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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
This new book by two leading economists is a far-reaching analysis of the role and organization of the financial system in the aftermath of the economic crisis. The authors argue that the financial markets, as currently organized, hinder genuine market transactions and therefore harm the economy, along with any chance of sustained recovery.
Despite the crisis, the power of the financial markets has continued to grow. Far from being subjected to major restructuring or regulation, they continue to rule largely unchecked - laying down economic policies, deposing governments, disrupting social contracts and reshaping international alliances. The time has come to think through more radical proposals for reform - to save other markets from the overwhelming power of the one market that has come to dominate them all, the financial market.
Through a detailed examination of specific measures - from policies aimed at reigning in financial markets to the idea of local currencies that could be used to foster economic development within localities and regions - the authors develop a set of proposals that would help to revitalize markets, free them from the domineering power of finance and re-establish the relationship between creditor and debtor that was severed by the rise of the modern financial system.
Building on their very successful work The End of Finance, this new and timely book will appeal to students of economics, politics and sociology as well as to general readers interested in one of the key issues of our time.
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Seitenzahl: 257
Veröffentlichungsjahr: 2014
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Table of Contents
Title page
Copyright page
Acknowledgements
Introduction
1: Why Can We Find No Exit from the Crisis?
The End of Liquidity Finance
The Good Old Days Were Already Bad
The Principle of an Alternative Finance
Sell and Let Sell
New Signs
Rethinking Economic Doctrine
Market Economy and Capitalism
2: The Global Crisis and the Need to Reform the International Monetary and Financial System
The Crisis is Global
What Do Capital Movements Move?
Capital Markets Ought to be Less Liquid
The ‘Tobin Tax’ in One Country
Liquid Capital Markets Imply Flexible Labour Markets
The Banks are No Longer Doing Their Job
Million Dollar Bonus
The Unstrange Case of Bernie Madoff
Sub-Prime 2: The Return
Rating Agencies, and How to Live Without Them
In the Hoarding Business
The Liquidity Trap
The Creeping Risk of Inflation
The Decline of the Dollar?
The Lesson Offered by the Pound
The Rate of Change
The Rise of the Yuan
International Currency Needed
3: The European Crisis and the Need for a New European Payments Union
Neocolonialism Strikes Back
The Age of Austerity
Are Eurobonds a Solution?
The Wrong Diagnosis
Signs of Easing Up?
Only Partial Compensation
The Dissymmetry Between Creditors and Debtors
A Clearing House for Europe
The Precedent of the European Payments Union
Transforming TARGET2 Into a European Clearing Union
4: Local Currencies and Local Finance
The Individual Advantages of the Local Credit and Currency Circuits
The Systemic Advantages of Local Credit and Currency Circuits
Local Currency as a Tool for Cooperation
Feasibility and Prospects for Development of Local Currency and Credit Systems
The Political Stakes
Too Good to be True?
Index
This volume was originally published in Italy by Donzelli Editore under the title Come salvare il mercato dal capitalismo © Donzelli Editore, 2012
This English edition © Polity Press, 2014
Polity Press
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ISBN-13: 978-0-7456-7256-4 (pb)
ISBN-13: 978-0-7456-7255-7
ISBN-13: 978-0-7456-8188-7 (epub)
ISBN-13: 978-0-7456-8187-0 (mobi)
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Acknowledgements
When working on the ideas that constitute the substance of this book, we enjoyed the benefit of exchanging views with many people to whom we owe thanks.
To begin with, our students, and in particular those who attended with growing involvement, enthusiasm and critical sense the last years of the course in ‘History, Institutions and Crisis of the Global Financial System’ at the Bocconi University. We must also thank the people who took part in conferences and workshops which we had occasion to attend: it always makes quite an impression to see people of many and varied walks of life who are now compelled willy-nilly to try to get to grips with financial issues, and who are often able to raise questions that are as relevant as they are plain and direct. And again, thanks to Jacopo Tondelli and Jacopo Barigazzi, who dedicated space to our contributions in Linkiesta, and to their many readers, always ready with numerous comments: some of the sections assembled here had originally been published in that journal in preliminary versions subsequently modified and completed in the light of the comments. Our gratitude also goes to: Luciano Lanza, who allowed us to republish here an article that previously appeared in Libertaria; to Valerio Deambrogio, Lucio Gobbi, Andrea Papetti and Marco Bianchini, with whom we have exchanged views continuously over the last few months; to Luca Larcher, who read the entire manuscript in record time without sparing critical observations; to Jean-Luc Souchet, a leading mutualist and inexhaustible source of advice; to Philippe Mérien and Sandrine Mansour, ever ready to take opportunities for debate and discussion on local currency and, finally, to Abla Bella Banassouh for strong, discreet support.
The errors and oversimplifications that have doubtless found their way into the text are, however, due solely to our stubbornness.
M. A. and L. F.
Introduction
Finance has a crucial role to play, imparting scope and vitality to the economy. Today, however, a form of finance prevails that does not serve this function well: that of financial markets. The dominion of financial markets is politically illegitimate, economically harmful and humanly aberrant. Exit is imperative. And there are already some signs pointing in that direction. This book is intended as a contribution to the conception and design of an alternative finance.*
Despite the crisis, which is above all their crisis, financial markets have achieved unprecedented power. They dictate the law, literally: they impose economic policies, depose governments they find non-compliant, abrogate rights which they see as constraints, sabotage social contracts and reshape the pattern of international equilibria and alliances. So much is a fact. Some also see it as an advantage, a form of discipline, the ‘market discipline’ that keeps irresponsible governments under the supervision of markets. And some actually see it as a ‘virtual senate’, the first step towards a global democracy – one dollar, one vote.1 However, at least until we've added to the list of human rights the right to be identified with one's bank account, there are no legitimate foundations for the rule of financial markets. Far from being a new form of democracy, it's a new form of oppression: the dominance of creditors over debtors. In other periods, which we flatter ourselves we have left far behind us, it lay with the political authority to re-balance relations between creditors and debtors. Today, it blithely sanctions the imbalance. We should have learnt the lesson by now, living as we do in countries with limited sovereignty, placed in the charge of their creditors. But perhaps we haven't fully grasped the situation if we are ready to ask China for loans, as if this could really be a way to save Europe.
In a world short of leadership, and even shorter of ideas to manage relations between debtors and creditors, it is the creditors who give the orders to debtors and ‘leaders’ alike. These, clearly, are the facts, but we cannot accept them as inexorable necessities – we must learn how they have arisen. And this could lead to the discovery that their apparent necessity is in fact open to alternatives. Another form of finance is indeed possible.
Until we've got our ideas straight, there is no point in blaming the creditor at the door, whether it is a German chancellor, a Chinese premier or an international banker. For every creditor is also a debtor. The really novel feature of the new regime that we have to size up is, rather, its impersonal, anonymous and reticular nature, diffuse yet concentrated. True, there are the big banks that make the market and earn a rent, but there are also our pretensions to see some income from our savings recognized as an acquired right – and this is also a form of rent. So here we are, faced with the new ‘breed’ exercising its authority through the global financial markets; the faceless breed of creditors with no responsibilities. They hold the world in their hands and manage it despotically, demanding sacrifices and handing out rewards.
For some people, this despotism isn't a problem. As they see it, financial markets need no legitimacy other than that deriving from effective performance: financial markets are the optimal instrument for the efficient allocation of resources. If they are a bit cruel, never mind, so long as they work.
The crisis has, however, also brought out a second fact: the financial markets that rule the world do it badly. The dominant finance holds sway over every field of associated life except for the field most directly concerned (just as the dominant economic science claims competence in any question you may raise, precisely, perhaps, to dissimulate its inability to settle purely economic issues). Today, financial markets are doing everything but financing. They play their game, you're told. But it isn't an innocent game, for it can, and today in practice does, prevent others from doing their work. If finance doesn't finance, businesses cannot do business and workers cannot work. Here lies the dissymmetry that the crisis has shown: while finance can grow even without a corresponding growth in the production of commodities and services, the opposite does not hold – the real economy cannot grow without the support of financial services. As the financial markets accomplished their irresistible rise to power, they moved ever further from the economic activities they were supposed to serve.
The crisis has revealed a division between economy and finance, but it did not produce it. If anything, it's just the opposite: it's the division – for years ignored and denied – between economy and finance that brought on first the financial crisis, and then the crisis in the real economy. This is why any efforts to tackle the economic crisis without rethinking the role of financial markets are misguided and doomed to failure.
Freed from its service to the economy, finance has used its power to force its dictates onto governments. However, one thing needs to be made perfectly clear: finance has been able to encroach on the field of politics and subjugate the real economy only because the market ideology has taken over the field of finance. As the fruit of an ideology that no one, in thirty years, has been able to oppose to any effect, the financial market is, as such, a problem. It's an economic, political and, ultimately, human problem. It's a problem because it has taken it upon itself to marketize a basic human and social relationship, that between debtor and creditor. Put like this, the absurdity of the pretension is strikingly obvious. The need, then, is to reform finance in such a way as to drive it back from the area it has encroached upon and restore it to its abandoned task. Depriving finance of its market form means putting it back in the service of the market economy. And this is a political task. Therefore the first, fundamental and overriding priority of political action is to regain its field of freedom and authority and shake off the yoke of ideology.
The ‘end of history’, proclaimed triumphantly by the neoliberal doxa on the collapse of the Iron Curtain, was the fruit of a miscalculation. The end of all ideologies was proclaimed, but actually one remained – the ideology of capitalism, in the form of an article of faith attributing the financial markets with all economic rationality. The crisis has shown how ill-founded it was. Even one of its most fervent advocates, Alan Greenspan, had to admit the debacle in a memorable hearing before the US Congress.
It is worth quoting at length the exchanges where Committee Chairman, Senator Waxman, subjected Greenspan to some particularly searching questioning:
It sounds not so much like the ‘End of History’ so triumphantly announced by Francis Fukuyama as, rather, Samuel Beckett's Endgame: the end of a world. But over the last five years we have witnessed a revival of the financial markets, if not of faith in their infallibility. Here lies the paradox of recent times: although the damage they caused is increasingly evident and their usefulness increasingly questionable, financial markets still reign supreme. Indeed, they've actually gained in power. The ideology wobbles but the regime it has helped establish holds out, as is often the case of regimes in decline, with a fierceness goaded through the inability to understand that the game is over. Financial markets persevere in their efforts to dictate the law. And yet, in all honesty, how could any exit from the crisis be thinkable without calling into question one of its deepest causes, which lies precisely in this pretension to dictate the law?
It's time to think about the post-crisis world, and above all to make sure the crisis comes to an end. History shows that crises don't just come to an end unaided, and that the way they end is not always the best of all possible ways. So if we are to exit from the crisis without turning back or, even worse, taking a blind jump, and yet without forgoing the real advantages of globalization, then we must learn to make new distinctions guided by reasonableness rather than ideology.
To begin with, we have to distinguish between markets for actual goods and services, which should be as free, integrated and extensive as possible, and financial markets, which shouldn't even exist.3 Now, insomuch as capitalism is an economic system historically connoted by the existence of financial markets, a certain distance may, and perhaps should, be taken from capitalism if a truly free market is to be attained. Market economy and capitalism are not synonymous. Actually, they are incompatible. Capitalism is a market economy with one market too many: the money and credit market. Thus some – not nostalgically backward-looking – alternative to the present situation is conceivable.
Why, then, is it so difficult to conceive? What hampers us? What keeps our thoughts from turning to a new contract between state, market and finance? In Keynes's words: the fetish of liquidity. Liquidity is what Keynes, in chapter 12 of The General Theory, singled out as the truly distinctive characteristic of financial markets, defining it frankly as an ‘anti-social fetish’.4 Building on this fetish an ideological accord has been established between state and market at the expense of everyone, and above all of society as a whole.
Liquidity is a Janus. On one side, it is the characteristic of credit, in so far as the latter can be bought and sold on a market, namely the financial market, as a place where investments are made without responsibility and everyone stands to gain (a place of ‘adolescent freedom’, as Mauro Magatti might put it).5 On the other side, liquidity is also the essential feature of capitalistic money insomuch as it is money that can be held indefinitely as a store of value, as the supreme form of wealth, as a safe refuge in times of uncertainty, when no one can be trusted.
On this twofold fetishist device, a system has been constructed perpetually wavering between the mirage of unconditioned communion and the refuge of absolute solipsism. As long as it worked, it offered the illusion of an artificial paradise of well-being and equality. But when crisis struck all hell broke loose, and the more each sought individual rescue, the more total was the collective debacle.
Throughout all the vicissitudes, however, one principle remained constant: the system sought to turn us all into rentiers. Rent has squeezed wages and profits. The more capital becomes rigid as financial capital, demanding sure returns, the more labour has to be flexible. Hence, the repugnance provoked by the new wealth, as undeserved wealth. Hence also, the increasing disparity in the distribution of wealth, and the inordinate increase in debt to offset the lack of income. And the vicious circle runs round.
Finance has usurped the realm of politics because the market has occupied the terrain of finance. While classical liberalism defended the market from politics and social democracy defended politics from the market, no one has troubled to defend finance from the market, or the market economy from capitalism.
And yet it deserves to be avowed: the essence of finance is social. It has to do with the relationship between debtor and creditor. Questioning the way financial markets work does not, therefore, mean authorizing out-of-hand demonization of the banks and stock exchanges. Psychologically understandable as it may be in times of social distress, this is no way to get down to the causes, nor to determine where all the blame lies. It's an approach that looks no further than for scapegoats. It may be unpopular to say so, but it must be said plainly and simply: the blame does not lie with ‘someone else’, for we are all part of the financial markets in so far as we share, socially and individually, the anti-social assumptions they run on. We are all involved in this odious regime of creditors. To start with, we are all creditors: the simple fact of having a bank account means helping build up on the debtor a pressure that can become unendurable. Above all, however, and at a more basic level, even people who don't invest in stocks and bonds, and possibly protest against the excessive power of Wall Street, are still hardly likely to call into question the underlying principle of the financial markets – the dogma of liquidity. This consists in the apparently natural idea that cash (liquidity, in other words) is the safest form of saving and, consequently, one will part with it only for an investment that is equally liquid or that yields sufficient interest to compensate for the lack of liquidity. This, in short, is the general creed we all respect: money is the supreme good, and must generate interest when it is lent. If you accumulate money, you expect it to retain its value. If you loan it, you expect to get a bit more back. A dollar tomorrow is worth less than a dollar today: you take this for granted, you count on it, you quite literally discount it. Thus operates the dogma of the liquid trinity: money–credit–interest, three in one, inseparable. Who would question this dogma nowadays? And yet it is precisely upon this undisputed assumption that the power of financial markets rests: the by now proverbial greed of bankers and dealers on the stock exchange would be powerless and harmless if they didn't have this mighty lever to work with.
But there is still more to it. Independently of the financial markets, the idea that money is wealth and that the mere lending of it merits a reward is the root of an endemic evil that is both social and human. Call it as you will. Until a couple of centuries ago, it was called usury. Then the classical economists called it rent, and criticized it harshly. Today it's called rate of interest. In any case, it is income obtained without working or running entrepreneurial risks and is thus quite distinct from both the worker's wage and the entrepreneur's profit.
Now, it may seem trite to point it out, but in times like these we'd better try to be basic: if somewhere someone is making money without working, somewhere else someone is working without making money. That is why economic rent is structurally intolerable. It is, in Aristotle's word, hateful – whether concentrated in the hands of a few rentiers or distributed ‘democratically’ to all. To start with, it's hateful to the people who pay it, which means every one of us as a debtor, for it constitutes a forced levy, a tax, and one that can become an unbearable burden to the extent of having the effect of political and economic blackmail (as Alan Greenspan once pointed out, ‘an American in debt is an American who can't afford to go on strike’). More generally speaking, it's hateful to society as a whole, for it accentuates disparities in income distribution and continually saps lymph from the vital parts of the economic system, from labour and firms, feeding sterile accumulation. Finally, it is hateful to those who receive it, in other words every one of us as creditors, for it lulls us all into the illusion that one can live without working, without running risks and even without desiring anything definite apart from money, to the extent of sacrificing everything else to it, in the self-destructive obsession to liquidate everything – the modern-day version of the curse of Midas.
The indignation of protesters over the last few months demonstrating for ‘less speculation, more imagination’ is perfectly understandable, and in fact we understand it. But indignation is not enough. If we want to take a real distance from the present financial system, then we must start thinking up an alternative system that is also feasible; for one important fact remains, and there can be no getting away from it: if economic life has no need of the stock exchanges as we know them, people nevertheless have the vital need to give and receive credit. We could do perfectly well without financial markets, but we can't do without finance. Essentially, finance is the space of the relationship between debtor and creditor; a space where someone can give credit to a promise (promissory note) since whoever makes that promise has a responsibility to honour it (by paying), and where both, jointly responsible, have to face the risk that, for some unforeseeable eventuality, regardless of their intentions, payment may be jeopardized and may need to be renegotiated. Where this space is open, the economy can breathe and there is scant risk that, simply for lack of money, a deal is not brought off, a person does not work or a new productive enterprise fails to take off.
Saying no to financial markets does not mean forgoing finance. Indeed, a constructive ‘no’ could at last imply a form of finance adequate to its task. On financial markets, a debt is a negotiable security; in the other finance, a debt is an obligation to be honoured. On financial markets, the settling of accounts is constantly postponed, unless it looms up unexpectedly in a crisis; in the other finance, debtor and creditor concur in making possible the settlement of each account as it comes up. Financial markets are based on liquidity; the other finance is founded on responsibility. On financial markets, there is competition to place or withdraw funds; in the other finance, there is cooperation to make advance and settlement possible. On financial markets, risk is systemic and crisis endemic; in the other finance, a firm may fail but the system won't.
Finally, saying no to financial markets certainly doesn't mean forgoing the market. It simply means refraining from putting on the market something that is not a commodity, namely money and credit. It means having at last for true commodities a market where demand and supply meet without distortions. The wild fluctuations in the prices of raw materials that we have witnessed with the crisis show just how much financial markets can interfere with the functioning of commodity markets. Some limits must be set to markets for money and credit if we want free competitive markets for actual goods and services, appropriately regulated and delimited, able to preserve the freedom upon which they are based.
Setting limits to the market is a political task. Where is the line to be drawn? Between true commodities and fictitious commodities, beginning with credit, which is not a commodity but a relationship. If the market extends to credit, there's no holding the floodwater back – sooner or later it will bring the dams down. Either we start subtracting credit from the market, or regulation and, moreover, democratization of globalization is just wishful thinking.
What does it mean to set limits to the market for money and credit? Some measures have already been mooted and only need to be implemented within an organic framework: they can take the form of a financial transactions tax, increased taxation on financial returns, inheritance and wealth taxes, regulatory distinction between commercial and investment banks.
However, limiting financial markets is not the only goal worth pursuing. It is also possible, and indeed desirable, to invent new forms. Thinking about an alternative means putting one's mind to another kind of finance, moving on from market finance to finance for the market.
Finance has two essential tasks to perform: funding trade and financing investments. Neither of these tasks requires a market for credit or interest-bearing loans. Funding trade can be achieved through clearing systems (characterized not by indefinite growth in financial operations but by equilibrium in trade). Investments and innovation can be financed through forms of profit-and-loss sharing (in which growth is not obligatory but simply possible). With both these financial forms, it is possible to keep finance closely bound up with real economic activity. Both are forms of cooperative finance.
Delimiting and reforming finance are urgent political undertakings. At stake is not only the health of the economic system but the restoration and preservation of breathing space for the political system and democracy itself. Reform of finance can and must be achieved at all levels: international, European, national and local. It can also start from the bottom, in keeping with a principle of subsidiarity and in the spirit of our best cooperative tradition. Europe itself needs to find new forms of cooperation, in particular through a clearing house to settle all the imbalances that have accumulated over the last ten years. Here, the model could be the European Payments Union (EPU), which enabled post-war recovery, as well as the Italian and German economic miracles of the 1950s. Local experiments are starting up throughout Europe, not to counter the euro but to reinforce monetary union. Similar initiatives are starting to flourish also in Italy. And it would be nice to see Italy, having now regained a credible say in European affairs, promote a renewal – in finance in particular – as it has done in the most glorious moments of its past.
In the spirit of our previous publications, the idea behind this book is to contribute to opening a new area of debate and keeping it open – not to offer dogmatically conceived prescriptions against the tired old dogmas of neoliberalism.
The first step to take on the way out of crisis must be to escape from the lure of doctrinaire formulas. The neoliberal dogmas and the partisan propaganda that they have generated over the last thirty years hide a basic weakness: the ‘principle’ they elevate to dogma – liquidity – is in reality no principle but an illusion, a trap.
Exit from the – primarily ideological – crisis of the last few years calls for identification of a principle upon which to construct new forms of finance, and towards which to guide back certain forms of finance already there but hitherto marginalized. Starting from the evidence of a finance for the market, as opposed to a market finance, it will be possible to single out step by step the specific tools to be refined, and to identify the various levels at which we must learn to apply them.
What is already apparent, if only we open our eyes, is that the other finance we refer to – not a market finance but a finance for the market – is no utopia. It is possible to save the market from capitalism, and economic science from ideology. There are numerous examples, ancient and modern, of a finance that has no need of financial markets, from the exchange fairs of the Renaissance to the new forms of corporate barter; from the traditional cooperative banks to more recent systems of local exchange. And there are a great many ancient and modern examples of finance not entailing interest-bearing loans, from Islamic finance to venture capital, from the experiments with stamp scrip during the Great Depression to certain present-day forms of complementary currency. New proposals are also finding circulation for reform of the international monetary system, and even for the institution of a European clearing system. Gathering such seeds of innovation, our aim with this book is to contribute to the conception, design and promotion of a different, cooperative finance, seen not as a market but as the space for the relationship between debtor and creditor.
Notes
* Massimo Amato is responsible for chapters 1 and 4, and Luca Fantacci for chapters 2 and 3.
1 For a critique of the neoliberal concept of ‘virtual senate’, cf. N. Chomsky, Hopes and Prospects, Chicago: Haymarket Books, 2010, pp. 97–9.
2 The Financial Crisis and the Role of Federal Regulators, 23 October 2008, House of Representatives, Committee on Oversight and Government Reform, Stenographic Minutes, Washington, DC, Office of the Clerk, Office of Official Reporters, ll. 831–66.
3 J. N. Baghwati, ‘The Capital Myth: The Difference between Trade in Widgets and Dollars’, Foreign Affairs, May–June 2008.
4 J. M. Keynes, The General Theory of Employment, Interest and Money, London: Macmillan, 1936, reprinted in D. Moggridge (ed.), The Collected Writings of John Maynard Keynes, London: Macmillan, 1971–89, VII, p. 155.
5 M. Magatti, Libertà Immaginaria, Milan: Feltrinelli, 2009.
