Having deferred the publication of its report on morality in the [business] City of London, the Saint Paul's Institute is now issuing it. A large sample of employees in financial institutions were asked basic questions: and the majority answered that the existing distribution of incomes was unfair, in their favour, and they saw no particular reason to do anything about it. There is no surprise there: but confirming common assumptions is a valid outcome of research.
The development of electronic trading in cyberspace is a huge source of earnings for the City workforce, and a lesser source of profit for their firms [where typically the firm is responsible for any losses, while staff take more than 90% of the return in salaries and bonuses]. This is a totally different market from the old-fashioned face-to-face dealing of the Stock Exchange before the 'big bang' of 1986. The occasion for the Saint Paul's report is the twenty-fifth anniversary of the loosening of market controls, which made possible the expansion of trade [especially of socially-useless churning of contracts] and the invisible evolution of electronic markets. The pre-big-bang markets could not possibly have run up the liabilities that almost sunk the economy in 2008; which could still cause huge problems if the running-repairs that were made in haste should be unsustainable in the long term.
Despite the unimpeachable evidence that Economics is a failed subject, with no scientific validity, Economists continue unabashed to draw large salaries for analysing City events, 'products' and firms. Little of what they write directly refers to the Economic theory that still has a monopoly of university syllabuses: much of their output is common sense, exposition of statistical data and the repetition of market folklore. But behind all of that their mental world is at least partially structured around normative theories that are at best unhelpful to any attempt to understand what actually happens in the economy, and at worst have served as the sanction for ruinous excess.
The Bishop of London has invited a retired banker - and active churchman - called Ken Costa to lead a new study of the relationship of humanity and morality to business. In an interview on the Radio 4 Today programme he proclaimed himself open to any new idea, he spoke of Ethics as a separable aspect of human cerebration, and he took it for granted that human business relationships exist in a 'market economy'. Perhaps due to the constraints of time, there was no exploration of what a market economy might be or how it may be improved, dismembered or renewed. Costa commented that views for and against 'capitalism' were polarised: that no side to the dispute was intrinsically right, and that any dialogue must accept points from both sides. Most ecclesiastics who have made any comment on these issues, especially in the context of the naive claims made by the campers at Saint Paul's, have been couched in soft-left platitude. As such, they have failed to resonate in the media and in bar-room discussions.
Historically the emergence of capitalism has been linked to Protestantism, with its tradition of encouraging individuals to implement their own interpretation of biblical teaching on morality; while Catholicism and Islam have been much more explicit in outlining an official interpretation of scriptural guidance on business matters. None of these streams of dogma has pronounced capitalism to be 'evil'; while socialism - especially explicitly-atheistic Communism - has been anathemised. John Wesley, the founder of Methodism, said that "the making of money is a worthy and a Godly pursuit": but he, like all other significant religious leaders, also argued strenuously for the 'right use' of money and the obligation of the faithful to support the poor and needy.
Markets are merely social media: their purpose, structure, processes and rules are made by human beings who participate in markets on their own account or as agents of firms. Those individuals cannot avoid making their decisions in markets in the light of their understanding of their function; and of their personal needs, beliefs, prejudices, and judgements. These may or may not include religious aspects and ethical consciousness. Personal charity is still significant; but most of the care for the poor and needy - as for the sick - has been appropriated by the state. To pay for it, the state taxes firms and persons who participate in economic activity; and taxes are broadly proportional to turnover.
People decide on a daily basis whether to put a coin in a rattling collecting-box, as they hurry along carrying newspapers that show more and more 'gaps' in provision by the 'welfare state'; and most people are becoming more and more concerned that they will personally fall into some of those gaps. The perceptual separation of markets from society, with the political system taxing markets to maintain society, was slowly developed between 1870 and 1980, sanctioned by Economists: and now it is busted. A wholly new basis for understanding these relationships is essential. With the best will in the world, Saint Paul's Institute and Ken Costa will not resolve the dilemma with their existing intellectual resources.
Showing posts with label capitalism in crisis. Show all posts
Showing posts with label capitalism in crisis. Show all posts
Monday, 7 November 2011
Saturday, 22 October 2011
Capital, Capitalism and Humanity
No economy can function without capital: buildings, utilities, transport facilities, machinery and the cash float that is necessary for any household or firm to operate. This fact was recognised early in human history, and by 1800 it had become part of a systematic theory of Political Economy as one of the 'Factors of Production': Land, Labour and Capital.
The young Doctor Karl Marx absorbed Political Economy and combined that with a voracious acquisition of facts, and believed that he had found a more profound truth. This was his perception that a class had emerged in the modern economy who were not any part of the ancient classes of people as they had become segregated by economic role and circumstances over the centuries: farmers, handicraft workers, landlords, soldiers, priests and civil servants. This class was the capitalists. Marx reckoned that this group collectively aimed to seize control of capital and use it for their own purposes rather than for the general good of humanity. He assumed that the capitalists would use the capital that they brought under their control to expand industrial production [including ultimately production on factory farms] and that this would be taken to extreme lengths. As industry expanded and machinery improved, output would increase; but then would occur a crisis. The capitalists would have expanded productive capacity to a point where there was not enough demand to meet the output. So the capitalists would cut costs and, as their priority was to carry on buying more more-intensive machinery, the obvious economy that they could make would be to reduce the cost of labour. Some workers would be sacked and the others offered lower wages: there would be plenty of unemployed available to take the jobs if the remaining workers would not accept the lowering of wages. Meanwhile the natural increase of population would produce large numbers of relatively healthy young people looking for work on any terms.
Marx presented capitalism as a machine that would inevitably generate excess production, lower living standards and create a growing 'reserve army of the unemployed'. This did not happen.
For a century and a half after Marx's death economic growth produced a diversification of products and a rising general living standard in the relatively free economies of Europe and the Americas. Owners of businesses accepted being known as capitalists, and there was a consensual acceptance of the term 'capitalism' to mean 'an economic order in which a least a major portion of industry and commerce belongs to companies and to individuals'. Meanwhile the Russian Empire was captured by revolutionaries who claimed to be Marxists [and whose dogmas spread to central Europe and China after the Second World War] and those people made a disastrous mess of managing their economy by authoritarian means that were asserted to be leading towards the blissful condition of 'communism' that Marx had envisaged. Largely because Marxism failed, the people in the [relatively] free countries accepted their environment being described as 'capitalist'. But the term capitalism has no clear meaning, other than the pejorative term that Marx coined .
The fact that the members of a 'capitalist' society have no clear understanding of what they mean by the term has had disastrous consequences. If there had been acceptance of a definition of 'good' capitalism as an economic system that recognises the importance of managing capital investment effectively the present economic crisis could not possibly have arisen. Individuals in their various roles as politicians, business leaders, investors, voters, workers, pensioners and consumers would have seen that the crazy combination of de-industrialisation with untrammelled credit-creation and house-price inflation that built up after 1980 was preventing a rational allocation of capital from taking place. The survivability of the economy was being undermined in an orgy of imported consumption funded by borrowed money. Financial phenomena - mostly invisible in the internet - absolutely dominated the economy: and the creators and managers of those phenomena included many of the brightest graduates in maths, science and engineering who could have used capital to lead into new worlds of physical output, energy generation and medical science.
It is precisely because politics and society allowed the economy not to be capitalist in any rational sense that the crisis now exists. It is not a 'crisis of capitalism': it is the consequence of the economy ceasing to be capitalist.
The young Doctor Karl Marx absorbed Political Economy and combined that with a voracious acquisition of facts, and believed that he had found a more profound truth. This was his perception that a class had emerged in the modern economy who were not any part of the ancient classes of people as they had become segregated by economic role and circumstances over the centuries: farmers, handicraft workers, landlords, soldiers, priests and civil servants. This class was the capitalists. Marx reckoned that this group collectively aimed to seize control of capital and use it for their own purposes rather than for the general good of humanity. He assumed that the capitalists would use the capital that they brought under their control to expand industrial production [including ultimately production on factory farms] and that this would be taken to extreme lengths. As industry expanded and machinery improved, output would increase; but then would occur a crisis. The capitalists would have expanded productive capacity to a point where there was not enough demand to meet the output. So the capitalists would cut costs and, as their priority was to carry on buying more more-intensive machinery, the obvious economy that they could make would be to reduce the cost of labour. Some workers would be sacked and the others offered lower wages: there would be plenty of unemployed available to take the jobs if the remaining workers would not accept the lowering of wages. Meanwhile the natural increase of population would produce large numbers of relatively healthy young people looking for work on any terms.
Marx presented capitalism as a machine that would inevitably generate excess production, lower living standards and create a growing 'reserve army of the unemployed'. This did not happen.
For a century and a half after Marx's death economic growth produced a diversification of products and a rising general living standard in the relatively free economies of Europe and the Americas. Owners of businesses accepted being known as capitalists, and there was a consensual acceptance of the term 'capitalism' to mean 'an economic order in which a least a major portion of industry and commerce belongs to companies and to individuals'. Meanwhile the Russian Empire was captured by revolutionaries who claimed to be Marxists [and whose dogmas spread to central Europe and China after the Second World War] and those people made a disastrous mess of managing their economy by authoritarian means that were asserted to be leading towards the blissful condition of 'communism' that Marx had envisaged. Largely because Marxism failed, the people in the [relatively] free countries accepted their environment being described as 'capitalist'. But the term capitalism has no clear meaning, other than the pejorative term that Marx coined .
The fact that the members of a 'capitalist' society have no clear understanding of what they mean by the term has had disastrous consequences. If there had been acceptance of a definition of 'good' capitalism as an economic system that recognises the importance of managing capital investment effectively the present economic crisis could not possibly have arisen. Individuals in their various roles as politicians, business leaders, investors, voters, workers, pensioners and consumers would have seen that the crazy combination of de-industrialisation with untrammelled credit-creation and house-price inflation that built up after 1980 was preventing a rational allocation of capital from taking place. The survivability of the economy was being undermined in an orgy of imported consumption funded by borrowed money. Financial phenomena - mostly invisible in the internet - absolutely dominated the economy: and the creators and managers of those phenomena included many of the brightest graduates in maths, science and engineering who could have used capital to lead into new worlds of physical output, energy generation and medical science.
It is precisely because politics and society allowed the economy not to be capitalist in any rational sense that the crisis now exists. It is not a 'crisis of capitalism': it is the consequence of the economy ceasing to be capitalist.
Capitalism in Crisis?
The waifs, strays, agitators and rent-a-crowd who have settled outside Saint Paul's Cathedral are living under various banners, of which one of the most prominent declares CAPITALISM IN CRISIS.
It appears that the majority of the squatters broadly equate capitalism with 'bankers' who are inferred to be rich, exploitative, dishonest and void of social conscience. It is probable that a great majority of the British population would endorse that view of bankers, or at least of 'City bankers' or 'wholesale bankers' [as distinct from local retail branch bank counter staff]. But is the equation of 'capitalism' with 'banker' in any way valid?
The City of London and New York banking sectors have been hugely successful in the era since the regimes led by Margaret Thatcher and Ronald Reagan fostered liberalisation of the rules, enabling them to develop a completely reckless cats-cradle of interdependent innovations that made increasing use of developing computer software and passed way beyond the ken of inadequate regulators. Few people could explain how this system crashed and what was the nature of the collapse: but everyone has experience of the consequences, and can see the pathetic attempts of political systems to capture some sort of control over phenomena that they do not understand. The Economists do not fully understand them either: some Economists understand some features of the system and of the crisis very well, and have sensible policy suggestions: but nobody can definitively say to what extent this or that 'expert' has the right answer.The debate is close to stalemate; but it is increasingly obvious that the crisis occurred in 'banking' even though it subsequently threatened the existence of the economy as a support mechanism for human beings.
Few people in or out of politics, inside or outside the 'Economics profession', doubt that human survival in all the industrial and 'post-industrial' countries depends on developing the 'real economy'; and specifically on developing what is broadly [and therefore pretty meaninglessly] described as 'manufacturing'. No materially productive plant can be created without capital in the forms of buildings, services to those buildings, machinery, supplies, ancillary services, trained labour [which is in itself expensive] and a cash float to pay the bills until sales revenue cover costs. Society cannot survive without capital. So what is 'capitalism', and does the addition of the suffix confer a morally or socially negative inferior - or even hostile - aspect to the necessary investment funds? It is highly improbable that any of the 'protesters' could answer that question in a credible manner.
It appears that the majority of the squatters broadly equate capitalism with 'bankers' who are inferred to be rich, exploitative, dishonest and void of social conscience. It is probable that a great majority of the British population would endorse that view of bankers, or at least of 'City bankers' or 'wholesale bankers' [as distinct from local retail branch bank counter staff]. But is the equation of 'capitalism' with 'banker' in any way valid?
The City of London and New York banking sectors have been hugely successful in the era since the regimes led by Margaret Thatcher and Ronald Reagan fostered liberalisation of the rules, enabling them to develop a completely reckless cats-cradle of interdependent innovations that made increasing use of developing computer software and passed way beyond the ken of inadequate regulators. Few people could explain how this system crashed and what was the nature of the collapse: but everyone has experience of the consequences, and can see the pathetic attempts of political systems to capture some sort of control over phenomena that they do not understand. The Economists do not fully understand them either: some Economists understand some features of the system and of the crisis very well, and have sensible policy suggestions: but nobody can definitively say to what extent this or that 'expert' has the right answer.The debate is close to stalemate; but it is increasingly obvious that the crisis occurred in 'banking' even though it subsequently threatened the existence of the economy as a support mechanism for human beings.
Few people in or out of politics, inside or outside the 'Economics profession', doubt that human survival in all the industrial and 'post-industrial' countries depends on developing the 'real economy'; and specifically on developing what is broadly [and therefore pretty meaninglessly] described as 'manufacturing'. No materially productive plant can be created without capital in the forms of buildings, services to those buildings, machinery, supplies, ancillary services, trained labour [which is in itself expensive] and a cash float to pay the bills until sales revenue cover costs. Society cannot survive without capital. So what is 'capitalism', and does the addition of the suffix confer a morally or socially negative inferior - or even hostile - aspect to the necessary investment funds? It is highly improbable that any of the 'protesters' could answer that question in a credible manner.
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