$e hot potatoe$/
e$pecially in the :ntroduction and the final part on -rendt/ a$ well a$ the !onclu$ion. The Liblio#raphy i$
excellent/ too. !iao e a pre$toU
http://www.$cribd.com/doc/C)C11)&6/Qemocracy+and+the+Politic$+of+the+Extraordinary+;ax+Beber+!arl+
0chmitt+-nd+7annah+-rendt+(
] auf$tei#er + -ny future role of the yuan a$ re$er,e currency >or Vhard moneyV? mu$t be $een/ : thin%/ in
the context of the political fra#ility of the !hine$e re#ime. The lin% below from 2ohn Oarnaut at the
;elbourne W-#eW will #i,e you an idea of the exceptional ob$tacle$ in the way of thi$. 7ere #oe$:
http://www.thea#e.com.au/bu$ine$$/china$+eye+on+e#ypt+&'(('&()+(atot.html
Lut to under$tand how e,ent$ mi#ht unfold we need to under$tand how national Veconomic $y$tem$V
interact with one another + and currencie$ and exchan#e rate$ are/ if you li%e/ Vthe o$motic membraneV
that Vre#ulate$V the relati,e Vpolitico+economicV and $trate#ic relation$ between nation+$tate$. 6ne i$
immediately reminded here of Lra$ilW$ ex+pre$ident/ ula/ who called for a V$outh+$outhV alliance with
!hinaU - mi$erable fool/ indeed/ if you loo% at how that i$ turnin# outU The $ame applie$ to tho$e
dron#o$ blurtin# out facile blabber about VL4:!$V + a$ if that acronym $tood for... anythin# at allU >-#ain/
the fallacy of mi$placed concretene$$/ Bhitehead.?
:n brutal reality/ the dictator$hip in Leijin# will ha,e to be cornered %ic%in# and $creamin# into re,aluin#
the yuan a#ain$t the dollar for the ,ery $imple rea$on that >a? their power ba$e are the 0tate+6wned
Enterpri$e$ that are a$ hoo%ed on export$ a$ a jun%ie in -m$terdam/ >b? they would rather ha,e C' of
each manW$ >apart from raci$t they are rabidly $exi$t? teeth extracted than lo$e one+thirtieth of their
,aluable forei#n re$er,e holdin#$ in U0 trea$urie$. -nd that i$ why they will ne,er allow the yuan to be
re,alued + becau$e their wealth in !hina would decline by that percenta#eU
3urther/ Vre+orientin#V the !hine$e economy toward dome$tic con$umption would ine,itably emancipate
!hine$e wor%er$ and empower them politically... another unpalatable choice for tho$e murderer$. -nd to
top it all/ tho$e fa$ci$t$ $imply ha,e to %eep cheatin# to maintain employment and #rowth rate$.
The up$hot i$ clear. Lut the final nail in the coffin for the yuan i$ the #lobal bour#eoi$ie + tho$e &' million
of the worldW$ capitali$t cla$$ who/ ju$t li%e the !hine$e dictator$hip/ choo$e to hold U0 trea$urie$ for the
per$ua$i,e rea$on that the U0 i$ the nation+$tate that will ha,e the be$t intere$t$ of capitali$t$ at heart
for the lon# term and be capable of defendin# and impo$in# them worldwide. You $imply ha,e to lau#h
at the thou#ht of the$e thron#$ of jac%al$ depo$itin# their hard+earned payola >a Lill Oro$$ cla$$ic? in
currency $i#ned by the !entral Lan% Oo,ernor... of !hinaUUU - bientotU
*oseph be$br+no \ 3ebruary (6 9:C(am \
] ;arcu$ + YouW,e #ot it bac% to front. :t i$ without VmoneyV that Vprice cannot fulfil it$ functionV. Price$
without money would be Vimpo$$ibleV becau$e price$ mu$t be expre$$ed in.... monetary term$UU >Two...
dollar$< fi,e... euro$ + no dollar$ or euro$/ no price$UU?
6nly in the ca$e of Vcommodity moneyV >#old?/ will price$ be expre$$ed in term$ of Vwei#ht of #oldV >two
ounce$/ fi,e ounce$?. :n that ca$e/ #old+money doe$ not $trictu $en$u ha,e a VpriceV: it$ Vwei#htV i$ it$
VpriceV.
T7-T :0 EM-!TY B7Y it i$ money/ not price >UU?/ that i$ Vthe manife$tation >embodiment? of ,alueV +
becau$e in the ca$e of commodity money ,alue would be expre$$ed in Vwei#ht$V/ not in Vprice$V/ which
are Vthe ad,erti$ed amount of money re=ue$ted for the exchan#e of a commodityV/ nothin# more. ;oney
can $tand for ,alue >it Vembodie$V ,alue?< but price$ ne,er do/ they are merely a re=ue$t for moneyUU
-nd plea$e/ let u$ not brin# Vpo$t+moderni$mV into it: ju$t a$ you wrote/ : wa$ en#a#ed in a ,irulent attac%
on 7eide##er and !acciari >chec% ;a$$imo !acciari/ V"ri$i$V on #oo#le?. "ind re#ard$.
*oseph be$br+no \ 3ebruary (6 &:C'am \ Permalin%
] ;arcu$ + 3inally #ot a chance to read that lin%. V!ontrariani$mV i$ in it$elf neither Vfallaciou$V nor any
other thin#. Bhat matter$ i$ that we are VcorrectV at the proper le,el of Vrele,anceV. -$ 0pinoKa once
remar%ed >a point later expounded on by -lfred Forth Bhitehead?/ one apple and one pear do not ma%e
VtwoV. Lut an apple and a pear Va$ fruitV do ma%e Vtwo piece$ of fruitV.
The ar#ument here i$ that Vfable$V li%e Vfoxe$ and hed#eho#$V do not and cannot VexplainV anythin#
becau$e they are $imply Bitt#en$teinian Vlan#ua#e #ame$V >by the way/ thi$ i$ a fallacy that the entire
area of V#ame theoryV commit$?. Thi$ applie$ to Tetloc%W$ inane Vcate#ori$ationV.
-$ for 4ajan/ : am ar#uin# that he i$ wron#/ not from VanecdotalV e,idence + howe,er VcontrarianV + but
from hi$ appallin# ne#lect of o,erwhelmin# $ociolo#ical and in$titutional e,idence.
:t i$ thi$ Vdi$connectionV between bour#eoi$ $cience and capitali$t reality + it$elf a pro+duct of the Vmaterial
intere$t$V at $ta%e + that come$ bac% to bite capitali$m it$elf.... becau$e it affect$ it$ V$ocial orderV. -nd
that i$ p r e c i $ e l y what people li%e ;in$%y and eijonhuf,ud are $ayin#.\
6ption$] ;arcu$ + Talue mo$t manife$tly doe$ not Vmanife$tV it$elf in priceU :t Vmanife$t$V it$elf >that i$/ it
ac=uire$ Vobjecti,e formV? in VmoneyV. Price indicate$ Vthe amount of moneyV re=ue$ted for a commodity.
oo$e thin%in# u$ually manife$t$ it$elf in loo$e terminolo#y.
:ncidentally/ that eijonhuf,ud >$o hard to write? paper : lin%ed below ar#ue$/ from the "eyne$ian+;in$%y
$ide/ that 3riedmanW$ F-:4U re$tored 0ayW$ aw. :t did nothin# of the $ort. :t accurately Vpercei,edV that
there i$ a Vpolitical trade+offV between unemployment and inflation. That indeed the only way of
Vdi$ciplinin#V the wor%in# cla$$ i$ to let unemployment ri$e a$ hi#h a$ it ta%e$U Fow/ that >U? i$ 0ayW$ aw:
it i$ the Vnatural e=uilibriumV of the >capitali$t ? economy. >;y !ambrid#e $uper,i$or/ Lob 4owthorn
explained the detail$ in hi$ cla$$ic wor%/ V!apitali$m/ !onflict ` :nflationV.?
6ur belo,ed Oa,yn Qa,ie$/ in the lin% below/
http://blo#$.ft.com/#a,ynda,ie$/&'((/'&/(C/a+wee%+in+#lobal+macro+emer#in#+ri$%$/
al$o buy$ the myth that 3riedman V$ma$hedV the unemployment+inflation lin%. ;y point i$ that both
eijonhuf,ud and Qa,ie$ do not $ee the VpoliticalV $i#nificance of what wa$ bein# $aid or effecti,ely
VdoneV by 3riedman/ and $imply ta%e the F-:4U Vat face ,alueV/ a$ a $imple Vmatter+of+factV $tatement
that/ ye$/ at $ome point.... V$upply e=ual$ demandVUU
0po%en li%e true Vmacroeconomi$t$V.
jo$eph belbruno \ 3ebruary (& 9:&'am
] B and ;unKoenix + There cannot be a $hred of a doubt that B i$ ri#ht on thi$ point.
The ab$olutely ,ital point to bear in mind + and : ha,e tried to $cream thi$ out from rooftop$ + i$ that the
$uperiority of Oerman indu$try i$ a delu$ion/ a con/ a tric%/ a $lei#ht+of+hand... call it what you will. The
reality i$ one and one only: + that the Oerman bour#eoi$ie/ ha,in# inherited a labour force V$ma$hed....
di$inte#rated.... #round into the du$t....V by FaKi$m and the FaKi cata$trophe in Borld Bar Two/ then
proceeded to benefit from the ;ar$hall Plan and the need to build a $tron# Oerman economy a$ a
VbufferV a#ain$t Vthe Lol$he,i% threatV.... all the$e paramount hi$torical factor$ helped Oerman capital to
enter a pact + $till under the threat of repre$$ion >$ee wor%$ by "arl+7einK 4oth and 2ohanne$ -#noli? +
with Oerman union$ to trade off employment for wa#e $uppre$$ion.
-nd all thi$/ to#ether with an ab$urdly under,alued Qeut$chemar%/ #a,e $uch $upremacy to Oerman
indu$try in Europe that the other countrie$ ha,e not reco,ered $inceU :ndeeeeeedUU :ndeed/ the VEuroV
wa$ a#reed by "ohl mainly becau$e it would Vloc% inV the under,aluation of the Q; and a,oid the
Vimport of inflationV into Oermany from Vcompetiti,e de,aluation$V of the franc and the liraUU
7ow often mu$t : repeat the$e thin#$ before people :0TEFHHH
-nyhow/ the fact now i$ that thi$ i$ the Europe we ha,e. To build the Europe we hope for/ we need the
euro and we need Veconomic #o,ernmentV. Lecau$e + here B i$ entirely ri#ht + it i$ only when Europe
function$ + a$ it mu$t for it$ own pre$er,ationUU + li%e the U0/ will we ha,e a $afer and peaceful future.
4e#ard$ to all.
aaa
;ore on 4ajan. Thi$ i$ a fellow who ha$ had a few run+in$ with "ru#man becau$e of hi$ in,eterate
con$er,ati$m. Yet thi$ i$ a$ nothin# compared with either the alarmin# i#norance or the di$armin#
nai,eteW he di$play$ with re#ard to hi$ a$$e$$ment of academic reality + or i$ it rather a ca$e of 0artrean
Vbad faithVH >0artre de$cribe$ Vmau,ai$e foiV in VLein# and Fothin#ne$$V a$ a mixture of hypocri$y and
$elf+deception.?
3or anyone who ha$ entered a doctoral cour$e in an economic$ faculty anywhere in the we$tern world/
the reality i$ far $tar%er and confrontin# than 4ajanW$ facile nonchalance would ha,e u$ belie,e.
3acultie$ are re$pon$ible to the #o,ernin# bodie$ of uni,er$itie$ >Tice+!hancellor$ downward$ the
-dmini$tration?. The$e are either $tatutorily or in any ca$e financially re$pon$ible to #o,ernment$ which/
in turn/ re,i$e faculty bud#et$ accordin# to VperformanceV + a #reat part of which >$urpri$eU? i$ a$$e$$ed
in accordance with how Vrele,antV the teachin# and re$earch of the faculty are to the economic function
of the faculty it$elf.
: =uoted ;ax Beber before. et me direct 4ajan to another lecture he #a,e on VBi$$en$chaft al$ LerufV
>V0cience a$ !allin#V? where he di$cu$$e$ pitile$$ly the inte#ration of $cientific re$earch in the operation
of capitali$t indu$try in Bilhelmine Oermany.
4e$earch pro#ram$ in facultie$ are or#ani$ed by Vde#ree committee$V the lar#e$t function of which i$ to
en$ure the employment or Vin$ertionV of #raduate$ in the economic$ indu$try where/ lo and behold/ the
employer$ are almo$t exclu$i,ely tho$e financial and other firm$ that expect the facultie$ Vto prepareV
them preci$ely for their employment + not to hold V$ub,er$i,eV but V$ub$er,ientV ,iew$. ;o$t of the
academic$ in the de#ree committee$ either ha,e or ,ery much wi$h to find employment in pri,ate
indu$try for the ob,iou$ financial ad,anta#e$ that comport$.
You do not need the wi$dom of 0olomon or BeberW$ $ociolo#ical in$i#ht to wor% out that the reality of the
economic$ profe$$ion i$ ,a$tly remo,ed from the la+la land of 4ajan. -mon#$t many of the element$ of
Vprofe$$ional encadrementV/ we $hould not lea,e out the importance for academic$ of VpublicationV in
profe$$ional journal$/ which are $trictly ,etted accordin# to the dominant paradi#m$.
-nd here we return to Ed Leau#ard below/ who rai$ed the whole problem of Veconomic theoretical
paradi#m$V. They are Videolo#ie$V< but : prefer to call them V$trate#ie$V >;ar% Llau# ha$ written on the
political imperati,e$ leadin# to the ri$e of neocla$$ical theory a$ a re$pon$e to the ri$e of $ociali$t
partie$ in Europe late in the (9th century< $o did 0chumpeter/ and there are excellent introduction$ by
Ounnar ;yrdal and 2oan 4obin$on to the ideolo#ical u$e$ of Veconomic$V?. !a $uffit pour lW in$tant. -
bientot.
aaa
;any than%$ to Oa,yn Qa,ie$ for the #ermane re$pon$e >intere$tin#ly/ Tacitu$ intended V#ermaneV to
mean both Vrele,antV and VpoliteV/ which wa$ =uite a tribute to the VOerman barbarian$V he wa$
de$cribin# in hi$ VOermaniaVU Fote that the attribute$ Vfran%V and V$ua,eV al$o refer to formerly VbarbaricV
north+European tribe$?.
To be #ermane at lea$t in one $en$e : $hould return to the di$cu$$ion and object that althou#h many
academic economi$t$ may not ha,e explicit Vtie$V with the corporate world/ their $election to academia
already re=uire$ a Vforma menti$V/ a curricular VpreparationV that ma%e$ them Vamenable to per$ua$ionV.
:n Tenice they called them V$errate del Oran !on$i#lioV >V$tran#lin#$V or Vpo#rom$V of heretic$ and
rebel$?/ in we$tern uni,er$itie$ the Vpur#eV of radical academic$ too% place ,iolently and methodically
with the anti+inflationary dri,e of the late (9*'$ under -rthur Lurn$ and then Paul Tolc%er at the 3ed. :t
be#an with 0ociolo#y and -nthropolo#y department$ and then $wept all Vhumanitie$V. Economic$
facultie$ were next + : $till wonder how the !ambrid#e 3aculty $till bore the title it had in ;ar$hallW$ and
"eyne$W$ time + VEconomic$ and Politic$VU
The V$ociolo#icalV ar#ument$ are in 4alph ;ilibandW$ wor%$ on the capitali$t $tate and in !B ;illW$
wor%$.
:t may be appropriate to remind participant$ that no le$$ a #iant of economic$ than 2o$eph 0chumpeter
$aw fit Vto $uppre$$V hi$ famou$ VFietK$cheanV $e,enth chapter of VThe Theory of Economic OrowthV to
$ecure hi$ appointment at 7ar,ard in the late C'$. uc%y for him he did not publi$h V!apitali$m/
0ociali$m and QemocracyV until much laterU >Early 1'$/ from memory.?
] ;arcelo -leW + Ta%e a bow from my$elfU Lrilliant $tuff.
-ddendum: Perhap$ the Vup$hotV to what : wrote earlier i$ that Vwhen the bottom fall$ outV >Lob Qylan?
and the financial pyramid collap$e$/ Vreal or li,in# acti,ityV ha$ to $top/ not becau$e the $ocial re$ource$
$uddenly cea$e to exi$t/ but rather becau$e their employment i$ no lon#er VprofitableVU -t that preci$e
moment/ capital become$ a barrier or limit... to it$elf >;arx. VOrundri$$eV/ 3ra#ment on ;achinery?. Thi$
reali$ation wa$ already in "eyne$/ wa$ made more explicit by ;in$%y/ but the #reat wor% i$ by
0chumpeterW$ $tudent/ Paolo 0ylo$+abini/ V6li#opoly and Technical Pro#re$$V. 4e#ard$ to all.
] friend + V;oney i$ a brid#e between the pre$ent and the futureV. "eyne$ under$tood that in a
capitali$t economy VthereW$ many a $lip between the cup and the lipV for the $imple rea$on that in a
nece$$arily VmonetaryV economy Vprice i$ what you pay/ and ,alue i$ what you #etV >Luffett?. ;etallic
money repre$ent$ a $imple exchan#e of V,alueV >$ay/ #old a$ a V$tore of ,alueV? and V#ood$V >the u$e
,alue of the purcha$ed #ood$/ or their Vexchan#e ,alueV if meant for further exchan#e?. -$ $oon a$
V,alueV i$ introduced/ there i$ a di$crepancy formed between the actual li,in# acti,ity of the tran$actin#
partie$/ and what the product of that acti,ity >the #ood$ and $er,ice$? Vwill $ell forV in future + whether
their V$ale priceV will exceed their Vpurcha$e priceV. -lready/ in a capitali$t economy >which i$ nece$$arily
VmonetaryV? we ha,e the po$$ibility that the aim of the pre$ent acti,ity >the reali$ation of profit? will not
be reali$ed in future.
:t follow$ that a capitali$t economy i$ nece$$arily Va credit economyV. :n other word$/ a$ ;in$%y
$tre$$ed/ there come$ to be formed Va $peculati,e brid#eV between pre$ent acti,ity and.... future
Vreturn$ or profit$V. :ne,itably/ in thi$ VprojectionV there will be in$idiou$ amount$ of V$peculationV where
the partie$ that finance acti,ity will $ee% to expand their Vfinancin#V to a point where the fre$h acti,ity will
almo$t certainly no lon#er be able Vto repayV the capitali$ed ,alue of the VcreditV. Thi$ i$ why we refer to
Vthe financial pyramidV or PonKi finance + becau$e in fact finance re$emble$ Va brid#e to the futureV.... Va
pyramid $chemeV. The financial pyramid collap$e$ when it become$ clear that the pre$ent acti,ity will
not be able Vto repay the intere$t and profitV capitali$ed in the financial loan.
Fow/ foreca$tin# the exact point in time when the financial pyramid will collap$e i$ ,irtually impo$$ible +
becau$e VcreditV i$ in,ol,ed/ ju$t a$ in that Vcoyote momentV. Lut when the Vfinance indu$tryV i$ in
char#e of the entire indu$trial enterpri$e to the point that it po$e$ V$y$temic ri$%$V to the entire $ociety/
when it$ acti,itie$ become Va blac% boxV >$ecret and in$crutable?/ when #o,ernment re#ulator$ collude
or are impotent to inter,ene.... then the financial ,ehicle i$ bein# dri,en by drun%ard$. The colli$ion i$
clearly fore$eeable. 0o the point i$ whether we ha,e the democratic ri#ht and power to determine who i$
dri,in# thi$ financial bu$ $o that it will not run o,er the precipice or hit a po$tU
] auf$tei#er + The 6rdoliberali$t$ and the $oKiale ;ar%twirt$chaft are in my $i#ht$. : need to re,iew
7aye%W$ role in it + and ;uller+-rmac%W$ in the proce$$. !heer$.
jo$eph belbruno \ 3ebruary 9 ):C(am \ Permalin%
\ 6ption$
P0: 6ne of two thin#$: either the !hine$e dictator$hip di$band$ ,oluntarily or el$e the 4;L will ne,er be
a world re$er,e currency $o lon# a$ capitali$m per$i$t$. : lau#h at that mi$erable fool/ Lra$ilW$ ex+
Pre$ident ula/ who dreamed aloud of Va $outh+$outh allianceV with !hina >$ee lin%ed V0hort TiewV and
;ichael Petti$ new$letter?.
Ooebbel$ %new that a lie become$ truth >a? the more often it i$ repeated and >b? the further it i$ remo,ed
from reality. People who Wfanta$ticateW >to coin a ,erb? about VL4:!$V and Vemer#in# mar%et$V end up
for#ettin#/ fir$t/ that they ha,e little in common and much di,idin# them/ and >b? that economie$ cannot
be Vemer#in#V fore,er + they can be V$ubmer#edV in a $ea of #reenbac%$UU
http://www.ft.com/...htmlJaxKK(Qj9rD*L
http://www.ft.com/...htmlJaxKK(Qj9rD*L
and www.mpetti$.com
6$borne and 0chauble: if we di$$ect ;artin BolfW$ V$tran#e alliance$V/ we can come up with V$tran#e
bedfellow$V and Vunholy alliance$V. : would ur#e reader$ to combine BolfW$ !olumn with thi$ re,iew on
Vre$er,e currency $tatu$V in the 3T
http://www.ft.com/cm$/$/'/c(cd&9c&+CCc9+((e'+b(ed+''())feabdc'.htmlJaxKK(Qj9rD*L
and with 2ohn PlenderW$ !olumn on Vdele,era#in#V/ here
http://www.ft.com/cm$/$/'/b'b1abaD+CCDf+((e'+aCDD+''())feabdc'.htmlJaxKK(Qj9rD*L
The up$hot i$ that the Lriti$h bour#eoi$ie are optin# to imitate the ;odell Qeut$chland by $ee%in# to
$uppre$$ dome$tic demand/ %eep inflation low to ma%e export$ Vcompetiti,eV >recall al$o the 3ranco+
Oerman Vpact for competiti,ene$$V ju$t a#reed day$ a#o?.
:n thi$ fa$hion/ the$e Euro+profli#ate$ intend to VunloadV their internal problem$ in term$ of what 2ohn
7ic%$ called Vthe abour 0tandardV that replaced Vthe metallic or Oold Qollar Exchan#e 0tandardV of
Lretton Bood$ + bac% on the $ame old $uc%er$/ the U0 of - who repre$ent the Vcon$umer of la$t re$ortV
a$ well a$ >throu#h the 3ed? the Vlender of la$t re$ortV + a re+run of Vthe Triffin dilemmaV.
Lut thi$ i$ $imply not #oin# to happen. The $ame capitali$t Vlo#icV that ha$ led the !hine$e dictator$hip
literally Vto exportV it$ model and try to impo$e it on the re$t of the world thi$ time will not wor%: becau$e
wherea$ Oermany and 2apan and "orea and Taiwan and the EU were and remain Vclient $tate$V of the
U0 and did not challen#e the metropole of capitali$m/ it$ ultimate defen$i,e rampart/ militarily< thi$ time
the !hine$e dictator$hip doe$ po$e ju$t $uch a threatU
-nd the U0 re$pon$eH VUp your$ with a wooden $poonV... or with the printin# pre$$. -nd that a$$orted
$araband of moron$/ imbecile$/ $altimban=ue$ who belie,e in the 4;L replacin# the #reenbac% a$
world money ha,e lo$t the $i#nificance of the difference between Vunit of accountV and V$tore of ,alueV.
Tain and ri$ible are the han%erin#$ after Va new #old $tandardV becau$e + a$ Eichen#reen remind$ u$ +
Vworld currency $tatu$ #row$ out of the barrel of a #unV/ and Uncle 0am i$ pointin# that $trai#ht between
your eye$ >a Boody -llen cla$$ic?.
Lac% to ;artin Bolf and Plender. VThe fi$cal cri$i$ of the capitali$t $tateV wa$ ma$%ed by the Vfictitiou$
capitalV that Bolf and 0oro$ ha,e denounced. The =ue$tion now i$: how to deflate W3inanK%apitalWH 6r
are our VdemocraticV #o,ernment$/ a$ Lill Oro$$ in$inuate$/ in Va de,ilW$ bar#ainV with the financial Qr.
3au$tu$. : mu$t re,i$it that ;arlowe memorial $tone + i$ it at !hri$tW$ or at !orpu$ !hri$tiH
4eport jo$eph belbruno \ 3ebruary D (:C&pm \ Permalin%
\ 6ption$
Oideon/ if the U0 and the EU/ the ad,anced capitali$t nation+$tate$/ had been far more pro+acti,e and
fair in their relation$ with E#ypt/ it would now be po$$ible + i$ it too lateH + to ad,ance the followin#
ar#ument.
VQemocracyV i$ a broadly+defined $et of in$titution$ and ,alue$/ and chief amon# them i$ that the
in$titutional apparatu$ of the 0tate ou#ht to be V$ecularV/ that i$/ not ba$ed on reli#ion. - Vreli#iou$ $tateV
i$ by definition VundemocraticV for the $imple rea$on that it will $ee% to impo$e a re$triction on the
VdemocraticV ri#ht$ of it$ citiKen$. :n other word$/ a Vdemocratic reli#iou$ $tateV i$ a contradiction in
term$.
:t follow$ that reli#iou$ $tate$ can on no account be called VdemocraticV becau$e they pre,ent
in$titutional emer#ence of non+reli#iou$ or $ecular or other+reli#iou$ $ector$ of the population that are
con$e=uently denied their VdemocraticV ri#ht$. >et u$ remember that VdemocracyV mean$ more than
ju$t majority rule.?
6n the$e premi$e$/ if ad,anced countrie$ had more Vmoral authorityV in thi$ matter/ they would be able
to exerci$e con$iderable pre$$ure to en$ure that democratic ,alue$ were re$pected in any country. et
u$ remember that Vtolerance mu$t ha,e the $tren#th of it$ con,iction$V + and therefore be intolerant
toward intolerance. The $ame ou#ht to apply to VdemocracyV.
jo$eph belbruno \ 3ebruary D D:1Dam \ Permalin%
\ 6ption$
:f : e,er come acro$$ that Larro #uy.... -nyhow/ friend$/ ju$t to relie,e you from the in$ufferable mephiti$
of thi$ in,ertebrate.... hybrid/ here i$ a deli#htful $hort comment on V0putni%nomic$V from 2ame$
0urowiec%i at the Few Yor%er. The impre$$i,e bit i$ about the V$pillo,er effect$V whereby/ de$pite
oli#opoli$tic indu$trie$/ capitali$t enterpri$e$ are findin# it difficult to $top u$ benefitin# from Winno,ationW
>which emancipate$ u$ from the wa#e relation + writin# a mountain on thi$ now?. 7ere i$ a $ample/ and
then the lin%.
VTho$e day$ are #one/ and -merican companie$ now do le$$ ba$ic re$earch. Economi$t$ ha,e lon#
ar#ued that companie$ will underin,e$t in 4. ` Q. and infra$tructure becau$e $o+called $pillo,er benefit$
pre,ent their capturin# all the ,alue they produce.V
4ead more http://www.newyor%...ec%iJixKK(Q;D(hmDp
http://www.nytime$.com/&'((/'&/(1/$cience/(1e$$ay.htmlH_rI(`refI#lobal+home
4eport jo$eph belbruno \ 3ebruary D C:)&am \ Permalin%
\ 6ption$
P0: 4eader$ $hould de$ume from my ar#ument below that it i$ the ,ery inability of W3inanK%apitalW to find
VprofitableV area$ of in,e$tment for accumulation that ha$ led it Vto createV fictitiou$ capital in the $phere
of credit/ whereby enormou$ $ocial re$ource$ ha,e been tran$ferred/ throu#h the financial cri$i$ and the
$o,erei#n+debt cri$i$/ to thi$ #rowin# army of Vpara$ite$V: $mall wonder VwealthV ha$ been concentrated
in the EU and U0 to the capitali$t cla$$ at the expen$e/ notably of Vthe middle cla$$V.
:mportantly + a fact that e,en eminent expert critic$ fail to hi#hli#ht + the ,ery Vdi$appearanceV of the
middle cla$$ repre$ent$ the elimination of important >politico+economically? $ector$ of the labour force
from area$ of production not directly $ub$umed to the VcommandV of capital in the capitali$t wor%place.
jo$eph belbruno \ 3ebruary D (:C1am \ Permalin%
\ 6ption$
TodayW$ 3T Editorial ma%e$ two point$/ but diplomatically refrain$ from joinin# them:
VOermany5$ economic model achie,e$ admirable re$ult$ for Oerman$/ but it i$ nai,e to thin% it can or
$hould be adopted by (6 other countrie$ G particularly by mean$ of many lon# year$ of deflation.V
The juncture + political a$ much a$ economic/ e,en if the two could be extricated + i$ between the
W$urplu$e$W >profit$/ therefore capital accumulation? of Oerman capitali$t$/ on one $ide/ and the WdeflationW
needed for the WperipheryW to repay the WdebtW incurred a$ a re$ult of/ fir$t/ trade and capital deficit$
incurred with Oermany and/ $econd/ exce$$i,e borrowin# in lar#e part from Oerman W3inanK%apitalW to
finance the debt of the WperipheryW. -$ a con$e=uence of thi$/ European W3inanK%apitalW ha$ now
expanded to a point where it occupie$ a$ much a$ a =uarter or more of EU OQP. Thi$ indicate$/ for one/
the difficulty of European indu$trial capital to remain profitable in the face of Vemer#in#+mar%etV
competition and/ for another/ the #reater ea$e with which capitali$t$ can Vpara$iticallyV arro#ate to
them$el,e$ >with Lerlu$conian contempt for other capitali$t$ and European$ o,erall? profit$ that are a
$candalou$ drain of re$ource$ from other area$ of European $ociety.
7ere/ in a nut$hell/ are the horn$ of a dilemma + or the two $ide$ of a $ocial and political anta#oni$m
that $tart$ within Europe/ but will ineluctably affect al$o relation$hip$ with !hine$e capitali$t$ who$e
recent $upport for the euro reflect$ the awarene$$ that they ha,e reached the limit of toleration with the
U0 and now wi$h Vto open upV an all+out attac% on European indu$try by Vdi,er$ifyin# their currency
holdin#$V/ no le$$ than an attempt to buy real a$$et$ Vto $in%V exce$$ $a,in#$ into.
Qoe$ anyone belie,e + except for the imbecile$ who/ day in day out/ $ee% to obfu$cate the real i$$ue$ at
hand wa$tin# time on pathetic Vreform$V that $imply rearran#e dec%+chair$ on one Titanic conflict that i$
brewin# + doe$ anyone belie,e that European$ youn# and old will not be able Vto join the dot$V all by
them$el,e$H
!airo and Tuni$ are no different/ belie,e me/ from Faple$ or !atania/ or i$bon or -then$.... or ;adrid
and/ beyond that.... who %now$H There i$ a $how comin# to a European capital near you. Batch thi$
$paceU
*oseph be$br+no \ 3ebruary 6 ):((am \ Permalin%
\ 6ption$
: had been warnin# about thi$ order of con$ideration$ in ;artin BolfW$ la$t column with re#ard to both
:ndia and !hina + but then/ much the $ame applie$ to the $o+called Vemer#in# economie$V. Thi$ la$t
expre$$ion i$ e#re#iou$ly $u$pect: there i$ an e,ident dan#er in adoptin# it/ in that it tend$ to ta%e the
Vemer#enceV of certain Veconomie$V for #ranted/ a$ a fait accompli/ an order of reality/ when in fact it
i$ merely a tendency who$e real Vori#in and cau$eV need$ to be a$certained.
: thin% it i$ e$$ential to $ee% to locate the $tory of V$ubalternV capitali$t economie$/nation+$tate$/
within the o,erall picture of expan$ion of Vthe world mar%etV/ otherwi$e loo$ely %nown a$
V#lobali$ationV.
There i$ an exa$peration of the producti,e cycle of capital which/ unable to accumulate within the
more $trictly Vproducti,eV $phere$ of human >Vcon$umerV? need$ in Be$tern $ocietie$/ at once $ee%$
both to accumulate in nation+$tate$ where li,in# labour i$ VcheapV/ and then/ in a later VmomentV/
reab$orb$ the V$urplu$V expre$$ed both in compre$$ed VrealV wa#e$ in the Be$t and in monetary
form in the $hape of V$a,in#$V >Lernan%e? re+fluxin# mainly from !hina.
The exce$$ in monetary media in the capitali$t Vmetropole$V flowin# from the VperipheryV then
encoura#e the expan$ion of the financial $ector to truly alarmin# proportion$. The con$e=uence$ are
broadly that an enormou$ amount of $ocial power i$ concentrated in the hand$ of W3inanK%apitalW with
it$ cohort$ of increa$in#ly Vpara$iticV apparatchi%$ who$e $ole purpo$e + re$ultin# from their
Vunproducti,eV role in the capitali$t cycle + i$ merely to blow bubble$ of $peculation >Bolf and 0oro$
docent?.
-nother con$e=uence i$ the V;in$%y momentV whereby the financial bubble$ ultimately blow up in the
face of the VrealityV of capitali$t production for Vneed$V which tran$late$ either into a$$et+price or wa#e
inflation. The latter ha$ not occurred becau$e of the openin# of a lar#e Vre$er,e army of labourV in the
periphery. Lut the former ha$ exploded with a ,en#eance ;in$%y him$elf would ha,e mar,elled at in
hi$ mo$t VPonKian moment$V.
: am $ee%in# to #i,e $y$tematic/ methodical $hape to my analy$e$. :t i$ =uite ama$in# how little that
i$ V$en$ibleV ha$ been written on the $ubject/ partly becau$e of the Vblindne$$V >remar%ed upon once
more by 0imon 0chama in todayW$ reflection$ on E#ypt? of the academic and profe$$ional economic
ca$te$/ but al$o by the ob,iou$ Vjournali$ticV limitation$ of far more percepti,e ob$er,er$ be#innin#
with the li%e$ of ;artin Bolf/ but e,en Tony 2ac%$on/ at the 3T.
-nyhow/ enou#h from me for the moment. -rri$entirci.
jo$eph belbruno \ 3ebruary 6 &:&'am \ Permalin%
\ 6ption$
Unli%e ;artin Bolf/ 0imon 0chama e,idently did not climb the hill$ to Qa,o$. et u$ recall that thi$ 0wi$$
town i$ the $cene for Thoma$ ;annW$ WThe ;a#ic ;ountainW. Thi$ no,el i$ mo$t memorable/ : thin%/
predominantly becau$e of the epic intellectual and ethical $tru##le between the proto+fa$ci$t Faphta and
the humani$t 0ettembrini + with the final blea% appearance on the $cene of the towerin# fi#ure of
Peeper%orn/ who$e chari$ma i$ more than matched by the bumblin# non$en$e comin# out of hi$ mouth
+ an ominou$ portent of the ri$e of fa$ci$t dictator$.
Bhether ;ann %new it or not/ hi$ no,el i$ perhap$ the #reate$t literary dramati$ation of the formae
menti$/ thou#h not the material force$/ that will $hape the future of our $till+capitali$t and liberal
$ocietie$. :t may be that the Beberian $chema of a Wrationali$edW >but ultimately irrational/ W$oul+le$$W?
bureaucratic machine >or Wiron ca#eW? #uided by chari$matic Wpolitical leader$W exerci$in# their indi,idual
$en$e of Wre$pon$ibilityW i$ no lon#er plau$ible let alone de$irable a$ a model of our $ocial or#ani$ation.
Lut then/ what other way$ are a,ailableH
0imon 0chamaW$ tac%lin# of the e,ent$ in E#ypt i$ welcome and timely e,en in thi$ dimen$ion. Ly
e,o%in# the tenuou$/ but thematically $ubtle lin%$ between the popular uphea,al in Forth -frica and the
;iddle Ea$t/ on one $ide/ and pre,iou$ re,olutionary or in$ur#ent uphea,al$ on the other/ 0chama i$
in,itin# u$ to reflect on whether and how we our$el,e$ wi$h to $hape our future.
Unli%e !hri$topher !aldwell/ who unfortunately $eem$ to ha,e $u$pended reader$W comment$ >wa$ that
an an$wer to my bitin# criti=ue$H? on hi$ column/ 0chama doe$ not #enerali$e V-mericaW$ intere$t$V/ a$
if the$e were a #i,en/ a$ if there were not different intere$t$ pu$hin# for a$$ertion within the -merican
polity. The reality i$ far more complex than that. -$ Paul "ru#manW$ recent FYT 6pinion$ ha,e $hown/
there i$ now indeed a $tru##le for the $oul of -merica between two force$ that Pre$ident 6bamaW$
titubant and totterin# Vbiparti$an$hipV i$ barely able to comprehend/ $till le$$ to ma$ter. Too little $pace
pre,ent$ me from outlinin# tho$e. ;o$t reader$ would ha,e an idea already.
6ur ta$%/ and it i$ one to which 0chama i$ in,itin# u$/ i$ to delineate the way$ and mean$ for
exco#itatin# our own no,el way$ to achie,e Vcon$titutional tran$+formationV in Be$tern liberal capitali$t
democracie$. :n the face of what i$ happenin# all around u$/ it i$ a call we mu$t an$wer.
http://blo#$.ft.com/#a,ynda,ie$/&'('/(&/'(/jean+claude+trichet+fi#ht$+to+$a,e+hi$+le#acy/
The ori#inal purpo$e of E;U >which we all tend to lo$e $i#ht of/ in the rei#nin# confu$ion of daily cri$e$?
wa$ VpoliticalV/ not $o much VeconomicV. The o,erridin# purpo$e wa$ Vto uniteV Europe/ to form
European$ + in an admittedly V;achia,ellianV fa$hion/ that i$/ by remo,in# control o,er monetary policy
from the peripheral countrie$/ thereby Vdi$ciplinin#V them and their wor%er$/ and $o initiate a Vproce$$ of
con,er#enceV >meanin#/ fi$cal Vharmoni$ationV? that would lead to a.... ye$/ thatW$ ri#htU... a Vpolitical
UnionVU You $ee/ we needed a Vpolitical UnionV to a,oid tho$e na$ty little VEuropean ci,il war$V that ha,e
the habit of dra##in# the planet alon# with themU
The plan ha$ not wor%ed becau$e in$tead of Vcon,er#enceV we ha,e had Vdi,er#enceV. Oreat part of
thi$ Vdi,er#enceV i$ due to the fact that Vthe Oerman elite$V >indu$trial and financial + tho$e ban%$ that
fea$ted on loan$ to the periphery? were all too willin# to accept the benefit$ of the euro and free capital
mar%et$ + but now are unwillin# to $hare the burden$ + blamin# it all in$tead on tho$e Van#lo+$axon$V
that $peculate on mort#a#e$ and financial in$trument$. 6f cour$e/ the much+awaited Vdi$ciplineV of the
periphery did not e,entuate + in part becau$e tho$e Oerman elite$ were a$leep at the wheel and ne,er
impo$ed it a$ part of the deal. 0o the =ue$tion now i$ twofold: >a? where do we #o from hereH >b? how i$
the dama#e to be repairedH
The Oerman elite$ ha,e to decide whether they wi$h Vto repairV the dama#e or $imply throttle the
Vdama#ed peripheryV. :f they do not wi$h to help pay and in$tead pre$$ the foot on the throat of
$tru##lin# P::O0/ then they will $urely #et their come+uppance: no Vmar%et$V to trade with< political
in$tability in Europe< #rowin# Virrele,anceV of Oermany #lobally. 4emember: political union wa$ the
o,erridin# #oal/ $o that Europe would not become the %ic%in# ball for -$ia and Forth -merica >who
%now$/ $oon e,en for atin -merica?. :n$tead we #et what : ha,e lin%ed here below: a Vdebtor$5 pri$onV/
from 4alph -t%in$ at the 3T/ and the oppre$$ion of the ,ictim$ of the O3!/ from Paul "ru#man.
4alph -t%in$ fir$t:
/A fundamental problem, %rof .ofinger argued, was that "erman politicians regarded the
(uropean &nions bail#out facility not as a necessary mechanism to protect countries against
unwarranted market pressure but as a kind of 0medie!al Schuldturm Edebtors prisonF0.
Instead of helping countries in difficulty, "ermany fa!oured penal interest rates and
pro!iding funds only after an emergency rather than on a pre!enti!e basis. &nlike in the &G,
where the central bank was buying debt and thus making it impossible for the country to
become insol!ent, euro4one deficit countries were facing growing wa!es of
mistrust.0http://blo#$.ft.com/money+$upply/&'('/((/&1/a+#loomy+alternati,e+#erman+,iew/
-nd Paul "ru#man >piece lin%ed by Bolf?:
8:t follow$ that the le,el of debt matter$ only becau$e the di$tribution of that debt matter$/
becau$e hi#hly indebted player$ face different con$traint$ from player$ with low debt. -nd thi$
mean$ that all debt i$nWt created e=ual G which i$ why borrowin# by $ome actor$ now can help
cure problem$ created by exce$$ borrowin# by other actor$ in the pa$t. Thi$ become$ ,ery
clear in our analy$i$. :n the model/ deficit+financed #o,ernment $pendin# can/ at lea$t in
principle/ allow the economy to a,oid unemployment and deflation while hi#hly indebted
pri,ate+$ector a#ent$ repair their balance $heet$/ and the #o,ernment can pay down it$ debt$
once the dele,era#in# cri$i$ i$ pa$t.9
] uc%y iberal + -#reed. Bhat we need to a$% i$ one fundamental =ue$tion: #i,en that the financial
cri$i$ ha$ not reduced the producti,e potential of our indu$trie$/ and #i,en that the only Vproblem$V in
$i#ht are VfinancialV in nature/ i$ there not $omethin# fundamentally wron# with VfinanceVH -nd #i,en that
VfinanceV i$ another word for Vre#ulatin# the relati,e claim$ of different people to $ocial re$ource$V/
$hould we then not conclude that Vau$terityV i$ an ab$urd VpriceV to pay $o a$ to accommodate the Vle#al
ri#ht$V of $ome people to tho$e re$ource$H - part of the population >the wor%er$? are bein# a$%ed to
$acrifice them$el,e$ $o they can VhonourV artificial Vobli#ation$V to another part of the population
>finance capital?. Bhere i$ the $en$e in thatH -$ Paul QeOrauwe percepti,ely point$ out >in the article
cited by Bolf?/ only throu#h political di$+union can euroKone #o,ernment$ ma%e Vcapital $tri%e$V by bond
holder$ >mo$tly ban%$? a#ain$t member $tate$ a $ure bet + ju$t a$ currency $peculation wa$ in the
V0na%eV. -nother ca$e of Vhan# to#ether or han# $eparatelyV.
2u$t chec% out the paroxy$mic ab$urdity of thi$ ar#ument + which i$ in$ane before it become$ ludicrou$:
Be need Vto cutV #o,ernment deficit$ becau$e we need to pay for them >Vno free lunche$V?. Ly cuttin#
deficit$ we earn and pay our way out of debt. The debt i$ owned by finance capitali$t$ who VfinanceV it.
Be ha,e the debt becau$e the #o,ernment had to a$$ume re$pon$ibility for Vpri,ateV debt + incurred by
the $ame Vfinance capitali$t$V who $peculated on a$$et$ before the bubble bur$t. 0o in other word$ we
ha,e to wor% harder and export more to pay Vpri,ateV capitali$t$ for the VpublicV debt incurred by
Vpri,ateV capitali$t$ in the fir$t placeU
aaaaaaaaaaaaaaaaaaaaaaaaaa
Lrilliant. Lut there i$ more VmethodV in the madne$$. The Vpublic debtV wa$ incurred becau$e Vforei#nV
>mainly Oerman and 3rench ban%$? Vpri,ate finance capitali$t$V in,e$ted in deficit countrie$ the capital
accumulated by $ellin# #ood$ and $er,ice$ to the debtor countrie$. The in,e$tment went bu$t. 0o/ do
the$e forei#n ban%$ cop it on the chin and write off the lo$$ a$ e,ery Vcapitali$t entrepreneurialV manual
teache$H Fo/ becau$e the VloanV need$ to be repaid. 0o when a finance capitali$t in,e$tment i$
profitable it i$ an Vin,e$tmentV >profit$ are Vpri,ati$edV?/ but when it #oe$ bu$t it i$ Va loanV that + noble$$e
obli#e + need$ to be VhonouredV/ that i$/ repaid. Lut will Oermany >the ma$ter finance capitali$t and
merchant? #i,e u$ a chance Vto repayV the VdebtVH Fo/ becau$e they are #ood at $ellin# u$ thin#$ and
lendin# u$ the capital with which to buy them $o that we can Vcut cut cutV to pay for both the Vthin#$V a$
well a$ the loan$UUUU
Enou#hU The accumulati,e madne$$ of 8capitali$t enterpri$e9 i$ plain for all to $ee. : am off to watch
!harlie !haplinW$ VThe Oreat QictatorV or ;el Lroo%$W$ VTo Le or Fot To LeV + a di# at 7itler and FaKi
Oermany. That ou#ht to re$tore my faith in bein# a #ood European + either a Lrit or a Oerman 2ewi$h
emi#re. !heer$ to all.
The a#ein# of the wor%in# population certainly po$e$ an in$urmountable challen#e to the Party
Qictator$hip. :t i$ another nail in it$ coffin + to#ether with tho$e labour $horta#e$ you mention/ and the
fact that many youn# !hine$e pointedly refu$e to wor% a$ $oon a$ they can afford to do $o + which #i,e$
you hope for humanity. !hine$e o,er$ea$ $tudent$ are of two %ind$: tho$e who lea,e !hina and remain
in their ho$t countrie$ >$uch a$ U0 and -u$tralia + : ha,e acted a$ a lawyer for many $uch $tudent$? are
in a majority. Bith a ,a$t population/ it relea$e$ $ome pre$$ure for the Qictator$hip. The other$/ tho$e
who return to !hina/ are a minority and they are u$ually Vprincelin#$V + what wa$ it that : $aid about the
Qictator$hip e,entually ha,in# to $ee% political a$ylum abroadH The Party Qictator$hip %now$ that it
need$ the experti$e for political and indu$trial leader$hip that it can only #et from abroad. 6f cour$e/
the$e are all force$ that wor% a#ain$t the Qictator$hipW$ hold on power + but we can and $hould ha$ten
it$ demi$e. 0urely you ha,e read about the e,ent$ in the Yellow 0ea and the otherwi$e inexplicable
$upport of the Qictator$hip for Pyon#yan#H Fow that the Qictator$hip feel$ VencircledV by a Vcordon
$anitaireV of capitali$t countrie$/ it$ only Vfriend$V are fellow authoritarian countrie$ from :ran to 0udan to
TeneKuela. :tW$ the company you %eep....
]a$ian ob$er,er + -la$ it would be all too $imple if it wor%ed li%e thatU 7itler and hi$ henchmen al$o
lifted million$ of Oerman$ out of po,erty + by demandin# Va $lice of Tur%ey and a $pot of OreeceV/ a$ the
jo%e #oe$ + and ten$ of million$ of war dead in the proce$$U -nd what are we to $ay of a Oerman
population that wa$ e,idently complicit in the rape and ra,a#e of Europe and the worldH 0o much for
Vrai$in# million$ out of po,ertyVU 0o how doe$ it wor%H 4ecommended readin#: 7annah -rendt/ Tolume
Two of VThe 6ri#in$ of Totalitariani$mV. :t wor%$ li%e thi$: capitali$t nation+$tate$ are of two %ind$. Tho$e
that proceed by Vrelati,e exploitationV >call it the WFew QealW or "eyne$ian way? which mean$ that
#rowin# profit$ and accumulation are ba$ed on a trade+off of ri$in# wor%er li,in# $tandard$ throu#h
hi#her producti,ity and expan$ion of dome$tic national demand and con$umption.
-nd then there are tho$e capitali$t re#ime$ >authoritarian/ dictatorial or totalitarian in ri$in# de#ree$ of
brutality? that accumulate capital throu#h Vab$olute exploitationV + that mean$ by expandin# the $iKe of
the exploitable labour force/ depre$$in# wa#e$/ %eepin# a low currency/ accumulatin# forei#n re$er,e$
and expandin# Vmar%et$V by Vout+competin#V other capitali$t countrie$ and lowerin# the li,in# $tandard$
and employment of their wor%er$. Qoe$ that $ound li%e !hina and it$ dictator$hipH :ndeed it doe$. -nd
of cour$e it need$ to co+opt part of it$ population in thi$ in$ane enterpri$e. :f you read BolfW$ article today
he ta%e$ direct aim at the Oerman elite + and the Oerman VmobV a$ well/ all too morali$tic about Vbailin#
outV the P:O0. Fo need to worry. et u$ %eep #oin# li%e thi$ and $oon there will be another VEuropean
ci,il warV. -ll in the name of Vrai$in# li,in# $tandard$V/ of cour$e. >:ncidentally/ plea$e note that all
8export+dependent9 national economie$ ha,e had a lon# and ,ery recent hi$tory of dictator$hip and
totalitariani$m G from ;ao5$ !hina/ to :mperial 2apan/ to !hian#5$ Taiwan/ to "im5$ 0outh "orea/
tob.0in#apore i$ $till a dictator$hipb.: thin% we #et the picture.?
*oseph be$br+no \ Fo,ember &C ((:CCam \ Permalin%
;ay : al$o draw the attention of participant$ to 0tephen 4oachW$ !omment in todayW$ 3T. :t i$ amu$in# to
note 4oachW$ mi$u$e of lan#ua#e: he i$ effecti,ely ar#uin# for a $a,a#e VcurtailmentV of the 3edW$
VmandateV + and call$ thi$ a Vre,ampVU
The mind$ of in,e$tment ban%er$ >4oach i$ with ;or#an 0tanley -$ia/ while 6WFeill + the object of my
$corn ye$terday + i$ with Ooldman 0ach$? ha,e been $o $tultified by their fa$t trade$ with the !hine$e
dictator$hip that they pa$$ off their Veconomic or ban%in# experti$eV for the ,irtual $urrender of our e,ery
democratic ri#ht and principle to that infamou$ leader$hip.
:f there i$ one rea$on why we ha,e to learn and explain how deeply Veconomic$ i$ a concentrate of
politic$V/ the #arba#e comin# out of the$e people ou#ht to be itU
Perhap$ the #reate$t $er,ice that the 3edW$ QE will perform for humanity i$ preci$ely what ;e$$r$.
6WFeill and 4oach fear mo$tU The collap$e of the !hine$e dictator$hip under mountin# inflation and
unemployment/ which they will ha,e to con,ert into hi#her dome$tic demand. Thi$/ in turn/ can only be
achie,ed by #rantin# #reater purcha$in# and political power to their population + which can only wor% to
the ad,anta#e of #lobal democratic force$.
Bho $aid that ;artin Bolf i$ not a political $cienti$tH 0o far a$ : can $ee/ he i$ the mo$t ;achia,ellian of
all >in a #ood $en$e?. 7i$ political in$i#ht$ are the $tuff of clair,oyanceU
( will vote with [royll[ on this one, and several others who have made similar or convergent points# 8he
6uestion ( should lie participants to mull over is a paraphrase of the one famously posed by Count
Leinsdorf in 2obert Musil[s ZdivineZ Der Mann ohne @igenschaften 38he Man without Fualities5
written about fin$de$siecle Hienna in the shadow of the decline of the ;ustro$)ungarian @mpire $ 6uite
pertinent to &olf[s debate about Zclashing empiresZ# ;nd the 6uestion is thisJ &e now that capitalism,
of the ;merican or Chinese ind, is meant to raise the living standards of all its individual members#
'ut then, why should all this suddenly become an aut$aut 3either$or5L (n other words, why e,actly
should the ZwealthZ produced in one ZnationZ become a Zcompetitive advantageZ against another
ZnationZL )ere we have the fundamental problem of ZeconomicsZ dating bac from at least .mith and
2icardo# &e need to find out what e,actly are Zthe nature and causes of the wealth of nationsZ#
@,change rates play a great role in highlighting the Zbalance of powerZ 3did ( mean Zthe balance of
paymentsZL5 between ZnationalZ capitalist systems# 8he last few entries in the last wolfe,change began
to broach this subject# 8he fact that Martin &olf has ZhighlightedZ its ZimplicationsZ with this new
topic on China shows how Zclosely relatedZ these 6uestions are# ( will not advance further into the
matter, e,cept to point out a supreme e,ample of the profound inanity of some commentators, in specie
Aim I[Neill in today[s ?8# )ere is a brief 6uote from his article which, in denying that there are
Zcurrency warsZ, displays the utter colossal stupidity of some commentators $ worse, their blindness to
the real nature of the potentially catastrophic conflict that &olf 3and Erugman5 are bringing to our
attentionJ
Z;mid all of this overheated tal, there is only one point where those who attac China as undervalued
have a credible pointJ the growth of its foreign e,change reserves, which now sit above 4!,B""bn# 'ut
even here we must recognise China%s siCeable inward investment flows# 8his means its basic balance of
payments, which includes capital inflows, is much stronger even than its recently improved current
account# .ome of this has been sensible, although some of it stems from needless reserve accumulation
designed to avoid a repeat of the 1<<0 ;sian crisis#Z
&hat I[Neill fails to understand is that Zthe needless reserve accumulationZ on the part of the Chinese
dictatorship is not and was never Zdesigned to avoid a repeat of the 1<<0 ;sian crisisZ# ?ar from itV 8he
reserve accumulation is the result of the Chinese +olitburo[s design to strengthen and e,pand its
military$industrial comple,J it is a ZreserveZ that is the most elo6uent symbol of its Zwill to powerZ, of
its ZimperialistZ intentions# $ 'ecause its entire Zeconomic growth through e,portsZ is an e,ercise in co$
opting its population in an imperialist design of world domination $ beginning with the China .ea and
.outh @ast ;sia#
Y @6uivocation $ )i# *ou can see from the 6uotations below from )aye[s Z8he +ure 8heory of
CapitalZ 3at p#!015 that the ;ustrian .chool always regarded labour as a Zfactor of productionZ# 8hey
too this from as early as 2ichard Cantillon 3whom they idolised5, who also included capital, land and
Zentrepreneurial rentZ, which became Zentrepreneurial profitsZ 3Unternehmergewinn5 with .chumpeter#
Z###a distinction already mentioned which the ;ustrian .chool used to describe as the difference
between a growth of capital taing the form of an e,tension of its time dimension and one taing the
form of an e,tension of its ZlabourZ structure of production dimension, and which Dr# )awtrey has
recently christened the ZdeepeningZ and theZ wideningZ of capital respectively####
###without 3to revert for once to the traditional terms5 affecting the proportions between capital and
labour in any of them singly####
8his effect is, of course, merely an application to industry as a whole of the general proposition which
was invoed a short while ago 3Chapter GH(, p# !"15# &herever the coefficients in which the different
factors o f production can be combined in individual industries are relatively or absolutely rigid, a
change in the relative scarcity of the different factors can be met only by an e,pansion of the scale of
output of those industries which use relatively less of the factors that have become more scarce, and a
corresponding contraction on the part of those industries that use more of those factors#Z
( have to add that ( agree in part with you about the relative 7intellectual9 assessments of the ;ustrian
.chool and Eeynesianism# ( am writing my chapters on the ;ustrian .chool and what drew me to it
was their vastly superior intellectual preparation 3in philosophy, economic and political theory to say
the least5 vis$e$vis Eeynes and the Cambridge .chool# &ithout wishing to do a disservice to my alma
mater, the ;ustrians U from Menger and &ieser through to )aye and .chumpeter U were immensely
more learned than the Cambridge dons# 8he Hienna in which they lived and studied was a far more
7serious9 and cultivated place for intellectual reflection than the college spires by the Cam where dons
would mae merry 3( now a little about this5 with interludes to London%s 'loomsbury#
Lie you, ( am convinced that 7in the long run9 $ where culture belongs according to /eorge Irwell,
and once 7policy9 preoccupations recede $ the ;ustrians will attract far more serious intellectual
attention than the @nglish dilettanti# Ciao#
Y @6uivocationJ ( never mentioned the ;ustrian .chool# Itherwise, you are 6uite right $ but Mises and
)aye would scold you if they heard you say that Zmoney is an intertemporal e,change of laborZV ?or
them, labor is just another factor of production, to be priced by maret e,change, lie any other ZgoodZ
$ it has no privileged position# ;nd money is just a Zmedium of e,changeZ that may also, in the case of
gold or commodity money, have a ZpriceZ denominated in its own termsJ the ZpriceZ of an ounce of
gold is an ounce of gold#
8here is an interesting thematic lin between &olf[s piece on the /old .tandard and his ZIp$@d
ColumnZ on 6uantitative easing, which also involves the latest articles by David +illing on the way
great powers abuse their politico$military power to impose favourable trade outcomes, and by /ideon
2achman on divisions in the /!"# 3(ncidentally, the /!" threatens to become a waste of time unless the
Chinese dictatorship realises that it has been ZgamingZ the capitalist game for far too long and, now
everyone realises this#### the game is upV5
8he lin is something that the darling of central baners, &alter 'agehot, does not discuss in ZLombard
.treetZ# ( remember [@6uivocation[ saying that central bans started out as private bans 3presumably to
bac up his argument for a return to Zprivate moneyZ5# Correct# 'ut that is e,actly why the 'an of
@ngland and the ?ederal 2eserve were ZnationalisedZV 'ecause their role as central bans was utterly
incompatible with their private status# $ &hich goes to show that Zthe lender of last resortZ, nationally
or internationally, must be baced by an overwhelming politico$military power#
&hat 'agehot did not mention is that under a presumed Z/old .tandardZ, the hegemonic country needs
to be able, in the course of a financial crisis or panic, to raise its rate of interest to attract and retain
physical gold in its vaults# 8he conse6uent deflation and loss of trade competitivity needs to be
[balanced[ somehow on current account# ;nd that is how Zthe City of LondonZ ruined the 'ritish
economy $ because the 'ritish (mperial government was forced to balance the deficit with the U. and
/ermany by forcing its e,ports on (ndia and the rest of the @mpire# 8hat is how the circle was s6uared#
; simple sleight$of$handV
&hat China and /ermany and other recalcitrants are asing the U. to do now is to suffer the same fate
as 'ritain $ with the inevitable conse6uence, in a capitalist global economy, of detonating a global
conflagration# (t is reassuring in the e,treme that the U. is not falling for the tric# (ndeed, it can be
argued that the U. government is the biggest friend of the global proletariat, because it will not allow
the e,ploitation of Chinese worers to become the global Zcompetitive benchmarZ 3though it was
happy to do so while cheap imports ept U. wages low and living standards high5# &hat has brought
things to a head are high unemployment and the dangerous enrichment of the Chinese dictatorship#
.o let us be careful with Zpolitcal powerZ and ZvalueZJ the two are related, but not in a ZvulgarZ manner#
ZHalueZ is connected to the relationships of power in the wage relation, that are transmitted through the
world and other Zmarets for goodsZ# 8he ZpowerZ bit comes in where different Znational economiesZ
collide $ which is at the Ze,change rateZ level#
2egards to all#
Y .eppJ /ood point about .chumpeter%s theory of business cycles# (f you read between the lines below
you will see that not only does ;ustrian theory see Scrisis% as @GI/@NIU. and therefore e,ternal and
Snot caused by% capitalist social relations, 'U8 ;L.I the entire notion of 7entrepreneurial spirit9 and
7creative destruction9 are thinly$disguised 3almost Stongue$in$chee%5 apologies for the antagonism of
those social relations, the often e,treme ravages and upheavals caused by capitalist Scrises% ;ND their
AU.8(?(C;8(IN under the flimsiest of prete,ts U 7innovation9# 8he apology is that the misery
3destruction5 we must bear for 7boom and bust9 is really the promise of 7innovative creation9V ?or the
bourgeoisie the 7entrepreneur9 is a true divine gift of ideology, the politico$economic e6uivalent of the
7deus e, machina9 in /ree tragedy 3those /rees again5V
Y ;E U 'rilliant point, because it goes to the heart of the current Scrisis%# Capital flows in and of
themselves DI NI8 cause Scrises%, but they are symptoms of deeper social antagonisms over the
distribution and production of social wealth# (t is essential to understand that the /lobal ?inancial
Crisis was occasioned by the speculative efforts of finance capital to appropriate social wealth upon the
Sreflu,% of capital from its enormous accumulation in ;sia under the virulent e,ploitation of worers
subjected to dictatorial regimes, either e,tant as in China or of the recent past as in Aapan, .outh Eorea
and 8aiwan# 8he Chinese 3CommunistV5 dictatorship deserves especial infamy for the way in which it
has permitted the unprecedented e,ploitation of its worers at its own hands 3state$owned enterprises5
and foreign corporations whilst taing good care Sto re$plough% its accumulated foreign reserves into
the Ssafety% of U. 8reasuries 3V5 rather than e,panding domestic consumption and social welfare to
emancipate its own peopleVV
;s 'en 'ernane established in his academic research 3presented in Congressional hearings5, this
enormous accumulation of capital 3or, as he labels it, 7e,cessive savings95 together with the Sla,ity% of
&estern governments in avoiding their Sspeculative investment% gave rise to Sspeculative bubbles% in
&estern capitalist economies whose Sbursting% has resulted in an almost unprecedented transfer of
wealth to finance capital in the form of public debt taen over by Snation$states% to rescue and protect
the very finance capitalist institutions that caused the Scrisis% in the first placeVV
;s ( have sought to e,plain below, Scapital flows% are really attempts by capital in its Sli6uid% or
Sfinancial% form 8I @.C;+@ the antagonism of the wage relation and to ac6uire Svalue% speculatively
3in the words of /eorge .oros, by 7creating imaginary value out of thin air9V5# 8his Scapital flight% is
not so easy or even possible for Sindustrial% and Slong$term financial% capitalists who often have to
suffer the ravages and the loss of wealth caused by Sspeculative bubbles% with the rest of society#
8he Scrisis% in @urope has different origins# (n the @U the capital flows from the ?ranco$/erman Score%
to the SMediterranean periphery% was a result of the greater productivity 3Scompetitiveness%5 of /erman
industry which, in turn, was a historical legacy of the Ssocial pact% between a /erman woring class
that was thoroughly van6uished in the NaCi period and the /erman bourgeoisie#
8his initial advantage was then cemented in the artificial undervaluation of the Deutschemar disguised
by the 'undesban as a steadfast technocratic 7defence9 3Herteidigung5 of the DM against Swage
e,plosions% and Simported inflation% and justified pathetically as a legitimate attempt to avoid a repeat
of the &eimar Shyperinflation% 3see Earl Itto +ohl%s boo on 78he Defence of the DM95#
8he reason why the /erman bourgeoisie agreed to @uropean Monetary Union was precisely to cement
the Schronic undervaluation% of the DM and its e,port surpluses as well as to prevent Simported
inflation% from the Mediterranean Speriphery% with their periodic 7competitive devaluations9 under the
post$'retton &oods fle,ible e,change$rate regime# 38his much is conceded by +adoa$.chioppa in his
Sdiplomatic% defence of the euroCone in today%s ?8#5
;s you may appreciate, we now have 8&I L@H@L. of social and international conflict over &)I
'@;2. the Sburden of adjustment% of the crisis# 8he first level is at the Snational% level where an
increasingly cohesive @U government and the U. government see to negotiate and mediate the
payment of debt obligations to Slenders% 3finance capital5 by Sborrowers% 3worers5# &hereas financial
capitalist elites are calling for 7fiscal responsibility9, that is the timely repayment of their Sprivate debt%
by governments through higher ta,es and Sausterity%, the tas will be made difficult by the antagonism
of worers 3who will see to maintain the Snominal% value of wages and of employment5 and of
industrial capital een to maintain effective demand through monetary e,pansion and perhaps
Sinflation%#
8he most c r u c i a l role in the resolution of this Sconflict% will be played by the @uropean Central
'an that is ;L2@;D* under enormous social pressure 3from worers and industrial capital5 to act as
Slender of last resort% and MIN@8(.@ the sovereign debts of member states whilst, on the opposite
side, conservative forces and finance capital pressure it to maintain its 3technocratic, Snon$political%,
independent%V5 Scredibility% by eeping inflation targetting as its one and only raison d%etre# 38his
conflict is being played out D;(L* in the pages of the ?8 itself# .ee stories on 8richet and ;,el
&eber#5
;t the .@CIND level, we are witnessing rising conflicts between Sdominant% nation$states from the U.
to /ermany 3representing the @U U note that +resident Ibama called EanCler Merel last weeend at
the height of the @uropean crisis, and not the @U +resident5 and also involving China%s dictatorship
with its maligned Speg% of the yuan to the U. dollar which simply aggravates the adjustment burden for
U. employment given the steady Sdevaluation% of the euroV ?or its part, the @U welcomes the falling
euro but fears the onset of Sinflationary wage e,pectations% among its worers that would undermine
social stability#
8hese Shegemonic% conflicts have been widely reviewed and we will not enter them here# .U??(C@ (8
8I .;*, in conclusion, that the /erman bourgeoisie );. NI C)I(C@ but to defend the @MU and to
accelerate the strengthening of a 7@uropean economic government9 3which includes a more active role
of the @C' in inflation management with the possible election of the (talian Mario Draghi rather than
;,el &eber to its presidency5 +2@C(.@L* '@C;U.@ the SeuroCone% is the real source of its
Sdominant% or hegemonic status in @urope# &ere the euroCone to brea up, this would undermine the
scale and weight of /erman 3and @uropean5 capitalist industry on the global stage and in the world
maretVV 38his is the conclusion of a recent report commissioned by the @U fretting the reduction of
@urope to 7a mere appendage of ;sia9 and the recurrent theme of the highest @U authorities U also
reported in the ?8#5
;pologies for the lengthy post, but ( feel certain that participants will appreciate the overriding
importance of Sshedding light% 3.ichtbar Machen5 on what can be comple, and confusing events#
&hilst it is tempting to confine debates of this type to Stechnical issues%, ( believe it is a moral and civic
as well as an intellectual duty for us to ensure that these matters do not become the province of
7scientific e,perts9 who, as Aurgen )abermas always reminded us, then become 7the inmates of closed
institutions9 3in S8heorie und +ra,is%5# 2egards#
Y ;E U 8hans for the interesting lin# +rof# 'ernstein is right about the 7possessive individualism9 of
the 8ea +arty# &e e,amined it already in the previous Swolfe,change% with )aye, and even below in
the 7+hantom9 piece that sets .chumpeter apart from the ;ustrian .chool# 'ut +rof# 'ernstein is rather
wea on )egel#
8o stay within the topic of this forum, ( have written a brief piece lining the notion of 7public deficits9
with )egel%s political philosophy# *ou will see from this that it is not true to say that the 78ea +arty9
members demand 7nothing9 or as for 7nothing9# 8rue, their ideas and claims may not be clear# 'ut
their demands stem from the irreconcilable conflict between an 7individualism9 shaen by an economy
in recession, on one side, and their resentment at the .tate 3the ;dministration5 for incurring the 7debt9
that they wrongly blame for causing the recession# &hat they do not understand is that it is their
7individualist9 religion 3V5 U which lies at the heart of the legitimacy of the capitalist .tate U that has
caused the 7sovereign debt9 in the first placeV####+recisely because, as Martin &olf would say, 7a
society cannot be in debt withW#itself9V
5:0ERE10 ;R 5:0ER<E10 =0he !racture of the 1tate<Plan>
?or what else is 7sovereign debt9L (t is an 7obligation9 owed by the whole 7society9 to certain of its
7individuals9# .overeign Debt is an obligation incurred by the 7totality9 of the community to a 7sector9
of itself, to a 7fraction9 of the communityW#and that is why sovereign debt is the 7?racture9 of the
.tate$+lan# &hat is at stae here is the 7separation9 of the interests of 7society9 as re$presented by the
7.tate$+lan9 from the interests of the various 7fractions9 of society, the 7particular9 or 7individual9
interests that are owed this 7obligation9 by the .tate#
;s it turns out, the 7obligation9 on the part of the .tate is in the legal shape of 7bonds9 that yield a
certain 7interest9 to 7bond holders9#
;nd this is where the 7fracture9 isJ the fracture of the .tate is reflected in the fracture of society
between those who will 7pay9 the interest and those who will receive the interest paid# 8he vital thing
to remember is that the 7bond holders9 now demand that the .tate respect and observe its 7obligation9
to pay the interest on the debt# 'ut this 7obligation9 is a 7legal9 obligation and, as such, can only be
7enforced9 by the .tate# .o what the .tate is being re6uired here is to respect an 7obligation9 that
7separates9 and 7divides9 its 7society9 or 7community9, an obligation that sets one class of citiCens
against another class for the sae of maintaining 'I8) the 7unity9 of the 7comm$unity9 ;ND the
7inter$est9 3being in common5 of its 7fractions9V
(t is 6uite obvious that this circle simply cannot be s6uared# 'ecause here the 7morality9 of the .tate
respecting its 7debt obligations9 under its own laws to pay 7interest9 to one 7sector9 or 7fraction9 of its
society is simply incompatible with the very financial and economic survival of the .tate# ;nd if the
.tate cannot survive 7financially and economically9, if the .tate cannot survive 7fiscally9Wthen it
becomes a non$.tate, it becomes a 7failed .tate9W#and the 7fracture9 of the .tate becomes the
7factionalism9 or 7fractionalism9, the 7separation9, the 7non$inter$est9 of 7society9 or of the 7comm$
unity9#
7.overeign debt9 indicates that point at which the 7individual interests9 of the members of 7society9
become incompatible with the 7inter$est of the comm$unity9# 8he failure of the .tate is the fracture of
society#
'ut the most telling point of all is that the .tate itself in a capitalist society finds its only rationality and
inter$est in the 7individualism9 of its membersV ;nd this is the very 7interest9 3the debt obligation5 that
is 7fracturing9 and threatening the very e,istence of the .tate U the debt interest that is banrupting the
.tateV
8)(., my friends, is 7the fracture of the .tate$+lan9# 8his is the dilemma that the .tate is called to
resolveJ either it pays the 7interest9 and so fractures the 7comm$unity9 or it upholds the 7inter$est9 to
maintain the hope of uniting the community#
Y aufsteiger $ +oints taen# (n the U., it is more than the economics profession that is dividedJ above
all, it is the political elite that cannot agree about what to do, as the ?8 and the N*8 highlight almost
daily# ; crisis lie this offers opportunities to 6uestion e,isting theories as well as institutions $ which is
what some of us are attempting here, particularly after decades of neoclassical intransigence and
downright contempt toward the critics of the academic paradigm#
(n a nutshell, economic theory has been taen over by a bunch of asinine nuts who mae half$decent
mathematicians but were not good enough to mae it in that discipline so they opted for the far more
glamourous world of economic and financial sulduggery# 8he outcome is that theory and analysis
have grown so detached from social reality to the point that it simply cannot advise or construct or
even formulate appropriate policies# (ndeed, how could economic theories that played a central role in
leading us to the /?C be called upon now to remedy the wrecageL
8he advantage /ermany has over ;nglo$.a,on countries is that its economic profession 3inside and
outside academia5 have always focussed on the actual operation of capitalist industry instead of
adhering to mythological hypotheses# 8ae 'hagwati, for e,ample, who insists that there is no
difference between service and manufacturing industries 3see 7projectsyndicate#com5# If course there
isn%t $ because the distinction is absurd in the first placeV (f he had any idea whatsoever of what is truly
at stae in 7industry9, what maes it vital to the 7power9 of a national economy, he would figure out
that it is the degree of 7leadership9 3scientific, industrial, financial, cultural5 it has over 7competing9
national economies 3( put 7competition9 in commas because once again it only has 7political9 validity,
but in economics it becomes a meaningless tautology5, not its volume or profitability# (n other words,
how liely and capable is a given national industrial comple, to dictate, control and dominate, the
future development and growth of particular industrial sectors, especially those vital to national
7security9L
)ence we come to Larry .ummers% infrastructure plan $ an idea echoed by 8homas ?riedman at the
N*8 or indeed by +aul Erugman who nows a thing or two about 7industrial clusters9 and 7economies
of scale9 $ and it is no coincidence that his field was####9international economics9 $ precisely where the
7political power9 of 7national9 economies dramatically e,poses the 7political9 character of 7economic9
realities#
;s for the ;ustrian .chool, to cut the contribution short, its 7methodological individualism9 entailed ab
initio that it would incur the pitfalls of 7the fallacy of composition9 on the side of
productionKconsumption 3falls in investment lead to lower demand, which leads to lower investment,
and so on5, and to what ( would call 7the fallacy of decomposition9 on the financial side, because the
financial +onCi pyramid does not just 7shrin9 in a financial panic when a bubble bursts, but rather####it
7collapses9 as Minsy e,plained long ago# Cheers#
Y +hilip $ 8hans for the ind words 3though there is no chance of a nomination for that priCe, rest
assuredV5# ( am not on faceboo and there are no publications yet#
8he study that ( am writing is a criti6ue of economic and political theory that sees to enucleate, from
their internal aporias and from established historical evidence, the real character of capitalist social
relations of production#
&e move from )obbes%s conception of a civil society of atomistic and antagonistic 7in$dividuals9 to
Loce%s jusnaturalism to ;dam .mith%s liberal 7political economy9# 2icardo%s labour theory of value is
then conjoined with )egel%s notion of objectified labour and dialectic of the state to comprehend
Mar,%s criti6ue of political economy# 8he reaction to this 7dialectical$rationalist9 worldview can be
characterised as 7negative thought9 originating in .chopenhauer through to @rnst Mach and NietCsche
and it lay the philosophical$political foundation of the 7marginalist9 reaction 3not just to Mar,ism$
socialism but more broadly to the ?rench 2evolution5 that led from the ;ustrian .chool 3Menger,
Aevons and 'ohm$'awer5 to neoclassical e6uilibrium theory 3&alras$+areto5 through to )aye and
.chumpeter# 8he comple, web of thought that ties &eber to .chumpeter%s 7economic evolution9
3@ntwiclung5 leads us to the Eeynesian welfare$state response to neoclassical theory 3inspired by the
New Deal5 and finally Mar,%s grand vision of capital as its own limit and eventual supersession into
7communism9 3perhaps we should prefer )abermas%s 7rational society95#
(t is a grand and noble, if ambitious, enterprise $ you can see that ( bristle with3;ristotelian5
7enthusiasm9 just outlining this# .eventeen years after being forced to abandon my pursuits to ensure
my financial survival through legal practice, ( am all too aware of the sacrifices that capitalism imposes
on most of us simply in order to preserve a social system whose sole aim is the endless accumulation of
capital, the imposition of dead over living labour, and the devastation of the biosphere#
8he remars on /ermany 3may ( refer you to Marcello DeCecco%s 7Money and @mpire9, the research
of 8ommaso +adoa$.chioppa ^an insider at the @C'_, and the recent article by Martin &olf5 and China
3again &olf%s latest articles and the lins to +ettis, 'ergsten and /ros5 in the conte,t of the looming
7currency war9 reveal the profoundly 7political9 nature of the reality disguised under formal
7economic9 categories#
May ( invite you to parse carefully this paragraph in /eorge .oros%s insightful latest article 3?8
8hursday5 that reveals how the interface of 7currencies9 3called 7e,change rates95 reveals how
7economic systems9 are really gravitational centres of political power embodied by 7nation$states9
where the conflicting interests of national bourgeoisies become tangible# )ere goesJ$
7.ince the Chinese government is the direct beneficiary of the currency surplus, it would need to have
remarable foresight to accept this diminution in its power and recogniCe the advantages of
coordinating its economic policies with the rest of the world# (t needs to recogniCe that China cannot
continue rising without paying more attention to the interests of its trading partners#9
8he 6uestion is thisJ what is the real political ne,us between 7economic9 accumulation of capital and
its translation into industrial$military mightL ?or this is the challenge that the Chinese +olitburo poses
to &estern capitalist nation$states through its accumulation of 7hard currency9 reserves by 7gaming9
the rules of international trade# .o do /ermany and Aapan, to be sure####but at least they can be trusted
to stand by the 73maret5 rules of the capitalist game9#
Cheers and good wee$end to all#
Y aufsteiger $ (nteresting remars regarding /ermany# No, (have not had the pleasure of practical
involvement with /erman economic institutions or academia e,cept for a study stay at Eoln
researching /erman approaches to @uropean Monetary Union#
&hichever way you loo at it, there is no doubt that the /ermans have always taen an 7institutional9
approach to 7economics9J in other words, they have always seen capitalist economic institutions as
dependent not on 7self$regulating marets9 but rather on the ability of a 7nation9 to project its politico$
economic 7power9 3Macht5 in a given geopolitical conte,t# ;nd this is what the /erman 7economists9
have always done by concentrating on the 7real9 ability of an 7economy9 to project and grow its
industrial 7might9# $ &hich is why the ability to project and predict and 7measure9 various economic
variables is so prominent in /ermany#
8his is precisely what the Chinese dictatorship has been able to doJ as &olf and +ettis put it, it is the
most 7capitalist9 bourgeoisie 3so to spea5 in the world and has aggrandised itself simply by using
7maret9 games against the established capitalist economies# &hen even a clever commentator lie
Aohn +lender in the ?8 can write that China may have the second largest economy on earth but has a
per capita /D+ e6ual to @l .alvador you get a 7measure9 of the sheer 7incomprehension9 of politico$
economic9 realities# 8his is e6uivalent to saying that the U. has the /D+ of Nicaragua####because &all
.treet is located in the ;mericasV
8he /erman theoreticians instead, from List to the /erman )istorical .chool who would not counte
nance the 7religious9 folly of the ;ustrian .chool to the Irdoliberalists, have always nown that 7the
wealth of nations9 is just thatJ $ the wealth of N;8(IN.# 8he U., long dormant in this regard, is
coming to realise 3if it can sort out its internal political problems5 that economics is a concentrate of
politics###and NI8 the other way around# 7Maret rules9 and 7economic laws9 are for sucersV
3)aving said that, the real interest of the ;ustrian .chool lies in its profoundly revelatory attempts to
give rational foundations to capitalist social relations of production#5
'y the bye, you may recall an interesting discussion we had on .chumpeter%s 7creative destruction9
3schopferische :erstorung5 and ;E%s interesting suggestion that it was )egelian$dialectical in origin# (
am lining below an interesting review by a Cambridge don that traces it bac to NietCsche and
.ombart 3the latter a member of the /erman )istorical .chool5# *ou may be interested to peruse it# If
course, there was little that was dialectical in NietCscheV Cheers#
Y ;E U 8hans for the interesting lin# +rof# 'ernstein is right about the 7possessive individualism9 of
the 8ea +arty# &e e,amined it already in the previous Swolfe,change% with )aye, and even below in
the 7+hantom9 piece that sets .chumpeter apart from the ;ustrian .chool# 'ut +rof# 'ernstein is rather
wea on )egel#
8o stay within the topic of this forum, ( have written a brief piece lining the notion of 7public deficits9
with )egel%s political philosophy# *ou will see from this that it is not true to say that the 78ea +arty9
members demand 7nothing9 or as for 7nothing9# 8rue, their ideas and claims may not be clear# 'ut
their demands stem from the irreconcilable conflict between an 7individualism9 shaen by an economy
in recession, on one side, and their resentment at the .tate 3the ;dministration5 for incurring the 7debt9
that they wrongly blame for causing the recession# &hat they do not understand is that it is their
7individualist9 religion 3V5 U which lies at the heart of the legitimacy of the capitalist .tate U that has
caused the 7sovereign debt9 in the first placeV####+recisely because, as Martin &olf would say, 7a
society cannot be in debt withW#itself9V
INT)R)ST OR INT)R,)ST -The "ract+re of the State,P$an.
?or what else is 7sovereign debt9L (t is an 7obligation9 owed by the whole 7society9 to certain of its
7individuals9# .overeign Debt is an obligation incurred by the 7totality9 of the community to a 7sector9
of itself, to a 7fraction9 of the communityW#and that is why sovereign debt is the 7?racture9 of the
.tate$+lan# &hat is at stae here is the 7separation9 of the interests of 7society9 as re$presented by the
7.tate$+lan9 from the interests of the various 7fractions9 of society, the 7particular9 or 7individual9
interests that are owed this 7obligation9 by the .tate#
;s it turns out, the 7obligation9 on the part of the .tate is in the legal shape of 7bonds9 that yield a
certain 7interest9 to 7bond holders9#
;nd this is where the 7fracture9 isJ the fracture of the .tate is reflected in the fracture of society
between those who will 7pay9 the interest and those who will receive the interest paid# 8he vital thing
to remember is that the 7bond holders9 now demand that the .tate respect and observe its 7obligation9
to pay the interest on the debt# 'ut this 7obligation9 is a 7legal9 obligation and, as such, can only be
7enforced9 by the .tate# .o what the .tate is being re6uired here is to respect an 7obligation9 that
7separates9 and 7divides9 its 7society9 or 7community9, an obligation that sets one class of citiCens
against another class for the sae of maintaining 'I8) the 7unity9 of the 7comm$unity9 ;ND the
7inter$est9 3being in common5 of its 7fractions9V
(t is 6uite obvious that this circle simply cannot be s6uared# 'ecause here the 7morality9 of the .tate
respecting its 7debt obligations9 under its own laws to pay 7interest9 to one 7sector9 or 7fraction9 of its
society is simply incompatible with the very financial and economic survival of the .tate# ;nd if the
.tate cannot survive 7financially and economically9, if the .tate cannot survive 7fiscally9Wthen it
becomes a non$.tate, it becomes a 7failed .tate9W#and the 7fracture9 of the .tate becomes the
7factionalism9 or 7fractionalism9, the 7separation9, the 7non$inter$est9 of 7society9 or of the 7comm$
unity9#
7.overeign debt9 indicates that point at which the 7individual interests9 of the members of 7society9
become incompatible with the 7inter$est of the comm$unity9# 8he failure of the .tate is the fracture of
society#
'ut the most telling point of all is that the .tate itself in a capitalist society finds its only rationality and
inter$est in the 7individualism9 of its membersV ;nd this is the very 7interest9 3the debt obligation5 that
is 7fracturing9 and threatening the very e,istence of the .tate U the debt interest that is banrupting the
.tateV
8)(., my friends, is 7the fracture of the .tate$+lan9# 8his is the dilemma that the .tate is called to
resolveJ either it pays the 7interest9 and so fractures the 7comm$unity9 or it upholds the 7inter$est9 to
maintain the hope of uniting the community and renege on its legal obligation to pay 7interest9 on the
public debt#
1# 8oseph elruno ] Aune 1= -J-0am ] +ermalin
Y ;E U ( do not thin that people have 7reflected9 fully on the vast implications of this phenomenon
we call 7the downward rigidity of nominal wages9 and the epochal transformations this has wrought on
the asset of capitalist institutions starting with 7the New Deal .ettlement9, through to 'retton &oods,
and then the era of fle,ible e,change rates leading to the 7/lobal ?inancial Crisis9#
;s you can see from many of the comments below and across the board even in other financial papers $
but particularly 3believe it or not5 in academic economics $ the vast majority of commentators see
current events through the spectacles of 7conventional analysis9, whether it be SEeynesian% or
Sneoclassic%# 8here is a catastrophic obstinacy to see capitalist social relations of production Ssub specie
aeternitatis9, as if they were immutable aspects of human society or 3Lord help usV5 of 7human nature9#
My last two interventions were meant to highlight this dramatic if evident 7apory9 or 7contra$diction9J
the capitalist .tate is now 7powerless9 to remedy 3through fiscal and monetary policy5 and mediate
3through bureaucratic rationalisation5 the irresoluble antagonism of the wage relation# .imply and
starly put, 8he Eeynesian .tate$+lan is 7banrupt9, financially and politically#
Martin &olf is right to denounce 7the cavemen9 U those theoreticians and commentators who indeed
are so far removed from the reality of advanced capitalism that they may as well join the tribes of
Neanderthal or .tonehenge# *et the problem is that we are witnessing the unravelling of the Eeynesian
7New Deal .ettlement9 U something that was theorised already embryonically by )yman Minsy,
although ( have found an earlier very terse formulation in +aolo .ylos$Labini%s 7Iligopoly and
8echnical +rogress9# (t is interesting to note that Minsy and .ylos$Labini were students of the two
giants of twentieth century 7bourgeois economics9, Eeynes and .chumpeter respectively#
.o it is no accident that an attentive and genial observer lie Martin &olf has turned his attention to
these theoreticians# (ndeed, ( must say that the best current analyses of capitalist developments are to be
found not in the efforts of academic economists whose methods and theories are increasingly devoid of
any relevance to reality, but rather in the commentaries of some journalistic reporters and
commentators# ;nd ( believe that there is a reason for this, one that ( identified in my time at
Cambridge# 8he fact is that academic economists are no longer the independent Sliberal professionals%
of the postwar era when universities were still 7outside9 the productive$investment cycle of capital# ;s
( realised at Cambridge with the @conomics ?aculty, academics are now nothing more than wage
employees# 8heir necessary 7subordination9 to the various review mechanisms of their employment
6uite simply CI@2C@. them into eeping at least the appearance of 7discipline9, 7credibility9 and
7responsibility9 U much the same way as central baners# ;cademics have lost their 7independence9 U
or rather, lie central baners, they are 7independent9 only to the degree that they remain
7technocratic9, that is wor within the strict and rigid confines of their 7discipline9 or 7profession9
3now Silliberal%, alas5#
8he inevitable outcome is that not only has academic research been conditioned as to the 7conclusions9
it reaches# 'ut also, more important as ( found out in Cambridge, economists are not even allowed 7to
as the right 6uestions9V 8here is no need to e,plain at length what this does to any presumption
academic economists have of approaching anything even remotely resembling 7science9# Under the
conditions that prevail in advanced capitalism and the 7subsumption or subordination9 of academic
institutions to the command of capital, 7economic science9 entirely loses its ability to reflect critically
on the institutional unfolding of the real social relations of production#
&hich is why, once again, this forum is effectively one of the last refuges of critical thiners wishing to
challengeW# 7the conventional wisdom9#
Report 8oseph elruno ? "une *@ **:)(am ? Permalin'
Y aaCaran and Y Maoto )onjo
Many thans for your comments and encouragement# ;s you can see, ( have combined the present
forum theme on 7sovereign debt9 with the previous one on 7financial repression9 to outline some
theses on the present state of the capitalist economy# (f you wish, you may loo also at my previous
interventions at Swolfe,changes% where you will notice that ( am trying to develop those new concepts
and theories that will clarify the political strategies needed to come out of this 7perennial crisis9#
D@?(C(8. ;ND 2@+2@..(INJ 3?racture of the .tate$+lan, +art !5
;s we saw in the 7+hantom9 and 7(nter$est9 pieces below, the capitalist corporate sector now is of such
dimensions that the social antagonism on which it thrives 3wage relation, profitability5 poses 7systemic
riss9 to the entire society of capital 3speculative bubbles, environmental and social costs, destructive
business cycles with underinvestment and high unemployment, growing ine6uality of income
distribution5# (ndeed, so deeply are the 7interests9 of the corporate sector entrenched in 7the society of
capital9 that corporations are now impelled to rationalise the impact of their operations as being in the
7public inter$est9, that is not just for the financial gain of their 7shareholders9 but also for the benefit of
a far greater number of social 7inter$ests9 referred to as 7staeholders9# ^-_
8he 7legitimacy9 of the .tate$+lan rests solely on its ability to preserve and foster a capitalist corporate
sector that is supposed to create social wealth through investment and growth# (n reality, however, the
corporate sector unleashes violent antagonisms and e,cesses that pose e,plosive 7systemic riss9 to the
very reproduction of the society of capital ^B_# (n turn, these mounting 7systemic riss9 force the .tate$
+lan to apply further 7repression9 3mountains of laws and penalties, microscopic policing5 that are
restricted and confined to preserving the capitalist relations of production 3the society of capital and the
corporate sector5 that cause the antagonism and the social ravages in the first placeV^!_
)ence, the .tate$+lan pays 7interest9 3on its debt obligations5 to the corporate sector in order to
preserve the 7inter$est9 3the social fabric, social and industrial peace, the environment5 of the society of
capital only to see its 7deficits9 3sovereign debt5 mount because the capitalist corporate sector only
produces fresh antagonisms and fresh ravages that re6uire even more 7repression9 and 7deficits9 by the
.tate$+lan#^3_ 8he outcome is a clear e,asperation or 7fracture9 of the .tate$+lan caught in a deadly
downward spiral of 7deficits9 and 7repression9, of 7crisis after crisis9, that can only render it both
financially 3deficits5 and legislatively 3repression5 7powerless9 and 7ineffectual9 with every new cycle#
^1_
&hat 2obert .idelsy ^!_ and many other 7Eeynesians9 fail to understand 3compare 2obert 2eich%s
description of the '+ crisis as 7a contest between citiCenship interests and shareholder interests95 with
their throwbacs to the /reat Depression and Eeynes%s theorisation of that 7crisis9 is that the present
crisis differs in both 6uality and e,tent from what Eeynes faced bac thenV 3'ut see my references
above to )yman Minsy and .ylos$Labini#5 8hese 7good intentions9 will simply not do anymore# &e
need new ideas, new theoretical concepts to develop new political strategies that can confront 8)(.
7crisis9#
^1_ httpJKKwww#ft#comK###$""1--feabdc"#html 3Ibama not in control re '+, economy5
^!_ httpJKKwww#ft#comK###$""1--feabdc"#html 3.idelsy on 7&ho governs, +arliament or maretsL9
^3_ httpJKKwww#ft#comK###$""1--feabdc"#html 3Aohn /apper on '+%s penalisation for U. ;dmin policy
choices U corps seen to have 7deep pocets9O reference to 2obert 2eich5
^-_ httpJKKwww#ft#comK###$""1--feabdc"#htmlX Dangerous Liaisons U how businesses are learning to
wor with their new staeholders
^B_ In the growing 7systemic9 occurrence of 7blac swan9 or 7systemic riss9, see here
httpJKKwww#lesecho###s$cygnes$noirs#htm
Y aaCaran U 8hans for the intelligent reply# 'elieve it or not, ( was already preparing a piece on the
transition from 7Eeynesian .tate$+lan9 to what ( call the current 7Crisis$.tate9# 8he names already
suggest the nature and significance of 7the transition9 as well as the Sdifferentia specifica% between the
two 7.tate$?orms9# ( call 7.tate$?orm9 the specific configuration or 7institutional asset9 of the .tate as
a direct pro$duct or result of a given level of capitalist 7development9, that is of the social antagonism
originating from the 7wage relation9# 8hese theoretical elements you will be able to discern from all
my previous interventions at this and previous Swolfe,changes%# 38he same goes for the other matters
you raise validly regarding the e,ploitation of Chinese worers, which ( have covered at some length in
various previous contributions#5
!R;2 10A0E<PLA: 0; CR5151<10A0E
8he classical liberal .tate$of$Law that prevailed in the nineteenth century was brought down by the
parallel capitalist processes of corporate 7concentration9 3e,ternal to the firm and leading to
7oligopolies95 and of 7rationalisation9 3internal transformation of the labour process and of the
managerial structure of the firm5 producing goods for consumption in a 7mass maret9# 8hese
developments in capitalist industry led to the corresponding transformation of the whole of 7society9
into a 7society of capital9, that is to say into a 7social factory9 where the old 7liberal9 7.tate of Law9
32echtstaat5 became a 7.ocial .tate9 3.oCialstaat5 or 7.tate$+lan9 able to mediate effectively the
relationship of the capitalist class with a 7massified9, 8aylorised, politically homogeneous and compact
woring class 3politically represented by social$democratic or Slabour% parties5#
8he old liberal .tate$of$Law could still be theorised by Classical +olitical @conomy and Liberal
+olitical 8heory as being a neutral, autonomous, 7independent guardian9 .tate watching over a 7self$
regulating maret mechanism9 responding to the 7Law of Halue9 and tending to 7e6uilibrium9 with
national monetary systems regulated under the /old .terling @,change .tandard# 'ut it was the
profound and irretrievable collapse of this liberal 7.tate$?orm9 in the /reat Depression under the
weight of the capitalist developments we just described that led Eeynes and 2oosevelt to respond with
the 7New Deal .ettlement9 and the subse6uent establishment of the new /old Dollar @,change
.tandard at 'retton &oods after &orld &ar 8wo# 3In all these themes the supreme account is still E#
+olanyi%s 78he /reat 8ransformation9#5
8his Eeynesian$2ooseveltian 7.tate$+lan9 was supposed to remedy the 7crisis9 created by the inability
of 7social capital9 to deal with and contain the antagonism of the new political composition of the
7mass worer9 by providing a 7bureaucratic9 and 7parliamentary9 system of mediation of this
antagonism through the upeep of 7aggregate demand9 and social and welfare 7planning9# U )ence,
7.tate$+lan9# 38he New Deal literature is vast# .earch +rof# C. Maier%s wor for a superb review#5
Eeynes%s analysis was always aimed at .tate economic policies 3fiscal and monetary5 that would return
the economy to full$employment 7e6uilibrium9# )yman Minsy had already drawn a clear distinction
between different 7capitalisms9 or stages of capitalism, in order to stress the inherent 7financial
instability9 of this latest 7type9 of capitalism 3please refer to the lins provided5# *et Minsy, in my
view, failed to theorise the 7dynamic9 elements of this analysis and to go beyond a superficial
7Eeynesian9 emphasis on 7financial instability9 and 7dise6uilibrium9 without seeing to enucleate the
much more important antagonistic forces behind the process of capitalist 7rationalisation9
3technological and managerial innovation5 designed as a specific 7capitalistic U.@ of Scrises%9# Neither
Eeynes nor Minsy considered a point at which the .tate$+lan could no longer mediate and remedy
capitalist 7crises9 but would itself occasion a rising wave of fiscal crises, 7systemic riss9, of 7blac$
swan events9 that have trans$formed it into a mere tool for 7crisis management9 U a 7Crisis$.tate9J $
which is precisely the condition of 7fracture of the .tate$+lan9 that ( have described in this
Swolfe,change%# 3+lease refer to my 7+hantom9 and 7(nter$est9 contributions#5^1_,^!_
(n sharp contrast to Eeynes and Minsy, and in an inverted way 3from the point of view of capitalV5,
.chumpeter chose instead to focus precisely on this capitalistic U.@ of 7crises9 to re$launch capitalist
industry toward an e,pansion of its command over living labour through 7economic growth9 and
7technological development9 by emphasising the 7evolutionary9 aspects of capitalist 7crises9 and
7business cycles9 as intrinsic features of capitalism#^3_
&hat Eeynesians seem to fail completely to com$prehend is the blindingly$obvious, utterly irreparable
7crisis of the Eeynesian .tate$+lan9, of this 7New Deal .ettlement9 which has been brought about not
so much by Minsian 7financial instability9 3which is an effect rather than the cause5 but by the
growing antagonism of the wage relation that the 7.tate$+lan9 left unresolved and could never resolve#
(ndeed, there can be little doubt that Eeynes himself was entirely pessimistic about the ability of the
.tate$+lan to resolve class conflict and to avoid the tendency to stagnation of the capitalist economy 7in
the long run9 3remember his aphorism, 7in the long run we%re all dead95#
(f you lie, the problem with 7Eeynesian9 approaches to the current 7crisis9 is that they approach it as
just another 7crisis9, another episode in the same chain of identical capitalist 7crises9# 8herefore, they
fail to grasp what is 7new9 in 7this crisis9, what sets it apart from the others, and what needs to be done
to confront this 7novelty9# Eeynesians have forgotten 3to put an ironic and reproachful twist on the
recent boo on 7debt crises9 by 2ogoff and 2einhardt5W#that 78his 8ime (. Different9V 8his is the
failure that ( will attempt to remedy in the near future# Eindest 2egards#
^1_ httpJKKwww#levyinstitute#orgKpubsKwp=-#pdf 3Minsy%s ?()5
^!_ http://www.le$echo...$+cy#ne$+noir$.htm 3on the rise of 7systemic riss9, 7blac swans95
^3_ httpJKKarno#unimaas#nlKshow#cgiLfidM1B-!

Y aaCaran U 8hans once again for your helpful comments# ;s you can see 7the wage relation9 is
central to our analytical criti6ue of capitalism# 8he 7wage relation9 is not limited to nominal monetary
wage negotiations# (t is a much broader notion that moves far away from wage negotiations and
distribution of income to the much more crucial notion of the nature of wor and the nature of
production# 8he antagonism of the wage relation would be relatively easy for capitalists to fi, if it was
confined to contractual negotiations with capital as to the retribution of worers# 8he point here is
much more important than thatJ $ antagonism over the wage relation e,tends to the actual subordination
of living labour to capitalist command in the process of production 3of goods and services5 and,
therefore, also to the nature of the wor that worers are coerced to perform under capitalist command
in the worplace and, by e,tension, the nature of the pro$ducts created in the capitalist productive
process#
*ou will appreciate that even admirably enlightened economists lie Minsy entirely by$pass this
7critical9 aspect of capitalism U only to concentrate on its 7financial instability9 which, if anything, is
an effect of wage$relation antagonism but not its cause# ;nd he also failed to capture 7critically9 the
amaCing .chumpeterian insights into the capitalistic 7use9 of technological innovation as a practical
tool of command inside and outside the worplace# 3.chumpeter himself encouraged the development
of an 7economic sociology9 in this regard#5
*ou would have noticed that bourgeois economic 7science9 has just awarded a Nobel +riCe to Iliver
&illiamson whose wor, once again, can be described as a .chumpeter$inspired 7microeconomic$
managerial9 study of the capitalist corporation as a 7structure of command9 that bypasses 7maret or
price mechanisms9 to internalise these political functions within the 7corporate9 hierarchy 3legally,
administratively as well5# 3)aye%s analysis of the 7price mechanism9 as an 7economy of information9
is similar and offers important analytical clues#5
8he vice of modern economists 3academic or journalistic or professional5 is to neglect this dimension
of capitalist social relations of production for reasons that seem obvious to meJ $ because considering
these elements of 7the economy9 would lead to the immediate political challenge of both the
productive process in the worplace 3how we wor5 as well as the distributive process in the sphere of
consumption 3what we produce and how it is distributed5# 8hese are 7e,plosive9 6uestions that
bourgeois economists find it impossible to address because they call into 6uestion the very legitimacy
of the society of capital, of its 7corporate sector9 and of its 7.tate$+lan9 that is now reduced to a
7Crisis$.tate9# &hat maes them 7e,plosive9 is the fact that the antagonism of the wage relation can
no longer be 7mediated9 through inflation and even less through 7austerity measures9, but rather
invests im$mediately the 7political sphere9 of the Crisis$.tate#
?or bourgeois economists to confront these crucial, critical elements of 7economic9 analysis would
necessarily draw them into accepting that 7the economy9 is not a 6uantifiable entity that can be
described, let alone understood, with a system of mathematical formulae and e6uations leading to a
3metaphysical5 7e6uilibrium9# 2ather, 7the capitalist economy9 is a set of relationships of power, of
domination and command especially in the sphere of production, in the worplace, which is why 7the
wage relation9 is ineluctably central to it#
3?or a theoretical introduction to these themes ( would recommend 2aniero +anCieri%s wor# +lease
google his name# +anCieri is one of the greatest theoreticians of the last century# 8he fact that scholars
lie him are ignored by bourgeois 7science9 is in itself a ringing indictment of the complete contempt
these people have of worers, their reality and their interests#5
httpJKKlibcom#orgKlibraryKcapalist$use$machinery$raniero$panCieri
0AE 2EA:5:B ;! CP49L5C DE90D =or Ehy the 1tate<Plan has ecome a Crisis<1tate> 7 a re<
statement&
( would implore all contributors to read the following e,tract from .chumpeter%s great student +aolo
.ylos$Labini which encapsulates the 7fracture of the Eeynesian .tate$+lan9J $
7+ublic e,penditure, if productive ^profitable_, has a double positive effect on national productJ one
positive that consists in the growth of production, and the other temporaryWin that by increasing
demand it creates investment opportunities for private enterprise# Unproductive ^unprofitable_ public
e,penditure, instead, has only this temporary effect that lasts only as long as it ^unproductive
e,penditure_ lasts# (f the proportion of unproductive e,penditure on total e,penditure grows, it is
probable that the rate of growth of public e,penditure will e,ceed the rate of growth of national
productJ and thisW#cannot last indefinitely,9 3p#!BB, 7Iligopoly >8echnical +rogress9, 1<0!5#
;nd here is the crunch# 'ecause what we have witnessed since the start of the 7.tate$+lan9 with its
7aggregate demand management9 3which Eeynes clearly intended as a 7temporary9 stimulus5 is that
the rate of growth of 7unproductive9 3that is, unprofitable5 investments has far e,ceeded that of
7profitable9 investments mercilessly and ine,orably# 'ut the .tate$+lan has been able to disguise this
by 7privatising9 capitalist investments and allowing the private sector to boo profits that were entirely
dependent on e,pansionary fiscal and monetary policies from the .tate$+lan# *et this 7privatisation9 of
apparently 7productive9 investments was 7profitable9 only in appearance because it was based in large
and catastrophic part on the inflation of 7asset bubbles9 and speculative investments that finally
e,ploded in the /reat ?inancial CrisisV
Eeynes in the /eneral 8heory was so focused on the short term that he underestimated the theoretical$
political limits of public e,penditure and so failed to reflect on the impact of these 7limits9 on his
theory# @ven 2oosevelt%s New Deal ;dministration was very cautious 3too cautious for Eeynes5 in
taing up 7profitable9 direct investments for fear of trespassing on 7private enterprise9 territory#
&ith the benefit of hindsight, we can see that 7the Eeynesian .tate$+lan9 was never viable as a strategy
for sustained capitalist growth# ;s Minsy and .ylos$Labini 3scholars of Eeynes and .chumpeter
respectively5 have shown, the whole edifice of the .tate$+lan was built on a doomed 7pyramid of
credit9, a 7+onCi$lie scheme9 that was bound to collapse# ;nd collapse it has done in dramatic fashion#
3.ee lins below#5
8he 7fracture9 of the .tate$+lan and its trans$formation into a 7Crisis$.tate9 consists precisely in thisJ
that to the e,tent that the .tate$+lan tries to maintain social 7stability9 it can only do so by maintaining
public e,penditure even under the guise of 7private investment9, but this 7private investment9 is
7profitable9 only in a diminishing sphere of capitalist activity controlled by large oligopolies or else
through 7speculative9 activities# (n both cases, faced with growing social antagonism, 7private
enterprise9 assumes such a scale and control over global capitalist investments that it poses 7systemic
riss9 to the society of capital# Ince these 7systemic riss9 come out into the open, the .tate$+lan is
then obliged to tae over the fiscal burden of this 7phantom profitability9 in the form of 7public
deficits9 which the .tate$+lan either sees to honour, only to face banruptcy, or else tries 7to inflate
away9 through hyperinflation, which clearly 7de$stabilises9 the capitalist system#
^1_ httpJKKwww#levyinstitute#orgKpubsKwp=-#pdf 3Minsy%s ?inancial (nstability )ypothesis5^!_
httpJKKsead$pub#cilea#itKinde,#phpK+.LFuarterly2eviewKarticleKview?ileKB<$01K=3 3.ylos$Labini on
+rospects for &orld @conomy5
F,G http://*(H&,&()&+*/eps/mac/papers/)))+/)))+)(+&pdf
^-_ httpJKKwww#banofengland#co#uKpublicationsKspeechesK!"1"Kspeech-3-#pdf 3+osen on Aapan5
1# 8oseph elruno ] Auly 0 1J-3am ] +ermalin
Y arenyarl U ( agree with your comments# Now you mention 'ill /ross, here is a 6uote from his
most recent newsletter that clearly elucidates how capitalist relations of production are increasingly
3tendentially5 becoming a barrier to the production of social wealth# 3+roperly interpreted, this is meant
as a reply to @6uivocation below as well#5
)ere is 'ill /rossJ
httpJKKwww#pimco#c###abet`.oup`Auly#htm
7@ven if your last name doesn%t begin with 2, the preceding e,planation is all you need to now to
e,plain what is happening to the marets, the global economy, and perhaps your own wobbly$legged
standard of living in recent years# Consumption when brought forward must be financed, and that
financing is a two$way bargain between borrower and creditor# &hen debt levels become too high,
lenders baul and even lenders of last resort U the sovereigns, the central bans, the supra$national
agencies U approach limits beyond which private enterprise%s productivity itself is threatened#9
&hat /ross is saying is that the legal ownership of social resources to be applied for the production of
more resources reaches a level where the consumption of these resources 3both for further production
as well as for final consumption5 runs foul of the ability of 7private enterprise9 to utilise these
resourcesW# 7productively9, by which /ross means 7profitably9# .o in other words, it is not the case
that the resources are not there, but rather the fact that they cannot be employed for the sae of
7profits9 3in other words, for the sae of subjugating more living labour from worers5 that these
resources cannot be employed byW# 7private enterprise9 or indeed by 7even lenders of last resort9V
(f ever there was a statement that more clearly and brutally e,emplified the utter barbarity of
capitalism, this would certainly fill that role# ( invite all readers to loo at this statement and ponder its
profound implications# 8his is the obstacle that humanity faces# @ven in reply to 7the ;ustrians9 (
intend to post a short piece soon, as ( promised below, lining credit, technological innovation and the
wage relation to show how 3as we have just seen5 capital is increasingly not a measure of social
productivityW#but the greatest obstacle to social progress, technological and otherwise#
Y @6uivocation $ 8he opposition to fractional reserve baning has little to do with )aye who was
merely opposed to central$ban money creation because of its distorting effect on 7prices and
production9 3see lin, and start reading chapter one of the homonymous boo5# ;s )aye perceived
correctly, &alrasian e6uilibrium is tautologous because it presumes instantaneous symmetrical
information about all e,changeable resources in an economy so that 7prices9 are determined a priori#
&hat )aye attempted was to loo at prices a posteriori which implies that 7e6uilibrium9 can only be
partial and may well not imply full resource utilisation# Nevertheless, )aye was happier with the
notion of 7maret e6uilibrium9 so long as this was determined by freely$interacting individuals and not
distorted by state 3central$ban or government5 interference in the establishment of 7prices9 as the most
efficient e,change of information for the employment of productive factors#
(nevitably, )aye had a certain view 3liberalist5 of how economies wor which fall bac on an e,treme
form of possessive individualism 3from )obbes to Loce through .chopenhauer and 'ohm$'awer5#
;nd connected with this was a certain vision of commutative and distributive justice# +lease refer to the
lin below and to my discussions of )aye in previous Swolfe,changes%#
(n Eeynesian theory, money is not created e, nihilo, it is simply a public debt incurred by the state to
ensure the utilisation of idle social resources in the hope that this will stimulate 7productiveKprofitable9
investment from private sources# Unless fiscal revenue increases at a greater rate than government bond
yields, public debt rises until default or until inflation reduces the debt burden through debt
depreciation# )aye would object that this ind of state interference with the maret mechanism
paves####9the road to serfdom9# 'ut it is e6ually liely, as Martin &olf intimates in his comment below,
that high unemployment and economic depression will lead to social upheaval of 7fascist9 or
7communist9 colour# ( prefer neither, but see my comments below in reply to arenyarl# 2egards#
1# 2eport 8oseph elruno ] Auly 0 1J"Bpm ] +ermalin
Y @6uivocation $ )ere is an illuminating passage from )aye%s 7+rices and +roduction9 which shows
that he was not concerned with 7types9 of credit but rather with the effect that 7arbitrary or artificial9
manipulation of monetary instruments by central authorities would have on 7prices9 as information for
the maret allocation of economic factors# Ince you consider the sewed attitude of )aye and the
;ustrian .chool toward the 7roundaboutness9 of capitalist productive methods $ where
7roundaboutness9 stands for 7delay of consumption $ you can appreciate how the role of the capitalist
was championed even morally against that of those 7consuming9 worers# (t is 7grasshoppers and ants9
all over againV If course, my understanding is diametrically opposed to this 7philosophy9J but see my
other pieces in Swolfe,change% on these matters#
8:t would be ea$y to demon$trate
by the $ame type of analy$i$ which : ha,e u$ed in the
la$t two lecture$ that certain %ind$ of 0tate action/
by cau$in# a $hift in demand from producer$5
#ood$ to con$umer$5 #ood$/ may cau$e a continued
$hrin%in# of the capitali$t $tructure of production/
and therefore prolon#ed $ta#nation. Thi$ may be
true of increa$ed public expenditure in #eneral or of
particular form$ of taxation or particular form$ of
public expenditure. :n $uch ca$e$/ of cour$e/ no
tamperin# with the monetary $y$tem can help. 6nly
a radical re,i$ion of public policy can pro,ide the remedy.9
2eport joseph belbruno ] Auly < 1J!=am ] +ermalin ] Iptions
/2;..)I++@2. ;ND ;N8.% 2@H(.(8@D
@ntsagung U 2enunciation# 8o renounce immediate gratification of needs in e,change for a future
reward is possibly one of the distinguishing features of being human# 8he very process of 7reflection9,
of pausing to thin, involves a conscious act, a 7waiting9 that is a weighing of options U a process of
figuring out mentally, of pro$jecting ideas into the future# 8hat is the destiny of 7technology9, the
practical implementation 37implement9 means 7instrument9, tool, technical device5 of human ideas U
human beings were homo faber before evolving through living labour to the status of homo sapiens#
@very technical act of pro$duction therefore must involve a 7waiting9, a 7renunciation9W#@ntsagung#
8his is the philosophical foundation of ;ustrian .chool economics, from .chopenhauer through 'ohm$
'awer to )aye and .chumpeter# (n a capitalist society, 7profit9 is the reward of the capitalist or, in
.chumpeter, of the innovative entrepreneur, just as in Christian eschatology the +rotestant @thic
decrees that access to )eaven is the just reward of the ascetic self$denial of the faithful, the clima, of
the ;sesis, the 7ascension9 to paradise through the steep slope of human sinful e,istence, or the
arduous climb to the summit of Nirvana 3.chopenhauer5#
8his is the rationale that led 'ohm$'awer to justify 7profit9 or 7interest9 as the reward of the
capitalist for employing 7roundabout9 technological methods of pro$duction that 7delay9 final
consumption of worldly resources# )aye has perhaps the best and most succinct illustration of this
process of reasoning in 7+rices and +roduction9 3at p#<-5J$
9(t seems something of a parado,W#'ut the fact is that when the growing demand for finished
consumers% goods has taen away part of the non$specific producers% goods re6uired,
those remaining are no longer sufficient for the long processes, and the particular inds of specific
goods re6uired for the processes which would just be long enough to employ the total 6uantity of those
nonspecific producers% goods do Xnot yet e,ist# 8he situation would be similar to that of a people of an
isolated island, if, after having partially constructed an enormous machine which was to provide them
with all necessities, they found out that they had e,hausted all their savings and available free capital
before the new machine could turn out its product#
8hey would then have no choice but to abandon temporarily the wor on the new process and to
devote all their labour to producing their daily food without any capital# Inly after they had put
themselves in a position in which new supplies of food were available could they proceed to attempt to
get the new machinery into operation#1 (n the actual world, however, where the accumulation of capital
has permitted a growth of population far beyond the number
which could find employment without capital, as a general rule the single worman will not be able to
produce enough for a living without the help of capital and he may, therefore, temporarily become
unemployable# ;nd the same will apply to all goods and services whose use re6uires the co$operation
of other goods and services which, after a change in the structure of production of this ind, may not be
available in the necessary 6uantity#9
Now it is absolutely clear where the error in this reasoning liesJ )aye 3and 'ohm$'awer before him5
has transformed a 7technical9 matter of production 3in fact, an engineering issue of how to deploy
e,isting social resources to achieve a proposed level of social production5 into a justification, an
apology for the capitalist ownership of the means of production, for their ability to choose what and
how to produce new resources, and for their claim to a 7profitable9 distribution of the new resources in
their favour and to the worers% detrimentV 8his is at the very best a non se6uitur and at worst an
abominable sleight$of$handV
Ince more, we can see how capital, far from being a motor of wealth creation and social progress, is
fast becoming a hideous barrier to the development of human social resources# (n this regard, ( invite
readers to re$read my reply below to Sarenyarl% for my criticism of this argument by 'ill /ross in his
most recent +(MCI newsletter#
1# 2eport 8oseph elruno ] Auly 11 !J-Bam ] +ermalin
Y ;E $ ( would not 6uibble with ?ranco Modigliani%s mathematicsJ ( am fairly certain that the
mathematics of his 7theorem9 are fine# 'ut the assumptions it maes are what made me wince the first
time ( read the MM paper# If course, in an ideal world, the debt leverage of a listed company would be
reflected in the maret price of its stoc# 8hat is a world in which there is no difference between
7li6uidity9 and 7solvency9# (t is a world of perfect information# (t is a world where the interests of
shareholders and 7management9 are identical# (t is a world in which there are no sudden financial crises
or monetary s6ueeCes and ta,ation and fiscal policies are stableO a world in which lending covenants
are not subject to legal disputes####and so on#
8he same goes for 7efficient marets hypothesis9 of course# 'ut there is no denying that some of these
7theorems9 or 7hypotheses9 serve useful 7heuristic9 purposes, that is they mae us concentrate on
certain ey aspects of 7economic9 reality to simplify our thining and analysis 3&alrasian
7e6uilibrium9, for instance, or .chumpeter%s 7circular flow9 or even )aye%s 7intertemporal
e6uilibrium95#
(ndeed, this is where what you call 7philosophical9 economic analysis is utterly essentialV (n the end,
we are all####yes, 7dead9 as Eeynes would say, but we are all 7philosophers9 if by 7philosophy9 we
mean 7abstraction from reality9# Aoan 2obinson 3one of my heroes at Cambridge5 once famously
remared on the futility of a one$to$one scale road map to highlight the uses of####9theory9 or
7philosophy9, as you would fashion it#
$ ; little cheey to call &olf an 7economic statistician9, though there is nothing wrong with that
profession and &olf%s graphs are some of the most useful things in economic journalism#
Y Credit Controller $ +oints well taen, and ( thin your reasoning is both plausible and correct# 8here
is no denying the disadvantages and productive loss of 7trade barriers9# 'ut you will agree that there is
a point when 7international economics9 becomes 7Machtpoliti9 3power politics5####and my concern is
that &estern democracies must ensure that 7free trade9 is not abused by the Chinese +olitburo for its
own political survival and aggrandisement# ( happen to thin that the days of the +olitburo are
numbered and that it will not be able to survive unless it 7liberalises9 its economy and 7democratises9
its society# &estern capitalist investments are already shifting to other countries and ( thin the
movement will intensify unless the +olitburo loosens its grip on power, which will only accelerate its
demise#
Now that ( mention )aye%s 7intertemporal e6uilibrium9, ( will soon have a short piece contrasting
Minsy and )aye, the similarities and common shortcomings of their analyses# 2egards#
?2IM S@G8@2N;L(8(@.% 8I S(N8@2N;L(8(@.% U 8he 8riumph of Use Halue over @,change
Halue
httpJKKonline#wsj#comKarticleK.'1"""1-!-"B!=-0="-!"-3"-B=-B-B1=13B!-!-10"#html
3Aohn Cassidy on ;lec +igou in the &.A5
i%e many contemporary economic commentator$/ ;r. Pi#ou wa$ reactin# a#ain$t lai$$eK
fairecthe hand$+off approach to policy that free mar%et economi$t$/ from -dam 0mith
onward$/ had recommended. 0uch thin%er$ had tended to ,iew the mar%et economy a$ a
perfectly balanced/ $elf+re#ulatin# machine. Lut 8e,en in the mo$t ad,anced 0tate$ there are
failure$ and imperfection$9 that 8pre,ent a community5$ re$ource$ from bein# di$tributedb.in
the mo$t efficient way/9 ;r. Pi#ou wrote in (9&'. 7i$ #oal/ he $aid/ wa$ to explore way$ in
which 8it now i$/ or e,entually may become/ fea$ible for #o,ernment$ tobpromote the
economic welfare/ and throu#h that/ the total welfare/ of their citiKen$ a$ a whole.9
;r. Pi#ou drew an important di$tinction between the pri,ate and $ocial ,alue of economic
acti,itie$/ $uch a$ the openin# of a new railway line. The $a,in#$ in time and effort that u$er$
of the railway enjoy are pri,ate benefit$/ which will be reflected in the price$ they are willin# to
pay for tic%et$. 0imilarly/ the railroad5$ expenditure$ on trac%$/ rollin# $toc%/ employee wa#e$
are pri,ate co$t$/ which will help to determine the price$ it char#e$. Lut the openin# of the
railway may al$o create co$t$ for 8people not directly concerned/ throu#h/ $ay/
uncompen$ated dama#e done to $urroundin# wood$ by $par%$ from railway en#ine$/9 ;r.
Pi#ou pointed out.
0uch $ocial co$t$cmodern economi$t$ call them 8externalitie$9cdon5t enter the calculation$
of the railroad$ or it$ cu$tomer$/ but in tallyin# up the ultimate worth of any economic acti,ity/
8@aAll $uch effect$ mu$t be included/9 ;r. Pi#ou in$i$ted. :n focu$in# exclu$i,ely on pri,ate
co$t$ and pri,ate benefit$/ the traditional defen$e of the free mar%et mi$$e$ out on a ,ital
element of reality.
To correct the problem$ that $pillo,er$ created/ ;r. Pi#ou ad,ocated #o,ernment inter,ention.
Bhere the $ocial ,alue of an acti,ity wa$ lower than it$ pri,ate ,alue/ a$ in the ca$e of a
railroad $ettin# ablaKe the $urroundin# woodland/ the authoritie$ $hould introduce
8extraordinary re$traint$9 in the form of u$er taxe$/ he $aid. !on,er$ely/ $ome acti,itie$ ha,e
a $ocial ,alue that exceed$ their pri,ate ,alue. The pro,ider$ of recreational par%$/ $treet
lamp$/ and other 8public #ood$9 ha,e difficulty char#in# people to u$e them/ which mean$ the
free mar%et may fail to en$ure their ade=uate $upply. To rectify thi$ $hortcomin#/ ;r. Pi#ou
ad,ocated 8extraordinary encoura#ement$9 in the form of #o,ernment $ub$idie$.
Economic$ textboo%$ ha,e lon# contained $ection$ on how free mar%et$ fail to deal with
ne#ati,e $pillo,er$ $uch a$ pollution/ traffic con#e$tion and the li%e. 0ince -u#u$t &''*/
howe,er/ we ha,e learned that ne#ati,e $pillo,er$ occur in other $ector$ of the economy/
e$pecially ban%in#. 8The financial $y$tem failed to perform it$ function a$ a reducer and
di$tributor of ri$%/9 Trea$ury 0ecretary Timothy Oeithner and awrence 0ummer$/ the head of
the Fational Economic !ouncil/ wrote in the Ba$hin#ton Po$t earlier thi$ year. 8:n$tead/ it
ma#nified ri$%$/ precipitatin# an economic contraction that ha$ hurt familie$ and bu$ine$$e$
around the world.9
1# 2eport 8oseph elruno ] Auly 13 -J3=am ] +ermalin
( open, by chance, ;lbert MathieC%s La 2evolution ?rancaise and parse breathlessly its formidable
preambleJ
78he true revolutions, those that do not limit themselves to changing the political form and the
government personnel, but rather those that transform the institutions and occasion the great transfers
of property, labour a long time subterranean before bursting to the light of day under the impulse of
some fortuitous circumstance# 8he ?rench 2evolution, which caught unawares with its irresistible
impetus not less its artificers and beneficiaries than those who became its victims, had a languid
preparation for over a century# (t sprang out of the discordance, each day more and more profound,
between the reality of things and the laws, between the institutions and the customs, between the letter
and the spirit9#
( am proud of this, my translation# Now it seems to me that with this topic, Martin &olf is approaching
a vast new continent of discourse long buried under the deathly hand of 7e,change value9J it is the
continent of 7use value9#
In the recurrence of 'astille Day 31- juillet, 1=0<5, here is my toast to the ?rench 2evolution#
1# 2eport 8oseph elruno ] Auly 13 !JB=pm ] +ermalin
( would invite caution amidst all this tal about 7.chumpeterian rents and superprofits9# 8here are no
such notions in his worJ .chumpeter saw 7profits9 as being uni6uely 7Unternehmergewinne9
3entrepreneurial profits $ a pleonasm5, the result of creatively$destructive 7(nnovation9# 72ent9 and
7superprofits9 surely refer to a category outside 7normal profits9 3an o,ymoron for .chumpeter5, which
for the ;ustrian theoretician are whittled away by 7competition9 that drags the capitalist economy bac
to 7the neighbouhood of static e6uilibrium9 $ a 7heuristic9 state he called 7circular flow9 3Ereislauf5#
1# 2eport 8oseph elruno ] Auly 13 3J!Bpm ] +ermalin
Y sepp $ *es, ( thin you are entirely right on the effect of personal e,perience and predilections, as
well as monumental nowledge of Smitteleuropaisch% social theory, on .chumpeter%s notion of
7entrepreneur9###and innovation# ( will mae sure ( post that short piece discussing his relation to )aye
and 'ohm$'awer 3whom ( discussed also in the previous Swolfe,change% in reply to @6uivocation5#
(n short, .chumpeter brilliantly perceived that the S@ntsagung% 3the S2enunciation% or deferral of
consumption on the part of the capitalist giving rise to Sroundabout% methods of production5 was
insufficient as a 7motivation9 or 7purpose9 3:wec5 to e,plain the 7evolutionKdevelopment9
3@ntwiclung5 of the capitalist economy and also as an e,planation of 7profits9 in capitalism# 8hat is
why he needed to find a 7driver9 or 7carrier9 38rager5 that could push the 7mechanism9 forward# )e
was so steadfast in his distinction that he even distinguished between 7capitalists9 3essentially
Srentiers%, rent$seeing financiers5 and 7entrepreneurs9 as two separate functions in the
@ntwiclungsmechanismus of capitalism#
My point will be 3with +aul .weeCy5 that in doing so .chumpeter neglected 7accumulation of capital9
as a motivation for capitalists and also, on the 7subjectiveKpolitical9 side, failed to see 3unlie &eber5
that the scientificKtechnical process of concentration and rationalisation 3&eber%s S2ationalisierung%5
could only ultimately be 7carried9 or e,ercised in a capitalist economy by a 7political agency9 $
because capitalism is essentially a political relation based on the alienation of living labour and its
domination by dead objectified labour under the wage relation#
(n this conte,t, ( thin the most useful thing to come out of this Swolfe,change% is that it raises the
distinction between 7use values9 and 7e,change values9 3and ( am glad to note that Carol &ilco, is
another participant who has written insightful comments in this regard5# 8his is a distinction that is
growing every day more vital politically as the global search for 7profits9 3or 7accumulation95 leads
private enterprise to abuse the environment and other vital human inter$ests in order to
collect####interestV 8his is why we see a growing number of 7systemic riss9 or 7blac swans9 from
which we must protect ourselves#
(n economic theory, even Mar, himself neglected this essential flaw in capitalist development# Ine
economist who did loo at it was ;lec +igou at Cambridge who described it as 7e,ternalities9 3see the
lin below5# 8he problem with that description is that the 7systemic9 capitalist destruction of 7use
values9 for the sae of 7e,change values9 should more aptly be described as 7internalities9, because
these abuses are 7internal9 3not 7e,ternal9V5 to capitalist social relations of production# Cheers#
1# 2eport 8oseph elruno ] Auly 1- !J33pm ] +ermalin
Y @6uivocation $ (t seems evident to me that a society that concentrates solely and e,clusively on 7use
values9 avoids the distortion that the wage relation 3the forced alienation of their living labour by
7worers95 imposes on the polity by its very e,istence# +olitically, the 7use value9 that is living labour,
once liberated from the yoe of its 7alienation9 in e,change for a 7wage9, is already the most important
7use value9 of all and its 7emancipation9 or 7enfranchisement9 would concentrate social choices on the
7democratic9 allocation of social resources to satisfy democratically$selected social priorities#
8his would necessarily entail the abolition of 7e,change values9 and therefore of 7prices9 and
7money9# 8he intriguing 6uestion then is how 7to signal9 democratic social choices# &e have seen in
my terse discussions of )aye that he believed 7the maret9 can achieve this 3in an 7intertemporal
e6uilibrium9 that does not assume optimal resource allocation95# ;s you now, ( regard this as an e,
post facto or a posteriori 3after the event5 rationalisation of 7maret prices9#
'ut the 6uestion of 7the social synthesis9 $ the reconciliation 3Hersohnung5 or co$ordination
3/leichschaltung5 $ of social choices and resource allocation is the central problem even when we have
abolished 7e,change values9 3and of course, again the biggest 7e,change value9, 7wage labour95#
8hese are themes ( will broach soon in connection with .chumpeter# 8he S(ndividualitat% of
.chumpeter%s 7entrepreneurial .pirit9 is simply inconsistent and powerless against the 7socialisation9
of social production operated by capitalist relations of production# (t is evident that the 7entrepreneur9
or the capitalist firm, while they may be the 7mechanism of innovation and development9 in the
capitalist economy, cannot e,plain how social choices are selected and resources allocated# 8hat
function is clearly a +olitical function that @conomics simply cannot fulfil $ this was the tragedy of
+olitical @conomy, the inability of the one to be reconciled with the other# If course, as &olf rightly
notes, neoclassical economics just gave up the attempt altogether by denying that the problem even
e,istsV
;nd this is why ( have emphasised, through the criti6ue of .chumpeter 3and Eeynes5 at Swolfe,change%
the 7crisis9 not only of the capitalist economy but also of 7the collective capitalist9, the +olitical
mediator itself####9the .tate9, which ( have called 7the Crisis$.tate9# (f you re$read Martin &olf%s
review of 2ajan%s wor in today%s ?8 you will find a 7practical9 statement of this 7crisis9#
2egards#
1# 2eport 8oseph elruno ] Auly 1- !JB=pm ] +ermalin
Y @6uivocation $ Aust a brief illustration from the &olf review# ;s you can see, the 7crisis9 3as Minsy
and .ylos$Labini, as well as &olf and 8ony Aacson at the ?t have argued, already cited and lined by
me in a previous Swolfe,change%5 had its origin in the 7political9 attempt by governments to hide
growing income disparities and antagonism through higher indebtedness# )ere is 7the Crisis$.tate9#
'ut 2ajan%s faith in 7the maret9 3see &olf%s 6uotation below5 and attribution of the 7crisis9 to
governments% failure to let 7the maret e,ercise discipline9 are truly mesmerising e,amples of the well$
nigh complete inability of bourgeois 7economists9 to understand how pathetic, powerless, stultified,
obfuscatory and reprehensible their 7scientific analysis9 has becomeV )ere is &olf%s 6uote from 2ajan
3for 7households9 read 7worers95J
%(n the U., soaring ine6uality and stagnant real incomes have long threatened this deal# 8hus, +rof
2ajan notes that 7of every dollar of real income growth that was generated between 1<=1 and !""=, B0
cents went to the top 1 per cent of households9# 8his is surely stunning#
78he political response to rising ine6uality ### was to e,pand lending to households, especially low$
income ones#9 8his led to the financial breadown# ;s +rof 2ajan notesJ 7^the financial sector%s_
failings in the recent crisis include distorted incentives, hubris, envy, misplaced faith and herd
behaviour# 'ut the government helped mae those riss loo more attractive than they should have
been and ept the maret from e,ercising discipline#9%
Y .epp $ *es, once again your observation is an e,ample of how 7la classe politi6ue9 3the ruling elite5
or the .tate$+lan does have the ability 7to plan9, to pro$ject the future 7needs9 of capital that are based
on 7use values9 3including resources such as land, minerals, worers5# 8his is the &eberian
S2ationalisierung% that ( have been discussing# 8his is where the +olitics and @conomics of 7political
economy9 come together# 8he problem with the 7collective capitalist9, the .tate$+lan, is that these 7use
values9 are subordinated to the need to pro$duce 7e,change values9 that re$produce the command or
domination of capitalists over worers#
+articularly in conditions of high capitalist concentration both the 7consumer needs9 of the population
as well as the 7technologies9 adopted for production are subordinated to the need of capital to
reproduce the subordination of living labour to the wage relation# 8he 7social brain9 of this process is
the .tate$+lan 3la classe politi6ue5# 'ut the 7social thermometre9 of the ability or less of capital to
e,ercise this commandKdomination is 7inflation9 and 7profitability9 $ that is, the 7monetaryKfinancial9
dimension of capitalism# )aye was rightJ 7prices9 are 7signals9 or 7information9 about the use of
social resources# )e even spoe of a 7division of information9 as against a 7division of labour9# 8his is
what we are moving towards#
'ut the 7rational9 integration of 7individual9 plans and 7economic e6uilibrium9, which )aye
attributed to 7the maret9 and which .chumpeter neglected in his enthusiasm for the 7entrepreneur9 to
lead capitalism forward through 7crisis9 by means of 7innovation9 or 7creative destruction9 $ this
rational integration re6uires a 7political intervention9, a +lan that even Mar, neglectedV If course, the
neoclassicals simply reduce all these problems to 7private endowments9 and 7maret$clearing prices9
which inevitably and tautologously lead to####9e6uilibrium9#
8hat is 7the (nvisible )and9 of economic 7science9# Iur tas is to e,pose 7the Hisible )and9 of
capitalist command# 2egards#
Report 8oseph elruno ? "uly *I *:++pm ? Permalin'
Y .epp $ ;s you now, 7value9 is not a 7thing9 but a social relation# 8he reason why ( place 7living
labour9 at the centre of the criti6ue of capitalism is 6uite simply that capitalism is 7the civilisation of
labour9 $ but ( will say more about that later#
?or now, you 3and possibly Martin &olf5 may find interesting the 6uotation below from ;lec +igou%s
7@conomics of &elfare9 and related lin# Note 7waiting9 as a 7factor9 $ obviously taen from 'ohm$
'awer 37the bourgeois Mar,95#
;lso note that Cantillon, who coined 7entrepreneurship9 was certainly nown and highly esteemed
both to .chumpeter and )aye 3see 6uotation below5, 2egards#
+igou at httpJKKwww#econlib###K+igouKpg@&1=#html
f 1# (8 is customary in economic discussion to class together as factors of production, along with the
services of Nature, waiting and various sorts of mental and manual labour# (n a world in which all
future events were perfectly foreseen this catalogue would be substantially ade6uate# 'ut in the actual
world some future events are not perfectly foreseen#
;nd )aye 6uoting .chumpeter at httpJKKwww#econlib###Lib.tKhyCnt1#html
98hat applies even to A# .chumpeter, who, in his brilliant 7@pochen der Dogmen$ und
Methodengeschichte,9 hit the nail on the head, when he wroteJ
+ride of place is reserved, however, for Cantillon, whose @ssai can be looed upon as the first
systematic woring of the field of economics# (t bears the stamp of the scientific mind# 8he individual
problems are permeated by unified e,planatory principles and together go to mae up a comprehensive
analysis of great design# 8he narrow confines of earlier trains of thought are broen down#
2udimentary blunders are avoided, those arising from deficient sill in handling tools of analysis just
as much as those resulting from an undue burden of philosophy#X9
Y Aohn LH8 $ ( am grateful for your reference to Aohn 'ates Clar# *ou may recall that Clar%s wor
published in 1<"< 7@ssentials of @conomic 8heory9 was abundantly relied upon by .chumpeter for his
78heory of @conomic Development9 3first published in 1<11$1! ( thin5# (n Clar%s wor we find
nearly all of .chumpeter%s major concepts, though in different guise, including 7.tatic9 against
7Dynamic @conomy9, 7entrepreneurial profits9 as against 7capitalistic interest9, and the five factors of
7growth9# &ell done# Cheers#
Y edmund osullivan $ interesting thoughts on Marshall# 'ut remember that 7supply and demand9
cannot be 7factors of production9 $ because they do not###produce anythingV ?eeble minds actually
believe that 7supply and demand9 determine pricesV 'ut if 7prices9 are 7relative prices9 which
themselves rely on 7pure maret competition9 and 7perfect nowledge9 in the act of 7e,change9, then
the only way 3V5 to determine these is####by checing 7maret prices9V $ ;nd this is a perfect
7tautology9# 3Ince again, )aye has an e,cellent analysis in the lin ( gave below#5
(f, however, 7prices9 are measured by a 7third9 commodity, such as gold, then supply and demand are
obviously not the 7measure of price9, but the 7value9 of gold isV .o we need to determine the value of
gold first# 8he 6uestion is thenJ what is 7value9L &e will have to loo at this another time#
Y sepp $ yes, good points# ;s you note, there are many 7factors of production9 $ in fact as many as
there are 7use values9# 8he problem then becomes determining how a specific 7political system9 maes
7social choices9 about how to allocate 7social resources9, what 7technologies9 to use and how 7to
distribute those resources9# +erhaps the greatest problem with the current system is that the present
7ownership9 of the means of production maes a virtual mocery of 7democratic parliamentary
systems9 in terms of reconciling the different 7needs and abilities9 of the members of this society#
(t is this 7irreconcilability9, its 7mechanism9 and 7probable outcomes9 that form the origin and
orientation of my wor# Cheers#
Y sepp $ *ou can find earlier discussions of 7entrepreneurial profits9 in A' Clar and in 'ohm$'awer
as well as the earliest discussion in Cantillon%s S@ssai% 3lins provided5# ;ll these theoreticians see
7Unternehmergewinn9 as simple 7rent9 that the 7entrepreneur9 charges over the real factors of
production 3land and labour in Cantillon, and labour and capital in 'ohm$'awer and Clar5 to
compensate for his 7ris9 in 7mareting9 merchandise# 8hese are distinguished from 7managerial
labour9 which is a lower form of rent#
.chumpeter taes a radically different approach, as ( discussed below, in that he places the
7entrepreneur9 as a separate 7factor of production9 through 7(nnovation9 which is the source of
7profits9 and is the real 7Heranderungsmechanismus9 3transformational mechanism5 that drags the
capitalist economy from 7circular$flow e6uilibrium9 to 7evolutionary development9# )e transforms the
7negative9 source of profits in neoclassical theory from 7waiting9 or 7roundaboutness9 of methods of
production 3which is not to be confused with the earlier 7;bstention theory95 to a 7positive9 process of
7creative destruction9# .chumpeter relegates 7capitalists9 to mere 7financiers9 living on 7interest9#
My ne,t instalment will discuss directly the concept 3'egriff5 of 7(nnovation9 and the relation of
7Unternehmergewinn9 to 7capitalist accumulation9# (n other words, what is the real meaning of this
7trans$formationKevolutionKdevelopment9 3@ntwiclung5 that is the true distinction between
.chumpeter%s S8heorie% and A' Clar%s S@ssentials of @conomic 8heory% 3published in 1<"=, four years
before5# &hat is the meaning of 7crisis9 and how can the entrepreneur 7guide9 the capitalist economy
7safely9 out of the 7circular flow9####and this leads us once more to the problem of 7value9 3see
comment below5#
httpJKKoll#libertyfund#orgKinde,#phpLoptionMcomTstatic,t>staticfileMshow#php
\3?titleM!0B>(temidM!=
httpJKKboos#google#com#auKboosL
idM&1B;;DMALg*C>printsecMfrontcover>d6Messentials`of`economic`theory>sourceMbl>otsMN
mvi,b86se>sigM2(G)'81y;hfuBcICl0.?+D;+":@>hlMen>eiM(y1'8IC0'(vIvF+DnpjoD;>sa
MG>oiMbooTresult>ctMresult>resnumMB>vedM"CC-F1;@w';RvMonepage>6>fMfalse
httpJKKoll#libertyfund#orgKinde,#phpLoptionMcomTstatic,t>staticfileMshow#php
\3?titleM!03>(temidM!=
Y o%sullivan $ ( agree with your comment below that 7prices9 no longer 7indicate9 much# ;lready,
.chumpeter%s own notion of 7trustified capitalism9 indicated a 76ualitative leap9 from 7competitive
capitalism9 where 7prices9 were set by the 7free maret9 to the 7oligopolistic or monopoly capitalism9
that we have now# &hen Martin &olf brings into 6uestion the whole 7vast continent of use values9 3as
( called it below5 $ the whole notion of 7resources9 3environmental, human5, what becomes
immediately apparent is precisely this 7arbitrariness9 of 7managed prices9 $ 7managed9 through ta,es,
subsidies, all manner of 7state regulation9 3dealing especially with 7e,ternalities9, that is, the
environmentalKsocial 7ravages9 of formally 7capitalist9 industry5 and, not least, by those 7oligopolies9
that arose directly out of the subsumption of the process of 7innovation9 and 7technological progress9
that .chumpeter so insightfully describedV 8he final outcome is that 7prices9 now can be seen as
7artificially managed signals9 increasingly 7guided9 by the 7.tate$+lan9 which, by its
inabilityKpowerlessness to impose its 7+lan9 on society, becomes a 7Crisis$.tate9# 3;gain, ( would
invite you to read my previous Swolfe,change% discussions#5
2eport 8oseph elruno ] Auly 10 1J!0am ] +ermalin +.J +lease forgive one final observation on
7value9# (t almost follows from what ( have said below that 7value9 is an entirely political category that
has little or no connection with Lionel 2obbins%s famous 3but miserable5 formulation of 7economics as
the science of the best uses of scarce resources9# ;t this late stage of capitalist development 3and this is
a theme that will be central to my future interventions in this forum5, 7value9 can only refer to 7a
monetary measure of the capitalist need to impose wage labour on living labour 3or worers, broadly
defined59# &hat this means is that 7the society of capital9 has become 7the civilisation of labour9 $ a
society whose only rationale and raison d% etre is to impose 7alienated labour9 on worers# .o
barbarous and arbitrary is this imposition 3that is the 7arbitrariness of prices9 to which you allude5 that
we are now finally beginning to perceive 7capital9 not, as in the past, as a necessary evil to produce
greater wealth 3.chumpeter%s @ntwiclung5, but rather as the ultimate 7barrier9 to the rational
production and distribution of social wealthV (f you re$read Martin &olf%s theme for this forum in this
light, if you only consider the barriers set by 7sovereign debt9, by deficit$debt 7obligations9, by the
artificial limitation of social creativityKproductivity 3from 7intellectual property rights9 to 7design
obsolescence9 to 7technological barriers to the sharing of information and technologies9, to e,treme
legal repression in every sphere of social wor5 $ if you do this you will see how the so$called
7systemic riss9 of capitalist industry 3from financial speculation to oil disasters to the threatened
e,pansion of 7clean and safe nuclear energy9, to copyright, to wasteful production5 $ you will surely
see what the over$arching purpose of capitalist 7value9 isJ the preservation and e,pansion of 7the
civilisation of labour9# 2egards#
1# 2eport 8oseph elruno ] Auly !" 0J11am ] +ermalin
!# 2eJ httpJKKwww#ft#comKcmsKsK"Kf=-bb0--$<31<$11df$bb<a$""1--feab-<a#html
3DeLong in ?85
Y @6uivocation $ Unfortunately we cannot comment on DeLong%s arguments directly, but they are
e,tremely interesting and they run an Simplicit% narrativeKrationale that you yourself argue but then
draw different conclusions#
DeLong%s Se,plicit% argument displays the astute mi,ture of 3apparently5 Seconomic analysis% within a
compelling ShistoricistKinstitutional% framewor# .imply put, DeLong sees a 7decline of profitability9
resulting in capitalists% 7unwillingness to invest9 as###9an e,cess demand in finance9 which leads to 7an
e,cess supply of labour9#
8his is an e,traordinary argument, one that Eeynes would never have dared put in such blatantly
Spolitical% language# DeLong is basically saying that the unwillingness of capitalists to invest due to
their inability to realiCe Sprofits% out of the investment 7constrains9 them 7to par9 capital inW#9li6uid
instruments9 such as cash or treasuries#
Now, this means that the 7government9 has a 7captive maret9 of capitalists to whom it can sell
treasuries to finance 3directly or indirectly5 the 7public deficits9 needed to reduce unemployment
3DeLong%s 7e,cess supply of labour95# 3*our counter$argument that 7you can%t fool investors for long9
does not hold once 7investors9 have nowhere else to par their Swealth%, which is DeLong%s 7e,cess
demand in finance9#5
8his is e,actly your argument about 7in the end we still have the same productive resources9, even
with deflationKdepression U but without the need to go through the 7catharticKe,purgatory9 e,perience
of recession that the 7;ustrian .chool9 prescribes# ;nd the 7;ustrians9 prescribe
recessionKdeflationKdepression for a precise reason, which DeLong does not address 3don%t as why5#
8hey prescribe it because they now that DeLong%s or Minsy%s economic policies pose a clear and
present danger to the wage relation that lies at the core of capitalism U because these policies
7emancipate9 worers from 7wage labour9#
;nd this is where the 7institutional9 bit comes in# (s it not a fact that the present 7crisis9 finally boils
down to whether or not we want 7wor9 imposed on us as an unshaeable 7destiny9 37we can%t borrow
from the future9, 7we must mae sacrifices9, 7there are no free lunches9 U the usual string of miserable
platitudes a% la ?ergusonO or even the 7negative$renunciation9 rationale of the 7;ustrian9 theory of
7interest9 ^see my criti6ue of it at Swolfe,change%_5W#or whether we see a Sdifferent civilisation%, one
based on 7use values9 instead of 7e,change values9L
Hoila%V C%est toutV
1# 2eport 8oseph elruno ] Auly !" 11J"=am ] +ermalin
Y Credit $ ( agree with your points# &e have discussed the 7destructive9 role of the 7surplus countries9
before 3China, /ermany, Aapan, .outh Eorea, 8aiwan $ the usual suspects5# ;nd to his lasting credit
Martin &olf has made it a personal mission to e,pose what must be one of the most abominable abuses
in world history whereby worers in the surplus countries are e,ploited beyond belief while
7convertibility9 and 7free trade9 ensure that the ensuing 7indebtedness9 of 7deficit countries9 is used to
discipline us hereJ $ that is the real point of the 7aftershocs9 of the financial crisis 3not its cause, of
course5#
8his is a recurrent problem# 3(n point of fact, ( remember a splendid essay by 'ob 2owthorn in
SCapitalism, Conflict and (nflation% written in the 1<="s reviewing these matters#5 'ut the tide may be
turningJ the 7breathing room9 of the present system is shrining 3see DeLong5# FuestionJ may it not be
possible for us 7to use9 this crisis and the fact that it has greatly 7reducedKrestricted9 the political
7space9 of capital, to move forwardL 2egards#
Y @6uiv# $ *ou may be right about )aye and the ;ustrian .chool# ;lthough there is never any
mention of 7the divinity9 in their writings, we now the influence of Catholicism in ;ustria $ and we
ought to remember that .chumpeter returns again and again in 7)istory of @conomic ;nalysis9 to
8homas ;6uinas%s distinction between 7theological matters9 and 7philosophical matters9 3divine and
natural revelation5# .o did most of the jusnaturalists from /rotius to )obbes and Loce 3with growing
separation from theology5#
(ndeed, as Leo .trauss emphasised, it is difficult to have faith in 7the individual9 without some lin
with the 7spirituality9 of human beings 3Eieregaard is the great anti$)egelian e,ample, and he is
certainly a precursor of the 7negatives Denen9, 7pessimist thought9, that leads from .chopenhauer to
7marginal utility9, the neoclassics and the ;ustrian .chool5#
If course, it is this 7dichotomy9 between 7bourgeois9 and 7citiCen9 3what Earl Lowith called the
problem of Christian$bourgeois society5 that is most evident in both the ;merican and the ?rench
DeclarationsJ $ the ?rench Declaration has it glaringly in its titleJ 78he Universal Declaration of the
2ights of Man and the CitiCen9, where 7Man9 is the bourgeois, private individual with his 7natural
rights9 3whose 7soul9 presumably communes with the /od of the ;merical Declaration5 and 7the
CitiCen9 is the member of 7civil society9 regulated by 7the .tate9#
;s you can see, it is this bundle of concepts that ( am 7untangling9 to offer an 7interpretative ey9 to
this society $ one which, may ( add, is increasingly 7de$mystifying9 itself because capitalist relations of
production become every day starer in their arbitrariness and weaer in their ability to deceive#
2egards#
1# 2eport 8oseph elruno ] ;ugust 10 =J1!am ] +ermalin
;C)(LL@.% L;NC@
Napoleon reportedly told the elderly /oethe that 7Nowadays, fate is politics9# 8he Corsican general
who inherited the vast republican army made possible by a bourgeois revolution that could rally the
human and financial resources of an entire nation$state marched on the rest of ;bsolutist @urope to the
tune of SLa Marseillaise% and consigned it to the dustbin of history# .uch is the power that can be
mustered by a plebiscitarian state whose bourgeois elites are willing to marry the resolve of a Leader to
the destructive force of a depoliticised mob# Cromwell docet# 8he +russians learned the lesson too# .o
did the 2ussians# ;nd one hundred years later, )itler%s armies resumed the con6uest, in the opposite
direction#
@ntrusting our 7fate9 to a political class is not wiseO and it is not +olitics# 8hose who ape 'ill Clinton,
7(t%s the economy, stupid9, forget that 7the economy9 may win elections, but it is not +olitics# 8hose
who gauge the strength and reach of 7the .tate9 by checing the proportion of /D+ taen up by its
budget now little about +olitics# 78he nightwatchman state9 is a phrase coined by Lassalle $ to be
e,pected from a .oCialdemorat# 'ut ?ranC Neumann, who observed the 8hird 2eich from too close,
could have told him that even 7nightwatchmen states9 have been able to fight destructive wars,
colonise continents, and subdue entire populations#
;t least since )obbes, we have nown that the machinery of state can be all$powerfulJ who is in
control is all$important# ?or we are not individualsJ we are not even human 3individual5 7beings9# &e
are rather 7being humans9# *et we live in nation$states whose sole and entire raison d%etre is to
accumulate private wealth, to atomise us, to destroy our solidarity and turn us against other nation$
states and, by e,tension, against one another# Ince the NaCi dictatorship replaced the legal definition of
7citiCenship9 with that of 7Hol9, citiCenship itself ceased to e,ist# 8he plight of refugees is a constant
reminder of how close we are to 7statelessness9, that is, complete banishment from any society#
8he first thing we must undertand about @conomics###is that it is a particular form of +olitics# Unless
we change our 7@conomics9, we can only stare at the abyss of a depoliticised society that leaves
+olitics, the control of the machinery of state, to the Ibama ;dministration or worse to the 8ea +arty#
8hat is not +oliticsJ it is the most frightening chasm, it is the abyss of democracy#
.mall wonder, then, that just as the bourgeoisie succeeds in depoliticising society and disenfranchising
its citiCens through the pervasive deployment of the machinery of state, so we witness the spread of
philosophical currents romanticising again, as they did one hundred years ago, 7the individual9, the
frisson of 7e,istence9,###the myth of 7authenticity9, and, why not, the thrill of nihilistic 7living
dangerously9# 8hey must be combatted at all costs and e,posed for the folly they espouse#
&e must loo at the real Sarcanum% of the .tate# ?or if the .tate is the mere imposition of 7power9
without even the semblance of 7authority9, which is what we e,perience today, then it is a non$.tateO it
is simply the reactionary imposition of repressive force on the citiCenry# (f instead the .tate draws its
7authority9 from representing the interests of isolated, egoistic 7individuals9, which is nearly all that it
can do in a society enslaved by the accumulation of capital, the imposition of wage labour to the e,tent
that 7wor9 is the essence of its civilisation, then the .tate is even more of a non$.tate because its
ultimate purpose will be to overrun other 7nation$states9 and eventually cannibalise its own population#
8he 6uestion we must as $ properly with )egel $ isJ can the .tate embody and e,press 3not just give
Svoice%, but materially Sshape%5 the ever$growing productive potential of its citiCens that the capitalist
economy, driven by the antagonism of the wage relation, is impelled to develop yet at the same time
compelled to repress because it poses a mortal threat to capitalist social relations of productionL More
than 7society9 is at stae hereJ the survival of the entire biosphere depends on the answer we can give
to this interrogative 3a point that Mar, himself neglected and that was seiCed upon by those Snihilists%,
the )eideggers, the ?oucaults, even the ;lthussers and all those abominable charlatans that turn
philosophical in6uiry and political engagement into a pastime for bourgeois Sennouyes%5# .o, contrary
to Eennedy, do not as what you can do for your countryJ as rather what your country can do for you#
'ecause we mae history, not individually but collectively, and the machinery of state is the only
ineluctable tool we have 7to shape9 our history# ;nd unlie ;chilles% lance, history does not heal its
own wounds, whatever )egel might say# 8hey live and endure with us every time the memory of the
)olocaust is reindled, each time the solar glow over )iroshima flashes in our minds# Let these
reminders serve as our invitation to +olitics#
; few clarificationsJ
8here is no such 7thing9 as 7the .tate9 abstracted from the actual social relations of production $ that is
why we have an 7;bsolutist .tate9, a 7feudal .tate9 and a 7capitalist .tate9# ;ny opinion about the
7role9 of the .tate must therefore confront its functional role within the e,isting social relations of
production# ;ny 7abstract9 discussion of 7the .tate9 becomes the e6uivalent of a dis6uisition on the
role of 7the )oly /host9 in 7the )oly 8rinity9 $ either fantasy or vile mystification#
8he capitalist .tate is not a 7superstructure9 erected on a 7base9 $ this is e6uivalent to the metaphysical
debates about 7the ghost in the machine9#
(n passing, on ;dam .mithJ here the role of 7the )oly /host9 is played by 7the (nvisible )and9#
.mith%s greatness lies 3V5 in his supreme mystificationJ unable to reconcile the 7egoism9 of bourgeois
7self$interests9 3however 7enlightened9 in the framewor of growing 7national wealth95 because
7profits9 are irreconcilable with the 7labour theory of value9, .mith is then forced to decree that
commodities sell in proportion to their embodied 7labour value9 and that the maret regulates itself
3supply 7miraculously9 meets demand5 by virtue of 7the invisible hand9 3divine intervention5#
Much more consistent, and much dislied for his 7cynicism9 by the apologetic 7utilitarians9 3including
.mith in 78he 8heory of Moral .entiments9 and his predecessor )utcheson5, was Mandeville%s 7?able
of the 'ees9 which has the brutally honest merit of posing the capitalist maret as a 7parado,9J
7+rivate vices and +ublic benefits9#
TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
78he past,9 as we ought to now, 7is a different country9# L+ )artley%s novel, 78he /o$'etween9 has
been dubbed a 7nostalgic9 novel# Nothing could be further from the truth# (n fact, it narrates the
profound and traumatic 7disillusionment9 of the child Leo at discovering that he has been abused by
the adult lady he loves and idolises, into carrying secret messages between herself and her lover# 8here
are ?reudian overtones as well, because Leo%s childish 7platonic9 infatuation with the older glamourous
lady ultimately crashes against the dar bestial reality of the se,ual relationship his adult abusers are
sharing#### .o much for nostalgiaV
)uman beings have a tendency to erect myths $ none greater than gold, of courseJ remember Eing
Midas, who had his wish fulfilled so everything he touched turned into gold $ with the conse6uence
that he was unable to eatV
+eople tend to idolise gold primarily because it has metallic properties that mae it supremely useful as
a 7store of value9# ;nd they proceed thereby to drawing the mistaen conclusion that gold itself is
7value9 and that 7value is gold9 $ and that therefore 7value9 is a 7thing9V
*et value remains stubbornly a social relation $ one involving political power# &hen Eeynes
denounced gold as 7the barbarous relic9 and deplored the 7auri sacra fames9 3the accursed hunger for
gold5, he was referring to the fact that, even accepting the mythology of the /old .tandard, an efflu, of
gold from a nation in deficit would result in deflation, but not necessarily in lower money wages that
would restore profitabilityV (n the face of the new compactness of the @nglish industrial woring class,
perhaps the most significant political and social development of the late 1<
th
century, Eeynes could see
that 7the economic conse6uences of Mr# Churchill9, his attempt to force a return to the old 7barbarous
relic9, would have unforeseeable and possibly devastating political conse6uences, and not only in
'ritain#### ;nd it didV Until +resident 2oosevelt decided that 7gold9 meant 7fear9 and that 7the only
thing we have to fear is fear itself9V
'ut what the bourgeoisie fears most is the debasement of the currency# (n 78he @conomic
Conse6uences9, this time 7of the +eace9, Eeynes made the ?reudian slip of attributing to Lenin the
saying that 7the best way to undermine a country is to debase its currency9# *es, because it is 7the
currency9 $ whether in its manifestation as 7gold9 or 7greenbacs9 or whatever $ that represents
7value9, that is, the capitalist social relations of production#
;s for the /old .tandard $ lie the platonic love of L+ )artley%s child Leo#### it never really e,isted,
because for 7money9 to have any 7validity9 whatsoever, it needs a military and industrial power to
bac up the social relations of production that it 7embodies9 and 7reifies9# ;nd that power is still the
U. of ; for the capitalist world maret####
+erhaps L+ )artley ought to have saidJ 78hey do .IM@ things differently there9V