What About Marx

Modern serfdom for the workers, endless money-printing and gold as the ultimate anti-investment

2012-02-08T18:37:00.001+02:00

Assuming that we've read some of our previous "big picture" posts (for example here and here), you probably know that gold has a "special role" to play in today's situation - it is no accident that it's exchange rate vs the dollar and all the other fiat currencies of the world has been rising for the last 10 years or so.

Some may say that "gold is a bubble", but this is not true. The only "bubblish" about gold is the "paper gold" market, that the capitalists have created (this is a subject that we shall discuss in a few days). But physical gold is humanity's "truest" form of money. Ever since private property and trade appeared, people have being exchanging goods and services, and they soon realized that they needed to replace the barter system with a new system, which would employ a new invention, money. Money is a "super-product" that is used as a "benchmark" for all other products: All other goods have a value that can now be expressed through it.

Mankind has used many different forms of money, but gold (and secondarily silver) is the form that dominated over all the other forms. The reason is that gold is durable, easily transferable from one place to another and rare. Many other forms of money where tried, but nothing could beat gold's advantages as money.

However, ever since Nixon took us off the gold standard, people's perceptions changed a lot: In recent years, gold has been considered somewhat of a "fringe investment", and despite the fact that the world's central banks still keep tonnes of gold (and only gold, not diamonds, nor any other precious metal or commodity) in their vaults, people have almost stopped thinking of gold as money.

"Although gold and silver are not by nature money, money is by nature gold and silver."
-Karl Marx

"Gold is Money. Everything Else is Credit."
-J.P. Morgan

It is true that gold has other uses (for example, it is used in industry and in making jewelry), but it is also used as money - so, the value of everything else can be expressed through gold.

Everything else is credit, as JP Morgan famously declared almost a century ago.

So, in today's world, where everything's value is expressed in dollars (or euros, etc.), we are in fact using a leveraged form of "money": currency.

We have already explained how and why we got here in previous posts. Now it's time to also make "an educated guess" about where we are going next - here are some thoughts on the subject:

1) Capitalism is based on the exploitation of the workers by the capitalists.

2) After the collapse of the former USSR, all the workers of the Soviet block + the Chinese workers were intergraded into the labor marker that truly became global.

3) Capitalists off-shored production to Asia, as the workers of those countries could be exploited much more so than the workers of the West (as the Western workers had achieved some important victories through a century of labor struggles, that inhibited the capitalists ability to exploit them).

4) As the industrial base of the West was diminishing, capitalism became more "leveraged" and credit-based, as it needed more and more "banking loans" to keep the system going:
-If a factory was closed down, either because the owner off-shored production to Asia or because it just couldn't compete against the cheaper goods that were made in China, the workers of that factory could still get a job, or start a business themselves, by getting a loan from the banks.
-The workers wages have stagnated for a long time (link), but they could still "afford" a new house, by getting a mortgage. And they could also afford rising tuition fees for their children's education, by getting a student loan. And they could even a new plasma TV set, by getting another "consumer's loan". And the list goes on and on.
-This meant that the construction workers could find a job (thanks to all these mortgages), and the companies that produce this plasma TV set and the merchants who sell this TV would make a profit. So, there would be a job for those who make these TV sets, or sell them.

5) The problem with all this is that the houses that the people live in are not "their" houses, they belong to the bank. And if you can't make your payment on your mortgage, then the bank kicks you out. Can all these debts be repaid? No, of course not.

6) So, the Western workers earn relatively low wages, and are deeply in debt, as they had to keep the system going by "overconsuming" for a very long time. And it's not just the workers, entire states are heavily indebted and cannot possibly repay their debts.

7) As the people cannot get any more loans, capitalism can't keep growing. No jobs for the construction workers, factories close down as noone can consume all the good that they produce, etc.

8) But as these debts cannot be repaid, the banks are also in trouble, as they have to write down heavy losses. This is a very heavy blow for them, as they are ALL bankrupt, just like Lehman Brothers.

9) The difference is that, unlike Lehman (and a lot of smaller banks), the rest of the banks were saves through endless bailouts. Let's not forget that the banks have become bigger than ever, as capitalism needed more and more credit. So, the bankers have the politicians in their pockets, and they managed to get the money they needed (from us). After all, they are "too big to fail", whereas we are not, we are "replaceable". So, all the wealth of our societies is being redirected to the banks, in order to cover their losses, leaving the rest of us to starve.

10) But the banks need a lot of dollars. Trillions and trillions of them. So, this "money" is being "created out of thin air" (quantitative easing - money printing). This process of money printing has being going on for many decades now, ever since Nixon abolished the gold standard. The system needed more credit, and so it became more leveraged. The gold standard was interfering with capitalism's need for increased leverage, so they abolished it. And now that the banks have to be bailed out, they are printing even more money than before - here's a great chart:

11) All this newly created "money" (currency) goes to the banks, so that they won't have to face another "Lehman-type" moment, or even a global collapse of the entire banking sector. But this newly created 'money' isn't based on newly created wealth (new products/services), nor on wealth's"monetary counterpart", gold (gold, as we have already explained, is the "monetary representation" of wealth, as capitalism has a tendency to monetize everything, and so all goods and services have a value that can now be expressed through gold, in order for the people to be able to exchange them in the market (buying/selling).

12) As all this newly created "money" is not based on new wealth/gold, it is simply a way to debase the currency and redistribute wealth:
The banks get bailed out, by getting all the newly created "money", and the workers get paid less (as the value of the currency in which they are getting paid is being diminished). This is necessary for the capitalists, who get to save the banks, and improve the "competitiveness" of the working class. The destruction the currencies is a sacrifice that they have to make, in order to save the banking sector from collapsing, and at the same time to reduce the wages of the wokers, so that they become "more competitive", thus attracting capital investments.

13) One of the greatest "side-effects" of this process of "money printing" is that fewer and fewer people want to own/use the various currencies, as they can easily understand that these currencies will lose a lot of their current value in the future. More and more capitalists turn to gold for protection of their wealth, as they realize that gold is the one thing that will always remain constant. So, China, Russia, the oil states (and many other rich "players") are buying gold, and they are trying to dump the dollar when they trade with each other. The oil states have a "special role" to play in all this, because if and when they reject the dollar as a means of payment, the world will experience a great "oil crisis", much bigger than the 1973 oil crisis (which was the first time the oil states publickly rejected the dollar and demanded to be paid in gold, as they obviously didn't like America's decision to abolish the gold standard in order to print as many dollars as the USA wanted).

13) The West is obviously caught between a rock and a hard place. But saving the banks and impoverishing the workers are the top priorities, so this process of "money-printing" will continue, despite the various obstacles, twists and turns. Money printing is today a "systemic necessity" for capitalism, and there is not much point in putting the blame solely on Bernanke, Obama, Bush, the FED or their English/Japanese/European counterparts (The Europeans are also printing money, although Germany does not need the same amounts of "money-printing" as the rest of Europe, as the German workers are already very competitive, thanks to their high productivity. But Germany also accepts the need for money-printing, as it is the only way to save the banks from their "toxic loan situation". And they are VERY WELL PREPARED for the coming destruction of the dollar (hyperinflation), as the euro-system has combined the European nation's gold, making it the "least bad" option in a world of fiat currencies that are being massively debased).

14) But gold is not just an inflation hedge or a deflation hedge - it is a measure of trust in the system: The reason why gold was considered to be a "fringe investment", or even "a thing of the past" is because there was a lot of trust the system's ability to grow. The capitalists don't really like gold's stability, because capitalism wants to constantly expand. So, the capitalists prefer investments that return a profit for them, like starting a business, or investing in stocks, etc.. If and when the economy is doing well, then businesses make profits, investing on stocks is also profitable, etc. So why buy gold? Why would anyone want to save his capital for another day, when he can invest his capital today, and make a lot of money?

15) Things change however, and today the capitalists are not very confident that the economy will grow in the future (there is no trust in the system). There is enough capital concentrated in the hands of a few oligarchs, and there are many cheap workers in Asia - and yet the capitalists are NOT willing to make a lot of investments (especially in the West, where the workers are "too expensive"). As the workers lack the necessary "purchasing power" to buy things, it is obvious that a lot of products will not be consumed (because the people are too poor to buy them).

16) But the capitalists prefer to let the workers starve to death, even if this aggrevates the crisis on the short-term. The more desperate the workers become, the more inclined they will be to accept serfdom (or "increased competitiveness", as the capitalists see it). So even if a few capitalists get killed in the process ("coladeral damage"), the end result will be great for the rulling class, as they will have created an "ultra-competitive" world, where a few oligarchs own almost everything, and the workers work for scraps (->more profits for the capitalists). It is only then that they will start investing again (especially in the West). Until thw workers accept working for scraps, the capitalists will not invest.

17) In order to achieve this goal, the capitalists need a safe place to store their capital: GOLD. Once the workers have become "desperate enough" to accept serfdom, the "business cycle" can start again, and they will invest some of their gold in productive investments. But until they feel confident that they will make a profit, they choose to save their capital for the future - and gold is the only thing that will not lose value when everything else is collapsing.

Here is a great piece written almost a year ago by James Saft on Reuters - he really seems to be on to something:

Triumph of gold, the anti-investment

Rather than being an anti-currency, gold is really an anti-investment, not because it can’t pay off, but because it is the one asset that not only protects you against the bad actions of others but actually rewards you for them.

If central bankers and politicians bring on massive inflation, gold goes up. If the U.S. threatens to slouch or leap towards default, gold goes up.

The opposite of buying gold perhaps is to buy equities, because you are betting on creating products, jobs and wealth rather than just protecting yourself. On the other hand, a bar of gold has no executives that can loot the company or accountants that can aid in fraud. Really the world in which an investment in gold makes you rich is not a very appealing place.
[...]
Gold, then, is a profoundly pessimistic and depressing investment. In current circumstances it also, unfortunately, has a heck of an elevator pitch.
[...]
In investing, extreme behavior is becoming more mainstream every day.

How else can we interpret the extraordinary moves by the University of Texas’ endowment fund to not only buy nearly $1 billion of gold, equal to about 5 percent of its assets, but to insist on taking physical delivery of the precious metal.

It is really hard to say which is more remarkable; that people are behaving in ways that might have been labeled as paranoid a few years ago or the rise of things that plausibly might make them worried.

Garbage - Only Happy When It Rains

I'm only happy when it rains
I'm only happy when it's complicated
And though I know you can't appreciate it
I'm only happy when it rains
You know I love it when the news is bad
And why it feels so good to feel so sad
I'm only happy when it rains

Pour your misery down, pour your misery down on me
Pour your misery down, pour your misery down on me

I'm only happy when it rains
I feel good when things are going wrong
I only listen to the sad sad songs
I'm only happy when it rains

I only smile in the dark
My only comfort is the night gone black
I didn't accidentally tell you that
I'm only happy when it rains
You'll get the message by the time I'm through
When I complain about me and you
I'm only happy when it rains

Pour your misery down,
(pour your misery down on me)
Pour your misery down,
(pour your misery down on me)
Pour your misery down,
(pour your misery down on me)
Pour your misery down,
(pour your misery down on me)
Pour your misery down
You can keep me company as long as you don't care

I'm only happy when it rains
You wanna hear about my new obsession
I'm riding high upon a deep depression
I'm only happy when it rains

(Pour some misery down on me)
I'm only happy when it rains
(Pour some misery down on me)
I'm only happy when it rains
(Pour some misery down on me)
I'm only happy when it rains
(Pour some misery down on me)
I'm only happy when it rains

(Pour some misery down on me)
(Pour some misery down on me)
(Pour some misery down on me)
(Pour some misery down on me)

I'm only happy when it rains
(Pour some misery down on me)
I'm only happy when it rains
(Pour some misery down on me)
I'm only happy when it rains
(Pour some misery down on me)

"Moral capitalism" and the rise of the "overclass"

2012-02-06T15:44:00.001+02:00

A few days ago, English Prime Minister David Cameron made a speech on..."moral capitalism". There has been much talk about "reforming the system", and "doing something" about "the excesses" of the "golden boys" that led us where we are today. For the time being of course, all this talk is...just talk.

But, as history has proven, capitalism CAN make some "adjustments" - indeed, capitalism made some important reforms during the 1929 Great Crash (for example by breaking up the big banks, etc.).

But those reforms can only happen if the capitalists are pressured by the people. During the 1929 crisis, the worker's movement was much stronger than it is today, and communism was not a failed idea of the past. So, there was a lot more pressure by the people, and the capitalists had to make some concessions. And so they did.

What about today? Well, the capitalists don't really seem to be too bothered by the protests so far. But as the people become more and more aware of how their masters are bailing themselves out and leave nothing but scraps for the rest of us, they get more and more angry. So, the politicians of the ruling class start making promises to "do something" about the bonuses of the "golden boys" (who would have gone bankrupt if it wasn't for them). Of course, the only thing that the governments would have to do in order to punish the "golden boys" would be to stop the bailouts. But that's obviously “out of the question”, as the banks would all go bankrupt in an instant if that were to happen.

So, the theatrics begin in order to convince the masses that they are “doing something” to “fix the problem”:

-The politicians make speeches about "moral capitalism", and the "excesses" of the banks that led us here (when in fact those "excesses" (the huge loans that were handed out by the banks) were the substitute that the capitalists used in order to "mask" the industrial capital's flight to Asia for over 20 years now - the true "root cause" of the crisis, is capitalism's endless thirst for more and more profits at the expense of the workers).

-The “fat cats” promise to "behave themselves" from now on, and some of them actually do. But that doesn't last long, as history shows - for example, the big banks that were broken up during the 1929 crisis have now become bigger than ever. That’s what happens if your are successful at achieving your goal (more profits). You become bigger and bigger.

-Some bankers, financial speculators, politicians and industrial capitalists may even go to jail, or at least pay a big fine for breaking a few laws here and there, in order to maximize their profits. They will be used as a sacrificial lamb to appease an offended populace, while the system that produced them remains relatively intact.

And this vicious cycle will go on and on...Unless the working class realizes that the world would be a much better place without those who exploit us. But in order to overthrow them, we, the workers, must have the ability to rule the world for ourselves, instead of being dependant on out masters. Are we ready to do that? Because if we are not, then our masters are quite content to keep doing what they do best: Being rich (and getting richer) at our expense.

The rise of the overclass
We’ve all heard of the 'underclass’: now its mirror image – a super-rich elite that is equally cut off from the rest of us – is defining the political debate.

When Labour leader Ed Miliband used his conference speech last September to call for a fairer and more humane type of capitalism, he was greeted with widespread derision and mockery. But four months on, every leading politician in Britain is desperately trying to follow Miliband’s lead. What constitutes a fair society is no longer just a matter for academic theorists. Suddenly it’s the hottest subject in politics.

The reason is simple: growing public revulsion at a new class of super-rich who seem to be immune from the restraints that govern the lives of ordinary people. Senior bankers, private equity moguls and hedge fund managers appear cut off from the rest of us. They often pay little or no tax, increasingly live in heavily guarded enclaves, and some have little or no real allegiance to Britain. The sources of their wealth are often mysterious, and appear unrelated to merit. These feral rich pose, in their way, every bit as much of a danger to society as the rioters who stole and pillaged London streets last August.

Taxpayers spent £60 billion bailing out City bankers to save them from bankruptcy. Yet, rather than displaying contrition or gratitude, these bankers continue to pay themselves multi-million pound salaries, unimaginable sums of money to most of us.

The injustice is glaring – all the more so in a time of grinding national austerity, when living standards are falling and unemployment is rising. No wonder that, this week, David Cameron – who loves to claim that “we’re all in this together” – entered the fray with a speech trying to define what he called “responsible capitalism”. He senses that this is an issue where the Right is hugely vulnerable

The New American Divide

America is coming apart. For most of our nation's history, whatever the inequality in wealth between the richest and poorest citizens, we maintained a cultural equality known nowhere else in the world—for whites, anyway. "The more opulent citizens take great care not to stand aloof from the people," wrote Alexis de Tocqueville, the great chronicler of American democracy, in the 1830s. "On the contrary, they constantly keep on easy terms with the lower classes: They listen to them, they speak to them every day."

Americans love to see themselves this way. But there's a problem: It's not true anymore, and it has been progressively less true since the 1960s.
[...]
Over the past 50 years, that common civic culture has unraveled. We have developed a new upper class with advanced educations, often obtained at elite schools, sharing tastes and preferences that set them apart from mainstream America. At the same time, we have developed a new lower class, characterized not by poverty but by withdrawal from America's core cultural institutions.
[..]
The primary indicator of the erosion of industriousness in the working class is the increase of prime-age males with no more than a high school education who say they are not available for work—they are "out of the labor force." That percentage went from a low of 3% in 1968 to 12% in 2008. Twelve percent may not sound like much until you think about the men we're talking about: in the prime of their working lives, their 30s and 40s, when, according to hallowed American tradition, every American man is working or looking for work. Almost one out of eight now aren't. Meanwhile, not much has changed among males with college educations. Only 3% were out of the labor force in 2008.

The Remarkable Political Stupidity of the Street

The Street’s biggest lobbying groups have just filed a lawsuit against the Commodities Futures Trading Commission, seeking to overturn its new rule limiting speculative trading.

For years Wall Street has speculated like mad in futures markets – food, oil, other commodities – causing prices to fluctuate wildly. The Street makes bundles from these gyrations, but they have raised costs for consumers.

In other words, a small portion of what you and I pay for food and energy has been going into the pockets of Wall Street. It’s just another hidden redistribution from the middle class and poor to the rich.

The new Dodd-Frank law authorizes the Commodity Futures Trading Commission to limit such speculative trading. The commission considered 15,000 comments, largely from the Street. It did numerous economic and policy analyses, carefully weighing the benefits to the public of the new regulation against its costs to the Street. It even agreed to delay enforcement of the new rule for at least a year.

But this wasn’t enough for the Street. The new regulation would still put a crimp in Wall Street’s profits.

So the Street is going to court. What’s its argument? The commission’s cost-benefit analysis wasn’t adequate.

Revealed: bankers' secret meetings with ministers

The full scale of big banks' lobbying of the Chancellor, George Osborne, to get him to water down banking reforms can be revealed today. Senior bank executives met or called Treasury ministers nine times in the weeks after Sir John Vickers published his landmark proposals on how to prevent another banking crisis, The Independent can reveal.

Bank bosses are fighting furiously behind the scenes to limit any changes to the way they do business. Fears are growing – articulated by Sir John himself – that the banks are successfully thwarting the Government's plans to overhaul the British banking system and the Treasury is weakening some of the key reforms as a result of intense lobbying.

Revolving Door: From Top Futures Regulator to Top Futures Lobbyist

While America focused on New Hampshire, a classic example of revolving-door politics took place in Washington, going almost completely unnoticed. It’s a move that ranks up there with the hire of Louisiana congressman Billy Tauzin to head the pharmaceutical lobbying conglomerate PhRMA -- at a salary of over $2 million a year -- immediately after Tauzin helped ram through the Medicare Prescription Drug Bill, a huge handout to the pharmaceutical industry.

In this case, the hire involves Walter Lukken, who toward the end of the Bush years was the acting head of the Commodity Futures Trading Commission. As the chief regulator of the commodities markets, it was Lukken’s job to spot and combat speculative abuses and manipulations that might have led to artificial price hikes and other disruptions.

HUSSMAN: 'Wall Street Is Little More Than A Glorified Crack House'

Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums.

What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth.

Nietzsche famously said "What does not kill me makes me stronger." The corollary is "What constantly rescues me makes me weaker." The world will only stop looking for bailouts when policy makers stop handing them out.

“And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.”
-John Steinbeck

Paul Lafargue - The Bankruptcy of Capitalism

2012-02-06T01:24:00.000+02:00

Paul Lafargue - The Bankruptcy of Capitalism (1900)

The nineteenth century was the century of capitalism. Capitalism filled that century to overflowing with its commerce, its industry, its manners, its fashions, its literature, its art, its science, its philosophy, its religion, its politics and its civil code, more universal than the laws imposed by Rome upon the nations of the ancient world. The capitalist movement, starting from England, the United States and France, has shaken the foundations of Europe and of the world. It has forced the old feudal monarchies of Austria and Germany and the barbaric despotism of Russia to put themselves in line; and in these last days it has gone into the extreme East, into Japan, where it has overthrown the feudal system and implanted the industry and the politics of capitalism.

Capitalism has taken possession of our planet; its fleets bring together the continents which oceans had separated; its railroads, spanning mountains and deserts, furrow the earth; the electric wires, the nervous system of the globe, bind all nations together, and their palpitations reverberate in the great centers of population. Now for the first time there is a contemporary history of the world. Events in Australia, the Transvaal, China, are known in London, Paris, New York, at the moment they are brought about, precisely as if they happened in the outskirts of the city where the news is published.

Civilized nations live off the products of the whole earth. Egypt, India, Louisiana, furnish the cotton, Australia the wool. Japan the silk, China the tea, Brazil the coffee, New Zealand and the United States the meat and grain. The capitalist carries in his stomach and on his back the spoils of the universe.

The study of natural phenomena has undergone an unprecedented, an unheard-of, development. New sciences, geology, chemistry, physics, etc., have arisen. The industrial application of the forces of nature and of the discoveries of science has taken on a still more startling development; some of the geometrical discoveries of the scientists of Alexandria, two thousand years old, have for the first time been utilized.

The production of machine industry can provide for all demand and more. The mechanical application of the forces of nature has increased man’s productive forces tenfold, a hundredfold. A few hours’ daily labor, furnished by the able-bodied members of the nation, would produce enough to satisfy the material and intellectual needs of all.

But what has come of the colossal and wonderful development of science, industry and commerce in the nineteenth century? Has it made humanity stronger, healthier, happier? Has it given leisure to the producers? Has it brought comfort and contentment to the people?

Never has work been so prolonged, so exhausting, so injurious to man's body and so fatal to his intelligence. Never has the industrial labor which undermines health, shortens life and starves the intellect been so general, been imposed on such ever-growing masses of laborers. The men, women and children of the proletariat are bent under the iron yoke of machine industry. Poverty is their reward when they work, starvation when they lose their jobs.

In former stages of society, famine appeared only when the earth refused her harvests. In capitalist society, famine sits at the hearth of the working class when granaries and cellars burst with the fruits of the earth, and when the market is gorged with the products of industry.

All the toil, all the production, all the suffering of the working class has but served to heighten its physical and mental destitution, to drag it down from poverty into wretchedness.

Capitalism, controlling the means of production and directing the social and political life of a century of science and industry, has become bankrupt. The capitalists have not even proved competent, like the owners of chattel slaves, to guarantee to their toilers the work to provide their miserable livelihood; capitalism massacred them when they dared demand the right to work – a slave’s right.

The capitalist class has also made a failure of itself. It has seized upon the social wealth to enjoy it, and never was the ruling class more incapable of enjoyment. The newly rich, those who have built up their fortunes by accumulating the filchings from labor, live like strangers in the midst of luxury and artistic treasures, with which they surround themselves through a foolish vanity, to pay homage to their millions.

The leading capitalists, the millionaires and billionaires, are sad specimens of the human race, useless and hurtful. The mark of degeneracy is upon them. Their sickly offspring are old at birth. Their organs are sapped with diseases. Exquisite meats and wines load down their tables, but the stomach refuses to digest them; women expert in love perfume their couches with youth and beauty, but their senses are benumbed. They own palatial dwellings in enchanting sites, and they have no eyes, no feeling for joyful nature, with its eternal youth and change. Sated and disgusted with everything, they are followed everywhere by ennui as by their shadows. They yawn at rising and when they go to bed. They yawn at their fests and at their orgies. The began yawning in their mother’s womb.

The pessimism which, in the wake of capitalist property, made its appearance in ancient Greece six centuries before Jesus Christ, and which has since formed the foundation of the moral and religious philosophy of the capitalist class, became the leading characteristic of the philosophy of the second half of the nineteenth century. The pessimism of Theognis sprang from the uncertainties and vicissitudes of life in the Greek cities, torn by the perpetual wars between rich and poor; the pessimism of the capitalist is the bitter fruit of satiety, ennui and the impoverishment of the blood.

The capitalist class is falling into its second childhood; its decreptitude appears in its literature, now returning to its starting point. Romantic literature, the literary form proper to the capitalist class, which started out with the romantic Christianity of Chateaubriand, is returning to the same point, after passing through the historical novel and the character novel. Capitalism, which in its virile and combative youth in the eighteenth century had wished to emancipate itself from Christianity, resigns itself in its old age to practices of the grossest superstition.

The capitalist class, bankrupt, old, useless and hurtful, has finished its historic mission; it persists as ruling class only through its acquired momentum. The proletariat of the twentieth century will execute the decree of history; will drive it from its position of social control. Then the stupendous work in science and industry accomplished by civilized humanity, at the price of such toil and suffering, will engender peace and happiness; then will this vale of tears be transformed into an earthly paradise.

Why do some GOP party politicians envision a China-like America?

2012-02-05T18:47:00.001+02:00

A few weeks ago, Huffington Post published a very interesting article titled "Emerging GOP View: Communist China Is Model for American Capitalism". The article discusses a growing trend amongst US capitalists, especially those who favor the Republican party, to view China as an example that the USA needs to follow. Here are some key quotes from the Huffington Post article:

First came Rep. Mike Coffman who wrote in May that China has "enjoyed sustained economic growth based on the free market principles that we have long abandoned in favor of the redistributionist policies of a welfare state."

Then in November, Michele Bachmann said, essentially, that China is growing like crazy because it lacks America's Great Society programs, which she'd dump.

And now yesterday, according to a tweet by AFP reporter Olivier Knox, Mitt Romney held up China as a place where people are getting rich on free enterprise and capitalism, while, by implication, Americans are watching on the sidelines getting poor

There are many monopolies in China, and a lot of state regulation (especially when it comes to "regulating" the workers rights, so that the capitalists can "freely" make huge profits). So there is not much point in seriously debating whether or not China is based on "free markets".

But still, China IS growing, and it does attract capital investments like no other country. We have discussed of course (in previous posts) how China is also heading for a crisis, as the Chinese workers are 'too poor' to buy all the products they produce, and as the Westerners can't keep buying them anymore (because they are getting poor), Chinese exports will suffer. Or that there are increasing signs of a Chinese property and housing bubble, as the workers can't buy all the houses they have built (because they are too poor). But China will probably get over any crisis in he long run, because it can attract investments (unlike the Western countries, with the exception of Germany).

We even remembered John Stapleton, an English Liberal Party politician who sat in the House of Commons between 1852 and 1874 - here's a famous quote of his: "If China," says Mr. Stapleton, M.P., to his constituents, "should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors." (Times, Sept. 3, 1873, p. 8.).

But hey, who cares if some workers live or die? In fact, from a capitalist's point of view, if when a crisis hits, then it makes a lot of sense to let some workers suffer or even die, as they can easily be replaced (there are billions of them). So, if some of them die, then there is no problem - on the contrary, their deaths would help keep the unemployment rate lower.

"Know your place in the universe" as the saying goes - but what is a workers place in the universe? Here is FOXCONN's CEO on the subject:

CEO OF APPLE PARTNER FOXCONN: 'Managing One Million Animals Gives Me A Headache'

According to WantChinaTimes, Terry Gou, the head of Hon Hai (Foxconn), the largest contract manufacturer in the world, had this to say at a recent meeting with his senior managers:

"Hon Hai has a workforce of over one million worldwide and as human beings are also animals, to manage one million animals gives me a headache," said Hon Hai chairman Terry Gou at a recent year-end party, adding that he wants to learn from Chin Shih-chien, director of Taipei Zoo, regarding how animals should be managed.

As WantChinaTimes put it, Gou "could have chosen his words more carefully." But Gou had indeed invited the zoo director to speak to Hon Hai's top managers in the hope that the zoo-keeper's advice would help them do their jobs better

So, why does China attracts investments? And why does the GOP want to emulate the Chinese model?

It's simple: It's not just the low wages or the long working hours. It's not even the fact that the new generation of Chinese workers is more skilled and educated than the previous ones.

It's also because the workers have no rights, not really. They pretty much do whatever the capitalists order them to do in order to increase productivity and their profits. And if they have the "audacity" to make some demands, then they are fired or the state sends in the police or the army and crack down on protesters. There is no "free speech", and the list goes on and on.

So, the Western capitalists have billions of "man-animals" in China, so they simply have no use for the Western workers, not all of them anyway. And, naturally, they just let them rot, die, while the rest have to accept "austerity measures", that force them to work longer hours for less money. They become "Chinafied" - after all, this is what the GOP members want to do, right? They don't like "the redistributionist policies of a welfare state", because there is no way to compete against China if your workers are living in relatively "humane" conditions", while the Chinese workers are treated like "animals". Capitalism has reached a point where it can only grow in a "China-like business environment" (Germany being the one notable exception).

So, if humanity is to keep forcing the workers to compete against each other, for the sake of a few capitalists, then this is what happens: If you are a worker, you'll have to accept a very low wage, working long hours, etc., or you'll have to face massive unemployment, as the capitalists can invest their capital in other places (wherever the workers DO accept living in poverty).

YES, there are some notable exceptions to this - for example Germany is doing pretty well, as it produces better quality products to make up for the relatively "high" German wages. But the general trend is clear: China is the new row model for the capitalists, and the workers have an important choice to make - They can either accept living like "animals", or they can overthrow the capitalists, who make us compete against each other, for their benefit and their benefit alone.

Here is what you, as a worker, have to compete against (from the "New York Times"):

This Article Explains Why Apple Makes iPhones In China And Why The US Is Screwed

When one reads about these working conditions — 12-16 hour shifts, pay of ~$1 per hour or less, dormitories with 15 beds in 12x12 rooms — the obvious assumption is that it's all about money:

Greedy manufacturers want to make bigger profits, so they make their products in places with labor practices that would be illegal in America.

And money is certainly part of it.

But an amazing new article by Charles Duhigg and Keith Bradsher of the New York Times reveals that there's a lot more to it than that.

Most of the components of iPhones and iPads — the supply chain — are now manufactured in China, so assembling the phones half-a-world away would create huge logistical challenges. It would also reduce flexibility — the ability to switch easily from one component supplier or manufacturer to another.

China's factories are now far bigger and more nimble than those in the United States. They can hire (and fire) tens of thousands of workers practically overnight. Because so many of the workers live on-site, they can also press them into service at a moment's notice. And they can change production practices and speeds extremely rapidly.
China now has a far bigger supply of appropriately-qualified engineers than the U.S. does — folks with the technical skills necessary to build complex gadgets but not so credentialed that they cost too much.

And, lastly, China's workforce is much hungrier and more frugal than many of their counterparts in the United States.

On this last point, Duhigg and Bradsher tell the story of Eric Saragoza, an engineer who began working in an Apple factory near Sacramento in 1995. The plant made Macs, and for a few years, Saragoza did well, earning $50,000 a year, getting married and having kids, and buying a house with a pool.

Soon, however, Apple started shipping jobs overseas, because the costs of manufacturing in Asia were so much lower. Importantly, these reduced costs weren't just about wages — they were about being closer to the supply chain and the willingness of the workforce to put in over-time.

Saragoza was soon asked to work 12-hour days and come in on Saturdays. But, understandably, he wanted to watch his kids play soccer on the weekends.

Saragoza's salary was too high for him to take an unskilled job. And he didn't have the experience and credentials necessary to move into senior management. In 2002, his job was eliminated. Apple, meanwhile, turned the Elk Grove plant into an AppleCare facility, with call-center employees making $12 an hour.

Recently, desperate for work, Saragoza took a job at an electronics temp firm. Assigned to the AppleCare plant, he was paid $10 an hour to test repaired iPads before they were sent back to customers. That job paid so little (and was presumably so depressing) that the now 48-year-old Saragoza quit and is looking for work again.

Meanwhile, in Shenzhen, a young project manager named Lina Lin coordinates the manufacture of Apple accessories for a company in the Apple ecosystem. She makes a bit less than Saragoza made a decade ago as an Apple engineer. She lives in an 1,100-square foot apartment with her husband, their in-laws, and their son. They save a quarter of their salaries every month.

Your iPhone Was Built, In Part, By 13 Year-Olds Working 16 Hours A Day For 70 Cents An Hour

One Foxconn worker Mike Daisey interviewed, outside factory gates manned by guards with guns, was a 13-year old girl. She polished the glass of thousands of new iPhones a day.
The 13-year old said Foxconn doesn't really check ages. There are on-site inspections, from time to time, but Foxconn always knows when they're happening. And before the inspectors arrive, Foxconn just replaces the young-looking workers with older ones.
In the first two hours outside the factory gates, Daisey meets workers who say they are 14, 13, and 12 years old (along with plenty of older ones). Daisey estimates that about 5% of the workers he talked to were underage.
Daisey assumes that Apple, obsessed as it is with details, must know this. Or, if they don't, it's because they don't want to know.
Daisey visits other Shenzhen factories, posing as a potential customer. He discovers that most of the factory floors are vast rooms filled with 20,000-30,000 workers apiece. The rooms are quiet: There's no machinery, and there's no talking allowed. When labor costs so little, there's no reason to build anything other than by hand.
A Chinese working "hour" is 60 minutes — unlike an American "hour," which generally includes breaks for Facebook, the bathroom, a phone call, and some conversation. The official work day in China is 8 hours long, but the standard shift is 12 hours. Generally, these shifts extend to 14-16 hours, especially when there's a hot new gadget to build. While Daisey is in Shenzhen, a Foxconn worker dies after working a 34-hour shift.
Assembly lines can only move as fast as their slowest worker, so all the workers are watched (with cameras). Most people stand.
The workers stay in dormitories. In a 12-by-12 cement cube of a room, Daisey counts 15 beds, stacked like drawers up to the ceiling. Normal-sized Americans would not fit in them.
Unions are illegal in China. Anyone found trying to unionize is sent to prison.
Daisey interviews dozens of (former) workers who are secretly supporting a union. One group talked about using "hexane," an iPhone screen cleaner. Hexane evaporates faster than other screen cleaners, which allows the production line to go faster. Hexane is also a neuro-toxin. The hands of the workers who tell him about it shake uncontrollably.
Some workers can no longer work because their hands have been destroyed by doing the same thing hundreds of thousands of times over many years (mega-carpal-tunnel). This could have been avoided if the workers had merely shifted jobs. Once the workers' hands no longer work, obviously, they're canned.
One former worker had asked her company to pay her overtime, and when her company refused, she went to the labor board. The labor board put her on a black list that was circulated to every company in the area. The workers on the black list are branded "troublemakers" and companies won't hire them.
One man got his hand crushed in a metal press at Foxconn. Foxconn did not give him medical attention. When the man's hand healed, it no longer worked. So they fired him. (Fortunately, the man was able to get a new job, at a wood-working plant. The hours are much better there, he says — only 70 hours a week).
The man, by the way, made the metal casings of iPads at Foxconn. Daisey showed him his iPad. The man had never seen one before. He held it and played with it. He said it was "magic."

Nike factory to pay $1m to Indonesian workers for overtime

Shoe plant workers clocked up nearly 600,000 hours of overtime without pay over two years

A Nike factory has agreed to pay $1m in unpaid overtime to Indonesian workers in a move that could force other suppliers of multinational companies to follow suit.

"This has the potential to send shockwaves through the Indonesian labour movement," he said, adding that the victory had prepared the union to take on the fight for any workers who had been forced to work overtime without pay. "We have only just begun."

The ‘manure’ of history

2012-02-05T11:18:00.001+02:00

Something has changed, fundamentally. This is evident. What is it?

Before, they all wanted to be the ploughmen of history, to play the active parts, each one of them to play an active part. Nobody wished to be the ‘manure’ of history. But is it possible to plough without first manuring the land? So ploughmen and ‘manure’ are both necessary. In the abstract, they all admitted it. But in practice? Manure for manure, as well draw back, return to the shadows, into obscurity. Now something has changed, since there are those who adapt themselves ‘philosophically’ to being ‘manure’, who know this is what they must be and adapt themselves. It is like the problem of the proverbial dying man.

But there is a great difference, because at the point of death what is involved is a decisive action, of an instant’s duration. Whereas in the case of the manure, the problem is a long-term one, and poses itself afresh at every moment. You only live once, as the saying goes; your own personality is irreplaceable. You are not faced abruptly with an instant’s choice on which to gamble, a choice in which you have to evaluate the alternatives in a flash and cannot postpone your decision. Here postponement is continual, and your decision has continually to be renewed. This is why you can say that something has changed. There is not even the choice between living for a day as a lion, or a hundred years as a sheep. You don’t live as a lion even for a minute, far from it: you live like something far lower than a sheep for years and years and know that you have to live like that.
-A. Gramsci - Prison Notebooks (hat tip LeninReloaded)

Intellectual property rights and "patent wars"

2012-02-04T20:12:00.000+02:00

A few weeks ago, I started writing about China, and I promised I would write a post about their moves in the monetary plain (we have already mentioned how the current monetary system is ending). I haven't forgotten my promise, but I will do it after this weekend. For the time being, we shall discuss another subject, intellectual property rights.

We have already talked about piracy and control of the internet in our previous posts. But there are many more fronts in this fight - here is a great piece from npr.org on "patent wars". Most of us have probably heard about one company suing another over pattens and intellectual property rights (for example, Kodak sued Apple and HTC over digital image patents, Motorola Sued Apple Over iPhone 4S and iCloud, and Intel bought RealNetworks' patents and video coding tech over the last month alone), but what does it all mean for us and why do patents inhibit progress, discovery and innovation?

When Patents Attack

The influential blog Techdirt regularly refers to Intellectual Ventures as a patent troll. IPWatchdog, an intellectual property site, called IV "patent troll public enemy #1." These blogs write about how Intellectual Ventures has amassed one of the largest patent portfolios in existence and is going around to technology companies demanding money to license these patents.

Patents are a big deal in the software industry right now. Lawsuits are proliferating. Big technology companies are spending billions of dollars to buy up huge patent portfolios in order to defend themselves. Computer programmers say patents are hindering innovation.

But people at companies that have been approached by Intellectual Ventures don't want to talk publicly.

"There is a lot of fear about Intellectual Ventures," says Chris Sacca, a venture capitalist who was an early investor in Twitter, among other companies. "You don't want to make yourself a target."
[...]
"I tried to put you in touch with other people in this community to talk to you about this and they almost uniformly said they couldn't talk to you," Sacca told us. "They were afraid to." IV has the power to "literally obliterate startups," Sacca says.
[...]
Imagine an inventor out there — someone with a brilliant idea, a breakthrough. This inventor has a patent, but companies are stealing his idea. And this inventor doesn't have the money or legal savvy to stop them. That's where IV comes in. It buys this inventor's patent, and it makes sure that companies who are using the idea pay for it.

When we asked for an example of an inventor in this situation, someone with a breakthrough, who wasn't getting paid for it, two separate people at IV pointed us to a guy named Chris Crawford.
[...]
So we went to talk to Chris Crawford. But that turned out to be harder than we thought — and it led us on a five month journey, where things did not quite fit the story Intellectual Ventures was telling.

When we followed up with IV to get Chris Crawford's contact info, the company told us it no longer owned Chris Crawford's patent. And Crawford probably wouldn't want to talk right now anyway, the company said, because he was in the middle of litigation.

We started digging around and found Chris Crawford in Clearwater, Florida. As predicted, he never responded to our many emails and phone calls. You'll never hear from him in this story. But we were able to locate Chris's patent — number 5771354.

He got it in 1998. And the way IV explained the patent to us, Chris Crawford invented something that we do all the time now: He figured out a way to upgrade the software on your home computer over the Internet. In other words, when you turn on your computer and a little box pops up and says, "Click here to upgrade to the newest version of iTunes," that was Chris Crawford's idea.

But when we looked at the patent, it seemed to claim a lot more than that. The name of the actual invention is "an online back-up system." The patent says this invention makes it possible to connect to an online service provider to do a bunch of stuff — software purchases, online rentals, data back ups, information storage. The patent makes it seem like Chris Crawford invented a lot of the most common things we do on the Internet.

We weren't sure what to make of all this, so we went to see David Martin, who runs a company called M-Cam. It's hired by governments, banks and business to assess patent quality, which the company does with a fancy piece of software. We asked Martin to assess Chris Crawford's patent.

At the same time Crawford's patent was being prosecuted, more than 5,000 other patents were issued for "the same thing," Martin says.

Crawford's patent was for "an online backup system." Another patent from the same time was for "efficiently backing up files using multiple computer systems." Yet another was for "mirroring data in a remote data storage system."

And then there were three different patents with three different patent numbers but that all had the same title: "System and method for backing up computer files over a wide area computer network."

Martin says about 30 percent of U.S. patents are essentially on things that have already been invented. In 2000, for example, the patent office granted a patent on making toast — patent number 6080436, "Bread Refreshing Method."

We also asked Rick Mc Leod, a patent lawyer and former software engineer, to evaluate Chris Crawford's patent.

"None of this was actually new," he told us.

Mc Leod looked to see if anyone else in the field was already doing the thing Chris Crawford claimed to invent in 1993, when he first filed his patent. Here's what he found:
There were institutions, both academic and businesses, that used computers in this way, and I think it's a very interesting collection of things that were well known in the 1980s, with the exception that it adds the word "Internet."
Mc Leod said he didn't think the patent should have been issued in the first place.

For a long time, the patent office would have agreed with Rick Mc Leod. For a long time, the patent office was very reluctant to grant patents for software at all.
[...]
In the 1990s, the Federal courts stepped in and started chipping away at this interpretation. There was a couple big decisions, one in 1994 and another in 1998, which overturned the patent office completely.

A flood of software patents followed. A lot of people in Silicon valley wish that had never happened, including a very surprising group: computer programmers.
[...]
That same afternoon, we talked to a half dozen different software engineers. All of them hated the patent system, and half of them had patents in their names that they felt shouldn't have been granted. In polls, as many as 80 percent of software engineers say the patent system actually hinders innovation. It doesn't encourage them to come up with new ideas and create new products. It actually gets in their way.

Many patents are so broad, engineers say, that everyone's guilty of infringement. This causes huge problems for almost anyone trying to start or grow a business on the Internet.

"We're at a point in the state of intellectual property where existing patents probably cover every behavior that's happening on the Internet or our mobile phones today," says Chris Sacca, the venture capitalist. "[T]he average Silicon Valley start-up or even medium sized company, no matter how truly innovative they are, I have no doubt that aspects of what they're doing violate patents right now. And that's what's fundamentally broken about this system right now."
[...]
And, in fact, that's what's happening with Chris Crawford's patent. Intellectual Venures sold it to a company called Oasis research in June of 2010. Less than a month later, Oasis Research used the patent to sue over a dozen different tech companies, including Rackspace, GoDaddy, and AT&T.

We called Oasis several times, but no one ever answered the phone.
[...]
There was hardly any public information about Oasis Research. No way to know who owned it, or how many employees it had.

One of the few details that was available was an address: 104 E. Houston street, suite 190, Marshall, Texas.

So we went to Marshall. The door to Oasis's office was locked, and through the crack under the door we could see there were no lights were on inside.

It's kind of a cliche to knock on the door of the empty office. But we'd flown a long way. So we knocked. No one answered.

The office was in a corridor where all the other doors looked exactly the same —locked, nameplates over the door, no light coming out. It was a corridor of silent, empty offices with names like "Software Rights Archive," and "Bulletproof Technology of Texas."

It turns out a lot of those companies in that corridor, maybe every single one of them, is doing exactly what Oasis Research is doing. They appear to have no employees. They are not coming up with new inventions. The companies are in Marshall, Texas because they are filing lawsuits for patent infringement.

Patent lawsuits are big business in Marshall, which is part of the eastern district of Texas.

Many people say that juries in Marshall are friendly to patent owners trying to get a large verdict.
[...]
Oasis is a company with no operations, no products, and, as far as we can tell, no employees, that is using a very broad patent from 1998 to sue over a dozen companies.
[...]
All the big tech companies have started amassing troves of software patents — not to build anything, but to defend themselves. If a company's patent horde is big enough, it can essentially say to the world, "If you try to sue me with your patents, I'll sue you with mine."

It's mutually assured destruction. But instead of arsenals of nuclear weapons, it's arsenals of patents. And this was a problem Intellectual Ventures founder Nathan Myhrvold said he was trying to solve when he first started the company.
[...]
The pitch he heard was, basically, Intellectual Ventures helps defend against lawsuits. Intellectual Ventures has this horde of 35,000 patents — patents that, for a price, companies can use to defend themselves.

Technology companies pay Intellectual Ventures fees ranging "from tens of thousands to the millions and millions of dollars ... to buy themselves insurance that protects them from being sued by any harmful, malevolent outsiders," Sacca says.

There's an implication in IV's pitch, Sacca says: If you don't join us, who knows what'll happen?

He says it reminds him of "a mafia-style shakedown, where someone comes in the front door of your building and says, 'It would be a shame if this place burnt down. I know the neighborhood really well and I can make sure that doesn't happen.' "
[...]
One former IV patent was used by an NPE to sue 19 different companies, a broad assortment that included Dell, Abercrombie & Fitch, Visa, and UPS.

These companies all have websites where, when you scroll your mouse over certain sections, pop-up boxes appear. The NPE said, "We have the patent on that." Which would make pretty much the entire Internet guilty of infringing the patent.
[...]
In early July, the bankrupt tech company Nortel put its 6,000 patents up for auction as part of a liquidation. A bidding war broke out among Silicon Valley powerhouses. Google said it wanted the patents purely to defend against lawsuits and it was willing to spend over $3 billion to get them. That wasn't enough, though.

The portfolio eventually sold to Apple and a consortium of other tech companies including Microsoft and Ericsson. The price tag: $4.5 billion dollars. Five times the opening bid. More than double what most people involved were expecting. The largest patent auction in history.

That's $4.5 billion on patents that these companies almost certainly don't want for their technical secrets. That $4.5 billion won't build anything new, won't bring new products to the shelves, won't open up new factories that can hire people who need jobs. That's $4.5 billion dollars that adds to the price of every product these companies sell you. That's $4.5 billion dollars buying arms for an ongoing patent war.

The big companies — Google, Apple, Microsoft — will probably survive. The likely casualties are the companies out there now that no one's ever heard of that could one day take their place.

Wall Street Journal on private property and internet monopolies - What would Lenin say?

2012-02-04T12:47:00.001+02:00

It's kind of ironic that Wall Street Journal, a newspaper owned by media tycoon R. Murdoch, published this article, that accurately describes how monopolies are formed, and talks about how even the internet is now in the process of being controlled by a few monopolies.

The WSJ article was written by Tim Wu, a professor at Columbia Law School, and it was published back in November 13, 2010:

In the Grip of the New Monopolists

How hard would it be to go a week without Google? Or, to up the ante, without Facebook, Amazon, Skype, Twitter, Apple, eBay and Google? It wouldn't be impossible, but for even a moderate Internet user, it would be a real pain. Forgoing Google and Amazon is just inconvenient; forgoing Facebook or Twitter means giving up whole categories of activity. For most of us, avoiding the Internet's dominant firms would be a lot harder than bypassing Starbucks, Wal-Mart or other companies that dominate some corner of what was once called the real world.

The Internet has long been held up as a model for what the free market is supposed to look like—competition in its purest form. So why does it look increasingly like a Monopoly board? Most of the major sectors today are controlled by one dominant company or an oligopoly. Google "owns" search; Facebook, social networking; eBay rules auctions; Apple dominates online content delivery; Amazon, retail; and so on.

There are digital Kashmirs, disputed territories that remain anyone's game, like digital publishing. But the dominions of major firms have enjoyed surprisingly secure borders over the last five years, their core markets secure. Microsoft's Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%). Still, no one expects Google Buzz to seriously encroach on Facebook's market, or, for that matter, Skype to take over from Twitter. Though the border incursions do keep dominant firms on their toes, they have largely foundered as business ventures.

The rise of the app (a dedicated program that runs on a mobile device or Facebook) may seem to challenge the neat sorting of functions among a handful of firms, but even this development is part of the larger trend. To stay alive, all apps must secure a place on a monopolist's platform, thus strengthening the monopolist's market dominance.

Today's Internet borders will probably change eventually, especially as new markets appear. But it's hard to avoid the conclusion that we are living in an age of large information monopolies. Could it be that the free market on the Internet actually tends toward monopolies? Could it even be that demand, of all things, is actually winnowing the online free market—that Americans, so diverse and individualistic, actually love these monopolies?

The history of American information firms suggests that the answer to both questions is "yes." Over the long haul, competition has been the exception, monopoly the rule. Apart from brief periods of openness created by new inventions or antitrust breakups, every medium, starting with the telegraph, has eventually proved to be a case study in monopoly. In fact, many of those firms are still around, if not quite as powerful as they once were, including AT&T, Paramount and NBC.

Internet industries develop pretty much like any other industry that depends on a network: A single firm can dominate the market if the product becomes more valuable to each user as the number of users rises. Such networks have a natural tendency to grow, and that growth leads to dominance. That was the key to Western Union's telegraph monopoly in the 19th century and to the telephone monopoly of its successor, AT&T. The Bell lines simply reached more people than anyone else's, so ever more customers came to depend on them in a feedback loop of expanding market share. The more customers they reached, the more impervious the firm became to challengers.

Still, in a land where at least two mega-colas and two brands of diaper can duke it out indefinitely, why are there so many single-firm information markets? The explanation would seem to lie in the famous American preference for convenience. With networks, size brings convenience.

Consider that, in the late 1990s, there were many competing search engines, like Lycos, AltaVista and Bigfoot. In the 2000s, there were many social networking sites, including Friendster. It was we, collectively, who made Google and Facebook dominant. The biggest sites were faster, better and easier to use than their competitors, and the benefits only grew as more users signed on. But all of those individually rational decisions to sign on to the same sites yielded a result that no one desires in principle—a world with fewer options.
[...]
We wouldn't fret over monopoly so much if it came with a term limit. If Facebook's rule over social networking were somehow restricted to, say, 10 years—or better, ended the moment the firm lost its technical superiority—the very idea of monopoly might seem almost wholesome. The problem is that dominant firms are like congressional incumbents and African dictators: They rarely give up even when they are clearly past their prime. Facing decline, they do everything possible to stay in power. And that's when the rest of us suffer.

AT&T's near-absolute dominion over the telephone lasted from about 1914 until the 1984 breakup, all the while delaying the advent of lower prices and innovative technologies that new entrants would eventually bring. The Hollywood studios took effective control of American film in the 1930s, and even now, weakened versions of them remain in charge. Information monopolies can have very long half-lives.

Declining information monopolists often find a lifeline of last resort in the form of Uncle Sam. The government has conferred its blessing on monopolies in information industries with unusual frequency. Sometimes this protection has yielded reciprocal benefits, with the owner of an information network offering the state something valuable in return, like warrantless wiretaps.

Essential to NBC, CBS and ABC's long domination of broadcasting was the government's protection of them first from FM radio (the networks were stuck on AM) and later from the cable TV industry, which it suppressed for decades. Today, Verizon and AT&T's dominance of wireless phone service can be credited in part to de facto assistance from the U.S., and consequently their niche is probably the safest in the entire industry. Monopolies may be a natural development, but the most enduring ones are usually state-sponsored. All the more so since no one has ever conceived a better way of scotching competitors than to make them comply with complex federal regulation.

Info-monopolies tend to be good-to-great in the short term and bad-to-terrible in the long term. For a time, firms deliver great conveniences, powerful efficiencies and dazzling innovations. That's why a young monopoly is often linked to a medium's golden age. Today, a single search engine has made virtually everyone's life simpler and easier, just as a single phone network did 100 years ago. Monopolies also generate enormous profits that can be reinvested into expansion, research and even public projects: AT&T wired America and invented the transistor; Google is scanning the world's libraries.

The downside shows up later, as the monopolist ages and the will to innovate is replaced by mere will to power. In the 1930s, AT&T took the strangely Luddite measure of suppressing its own invention of magnetic recording, for fear it would deter use of the telephone. The costs of the monopoly are mostly borne by entrepreneurs and innovators. Over the long run, the consequences afflict the public in more subtle ways, as what were once highly dynamic parts of the economy begin to stagnate.

These negative effects are why people like Theodore Roosevelt, Louis Brandeis and Thurman Arnold regarded monopoly as an evil to be destroyed by the federal courts. They took a rather literal reading of the Sherman Act, which states, "Every person who shall monopolize…shall be deemed guilty of a felony." But today we don't have the heart to euthanize a healthy firm like Facebook just because it's huge and happens to know more about us than the IRS.

The Internet is still relatively young, and we remain in the golden age of these monopolists. We can also take comfort from the fact that most of the Internet's giants profess an awareness of their awesome powers and some sense of attendant duty to the public. Perhaps if we're vigilant, we can prolong the benign phase of their rule. But let's not pretend that we live in anything but an age of monopolies.

After that great WSJ article on monopolies, here are some notes on monopolies from Lenin - even if someone hasn't read his works or doesn't agree with his vision, his analysis of capitalism was spot-on.

So, here's Lenin on the subject, from his book "Imperialism, the highest stage of capitalism":

Half a century ago, when Marx was writing Capital, free competition appeared to the overwhelming majority of economists to be a “natural law”. Official science tried, by a conspiracy of silence, to kill the works of Marx, who by a theoretical and historical analysis of capitalism had proved that free competition gives rise to the concentration of production, which, in turn, at a certain stage of development, leads to monopoly. Today, monopoly has become a fact. Economists are writing mountains of books in which they describe the diverse manifestations of monopoly, and continue to declare in chorus that “Marxism is refuted”. But facts are stubborn things, as the English proverb says, and they have to be reckoned with, whether we like it or not. The facts show that differences between capitalist countries, e.g., in the matter of protection or free trade, only give rise to insignificant variations in the form of monopolies or in the moment of their appearance; and that the rise of monopolies, as the result of the concentration of production, is a general and fundamental law of the present stage of development of capitalism.

For Europe, the time when the new capitalism definitely superseded the old can be established with fair precision; it was the beginning of the twentieth century. In one of the latest compilations on the history of the “formation of monopolies”, we read:

“Isolated examples of capitalist monopoly could be cited from the period preceding 1860; in these could be discerned the embryo of the forms that are so common today; but all this undoubtedly represents the prehistory of the cartels. The real beginning of modern monopoly goes back, at the earliest, to the sixties. The first important period of development of monopoly commenced with the international industrial depression of the seventies and lasted until the beginning of the nineties.” “If we examine the question on a European scale, we will find that the development of free competition reached its apex in the sixties and seventies. It was then that Britain completed the construction of her old-style capitalist organisation. In Germany, this organisation had entered into a fierce struggle with handicraft and domestic industry, and had begun to create for itself its own forms of existence.”

“The great revolution commenced with the crash of 1873, or rather, the depression which followed it and which, with hardly discernible interruptions in the early eighties, and the unusually violent, but short-lived boom round about 1889, marks twenty-two years of European economic history ... .. During the short boom of 1889-90, the system of cartels was widely resorted to in order to take advantage of favourable business conditions. An ill-considered policy drove prices up still more rapidly and still higher than would have been the case if there had been no cartels. and nearly all these cartels perished ingloriously in the smash. Another five-year period of bad trade and low prices followed, but a new spirit reigned in industry; the depression was no longer regarded as something to be taken for granted: it was regarded as nothing more than a pause before another boom.

“The cartel movement entered its second epoch: instead of being a transitory phenomenon, the cartels have become one of the foundations of economic life. They are winning one field of industry after another, primarily, the raw materials industry. At the beginning of the nineties the cartel system had already acquired-in the organisation of the coke syndicate on the model of which the coal syndicate was later formed—a cartel technique which has hardly been improved on. For the first time the great boom at the close of the nineteenth century and the crisis of 1900-03 occurred entirely—in the mining and iron industries at least—under the aegis of the cartels. And while at that time it appeared to be something novel, now the general public takes it for granted that large spheres of economic life have been, as a general rule, removed from the realm of free competition.”

Thus, the principal stages in the history of monopolies are the following: (1) 1860-70, the highest stage, the apex of development of free competition; monopoly is in the barely discernible, embryonic stage. (2) After the crisis of 1873, a lengthy period of development of cartels; but they are still the exception. They are not yet durable. They are still a transitory phenomenon. (3) The boom at the end of the nineteenth century and the crisis of 1900-03. Cartels become one of the foundations of the whole of economic life. Capitalism has been transformed into imperialism.

Cartels come to an agreement on the terms of sale, dates of payment, etc. They divide the markets among themselves. They fix the quantity of goods to be produced. They fix prices. They divide the profits among the various enterprises, etc.

At times cartels and trusts concentrate in their hands seven- or eight-tenths of the total output of a given branch of industry. The Rhine-Westphalian Coal Syndicate, at its foundation in 1893, concentrated 86.7 per cent of the total coal output of the area, and in 1910 it already concentrated 95.4 per cent. The monopoly so created assures enormous profits, and leads to the formation of technical production units of formidable magnitude. The famous Standard Oil Company in the United States was founded in 1900: “It has an authorised capital of $150,000,000. It issued $100,000,000 common and $106,000,000 preferred stock. From 1900 to 1907 the following dividends were paid on the latter: 48, 48, 45, 44, 36, 40, 40, 40 per cent in the respective years, i.e., in all, $367,000,000. From 1882 to 1907, out of total net profits amounting to $889,000,000, $606,000,000 were distributed in dividends, and the rest went to reserve capital.
[...]
In German large-scale industry, e.g., in the chemical industry, which has developed so enormously during these last few decades, the promotion of technical improvement is organised in the same way. By 1908 the process of concentration of production had already given rise to two main “groups” which, in their way, were also in the nature of monopolies. At first these groups constituted “dual alliances” of two pairs of big factories, each having a capital of from twenty to twenty-one million marks-on the one hand, the former Meister Factory in Hochst and the Casella Factory in Frankfurt am Main; and on the other hand, the aniline and soda factory at Ludwigshafen and the former Bayer Factory at Elberfeld. Then, in 1905, one of these groups, and in 1908 the other group, each concluded an agreement with yet another big factory. The result was the formation of two “triple alliances”, each with a capital of from forty to fifty million marks. And these “alliances” have already begun to “approach” each other, to reach “an understanding” about prices, etc.

Competition becomes transformed into monopoly. The result is immense progress in the socialisation of production. In particular, the process of technical invention and improvement becomes socialised.

This is something quite different from the old free competition between manufacturers, scattered and out of touch with one another, and producing for an unknown market. Concentration has reached the point at which it is possible to make an approximate estimate of all sources of raw materials (for example, the iron ore deposits) of a country and even, as we shall see, of several countries, or of the whole world. Not only are such estimates made, but these sources are captured by gigantic monopolist associations. An approximate estimate of the capacity of markets is also made, and the associations “divide” them up amongst themselves by agreement. Skilled labour is monopolised, the best engineers are engaged; the means of transport are captured—railways in America, shipping companies in Europe and America. Capitalism in its imperialist stage leads directly to the most comprehensive socialisation of production; it, so to speak, drags the capitalists, against their will and consciousness, into some sort of a new social order, a transitional one from complete free competition to complete socialisation.

Production becomes social, but appropriation remains private. The social means of production remain the private property of a few. The general framework of formally recognised free competition remains, and the yoke of a few monopolists on the rest of the population becomes a hundred times heavier, more burdensome and intolerable.

The German economist, Kestner, has written a book especially devoted to “the struggle between the cartels and outsiders”, i.e., the capitalists outside the cartels. He entitled his work Compulsory Organisation, although, in order to present capitalism in its true light, he should, of course, have written about compulsory submission to monopolist associations. It is instructive to glance at least at the list of the methods the monopolist associations resort to in the present-day, the latest, the civilised struggle for “organisation”: (1) stopping supplies of raw materials ... “one of the most important methods of compelling adherence to the cartel”); (2) stopping the supply of labour by means of “alliances” (i.e., of agreements between the capitalists and the trade unions by which the latter permit their members to work only in cartelised enterprises); (3) stopping deliveries; (4) closing trade outlets; (5) agreements with the buyers, by which the latter undertake to trade only with the cartels; (6) systematic price cutting (to ruin “outside” firms, i.e., those which refuse to submit to the monopolists. Millions are spent in order to sell goods for a certain time below their cost price; there were instances when the price of petrol was thus reduced from 40 to 22 marks, i.e., almost by half!); (7) stopping credits; (8) boycott.

Here we no longer have competition between small and large, between technically developed and backward enterprises. We see here the monopolists throttling those who do not submit to them, to their yoke, to their dictation. This is how this process is reflected in the mind of a bourgeois economist:

“Even in the purely economic sphere,” writes Kestner, “a certain change is taking place from commercial activity in the old sense of the word towards organisational-speculative activity. The greatest success no longer goes to the merchant whose technical and commercial experience enables him best of all to estimate the needs of the buyer, and who is able to discover and, so to speak, ‘awaken’ a latent demand; it goes to the speculative genius [?!] who knows how to estimate, or even only to sense in advance, the organisational development and the possibilities of certain connections between individual enterprises and the banks. . . .”

Translated into ordinary human language this means that the development of capitalism has arrived at a stage when, although commodity production still “reigns” and continues to be regarded as the basis of economic life, it has in reality been undermined and the bulk of the profits go to the “geniuses” of financial manipulation. At the basis of these manipulations and swindles lies socialised production; but the immense progress of mankind, which achieved this socialisation, goes to benefit . . . the speculators. We shall see later how “on these grounds” reactionary, petty-bourgeois critics of capitalist imperialism dream of going back to “free”, “peaceful”, and “honest” competition.
[...]
Domination, and the violence that is associated with it, such are the relationships that are typical of the “latest phase of capitalist development”; this is what inevitably had to result, and has resulted, from the formation of all-powerful economic monopolies.
[...]
capitalism only became capitalist imperialism at a definite and very high stage of its development, when certain of its fundamental characteristics began to change into their opposites, when the features of the epoch of transition from capitalism to a higher social and economic system had taken shape and revealed themselves in all spheres. Economically, the main thing in this process is the displacement of capitalist free competition by capitalist monopoly. Free competition is the basic feature of capitalism, and of commodity production generally; monopoly is the exact opposite of free competition, but we have seen the latter being transformed into monopoly before our eyes, creating large-scale industry and forcing out small industry, replacing large-scale by still larger-scale industry, and carrying concentration of production and capital to the point where out of it has grown and is growing monopoly: cartels, syndicates and trusts, and merging with them, the capital of a dozen or so banks, which manipulate thousands of millions. At the same time the monopolies, which have grown out of free competition, do not eliminate the latter, but exist above it and alongside it, and thereby give rise to a number of very acute, intense antagonisms, frictions and conflicts. Monopoly is the transition from capitalism to a higher system.

If it were necessary to give the briefest possible definition of imperialism we should have to say that imperialism is the monopoly stage of capitalism. Such a definition would include what is most important, for, on the one hand, finance capital is the bank capital of a few very big monopolist banks, merged with the capital of the monopolist associations of industrialists; and, on the other hand, the division of the world is the transition from a colonial policy which has extended without hindrance to territories unseized by any capitalist power, to a colonial policy of monopolist possession of the territory of the world, which has been completely divided up.

But very brief definitions, although convenient, for they sum up the main points, are nevertheless inadequate, since we have to deduce from them some especially important features of the phenomenon that has to be defined. And so, without forgetting the conditional and relative value of all definitions in general, which can never embrace all the concatenations of a phenomenon in its full development, we must give a definition of imperialism that will include the following five of its basic features:

(1) the concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life; (2) the merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital”, of a financial oligarchy; (3) the export of capital as distinguished from the export of commodities acquires exceptional importance; (4) the formation of international monopolist capitalist associations which share the world among themselves, and (5) the territorial division of the whole world among the biggest capitalist powers is completed. Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capital is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed.

SOPA, PIPA, ACTA, private property and internet monopolies (part 1)

2012-02-03T21:32:00.001+02:00

Wikipedia was one of the many sites that protested the SOPA act

While I had to spent a few weeks in the hospital, taking care of my sick mother, many things happened in the world - after all, we are in the middle of a crisis, so events tend to unfold very rapidly (and they certainly won't wait for my sick mother to recover)

Iran is always on the news, Europe sanctions against Iran (something that particularly hurts the weaken European economies that are very much dependent on Iranian oil - Greece in particular is committing economic suicide as a state, in order to please its rulers), Iran sells oil to India in exchange for gold, China is ready to do even more business with Iran, as they could become Iran's only client if the West goes ahead with its sanctions. China may even benefit from this situation, as Iran will probably be forced to sell its oil at a cheaper price.

Furthermore, the West is even trying to launch an attack against Syria, the only neighbouring country left that isn't under Western rule. If the West succeeds, Iran will be completely surrounded - but Russia (and China) are vetoing this attack (for obvious reasons).

But hey, who cares about this boring stuff? Maybe we will start caring if (or rather, when) we stop being able to buy oil at "reasonable" prices. For now, let's talk about something else, something that is REALLY serious, SOPA, PIPA, ACTA and all those other weird laws that inhibit piracy on the internet. I mean, you take away whatever you want, except our "free" internet and our "right" to watch, listen, share and download stuff without having to pay any money for it, right? :-)

Let's face it, we are all hooked in this "culture of free", especially when it comes to the internet: Free movies, free music, free books, free information, free news, free TV shows, free sports live coverage, free porn, you name it, it's there and it's for free.

And not only is it cheaper, but it can also be better that the paid version if it (for example, the newspaper provides a much slower coverage of the news, and you can't use any video, etc. So, the internet is a much better medium). Furthermore, the internet is an entirely "new realm", and this means that there are many "unexplored regions", and room for innovation. It also means that it hasn't yet reached the stage of the "game" where a few oligarchs control it (whereas the "real" world HAS reached this stage, and there are monopolies and oligopolies wherever you look, controlling everything - banking, oil, media, telecommunications, even the food we eat (think Monsanto)).

Of course, the ruling class is trying to "establish its authority" on the internet, and a few oligopolies/monopolies are already being formed. And the rich oligarchs are trying to buy whatever they can get their hands on - for example JP Morgan wants to invent a lot of money in Twitter and other internet projects (and so does Goldman Sachs and all the other "big players").

So, a familiar pattern emerges: A few "players" start owning everything, and there is no real need for to create something, as they can just own it and demand to be paid by the rest of us for the usage of their property (much like the Monopoly board game).

But let's be fair, the internet is not yet monopolized, or at least it isn't as monopolized as everything else. This is why we like it, because we can still innovate, and use it for our benefit (for example, we can share music, videos, books, etc. We can even find cool blogs and sites that provide a much clearer view of world that the traditional media, or use tweeter and facebook to better coordinate events such as "the Arab spring"!).

Was all this "too good to last"?

Gutenberg died on February 3, 1468

Here is an interesting tidbit from a Telegraph article:

One of the most important technological advances in the past thousand years was Gutenberg's printing press. As one Italian bishop put it, it would take three printers working for three months to produce 300 copies of a book – but it would take three scribes a lifetime each to complete the same number.

Yet it wasn't only the speed of the printing press that made it so revolutionary – it was its ability to produce practically perfect copies of written text. No longer would students have to worry about errors or omissions introduced by scribes working off second or third-hand copies – they could instead rest assured that their copy was as accurate as the original master.

Ideas could spread faster, farther, and with more fidelity than ever before – not for nothing does Elizabeth Evenden, a lecturer in the history of books, call the new technology "the internet of its day", with information no longer "coming purely from the pulpits or disseminated by governments."

Over five hundred years on, we can now make 300 copies of a book – and send them across the world – not in three months, but in the blink of an eye. This advance has led to the flowering of online commerce and the exchange of new and diverse ideas between people who would never otherwise have been able to talk, let alone meet [...]

Yes, we all now have a "printing press" in our very houses, and it is a much better one than the one created by Gutenberg! All it takes is a computer and electricity.

Of course, the fact that now ideas and news can spread at a much faster pace and reach broader audiences doesn't mean that that "we are more wise than ever". In fact, the world seems to be more complicated and difficult to understand than ever before, as lies can also be spread faster now than ever before. The key to knowledge is not just having more information, but it is having a coherent vision of the world, in order to correctly process all the data you receive from it. To put it in another way, what's the point of having a lot of TV stations, if their content is crap, or if your tv is not working, because it's can't decode the signal it receives?

Internet provided the people with a powerful - granted, it hasn't always been used very wisely, but still it enables us to listen to alternative opinions except the usual "talking heads" of the "big media". And it also allows us to share things like music or movies, and even enhance them (for example, you can use the information you found on an article to create a better article of your own, etc.).

This is all great and all, but how can the capitalists ensure that the founding principle on which their system is based will be respected?

Capitalism is a system based on private property. This is something that everyone knows, yet surprisingly few people seem to be able to understand what this means. Here is a very interesting chart + commentary from azizonomics:

[...] the rising trend of file sharing has given media companies the sense that they are “losing revenue”:

Private property: This is what it comes down to. What the "media companies" are essentially saying is that they own this song, this TV series episode, this e-book or this movie. They paid some money in order to acquire this particular "square" on the real-life "monopoly board", and now they want to collect rent everytime someone steps in their square. This is how the system works, isn't it? I mean, what's the point of buying a square on the Monopoly board, if the other players aren't going to pay you if they step on it? What's the point of financing the creation of a movie or a TV series, if the viewrs ("clients") refuse to pay any money for watching it?

This is very bad for you, the owner of this particular square. And this is why you must stop this sort of behaviour, which goes against the very core of the system (private property). I mean, the people do respect private property when it comes to paying their electricity bills, or paying the barber who cuts their hair. But when it comes to paying for watching movies, or reading a book, they don't. This is not just an financial matter of "lost revenue", it is also a political and ideological battle:

The people "must" be taught to respect private property laws on the internet, otherwise they might get some "strange ideas" about abolishing private property all together, thus ending all the monopolies that now control their lives and replacing them with a system the producers of wealth cooperate and share everything, from mp3's and movies to...food and electricity, "from each according to his ability, to each according to his needs".

Here are some more interesting comments by the azizonomics article i mentioned earlier:

[...] The trouble is file sharing isn’t “lost revenue”. There is no guarantee whatever that a file downloaded is somehow a substitute for a sale. It’s a fundamentally different kind of transaction. For a start, it’s free. Consumers will take things for free that they would never buy, because it costs them less to do so. More importantly, it’s not stealing; it’s copying, and there is a difference. It’s not taking a physical product that someone has manufactured. There’s no direct lost revenue. And ultimately, if enough people copy it, it builds exposure for a product.

This last point is actually correct - piracy is a good way to build exposure. But this is not as important as respecting private property, as it is the cornerstone upon which capitalism is built on. The article claims that downloading something for free is "not stealing; it’s copying, and there is a difference. It’s not taking a physical product that someone has manufactured". But this is not correct:

Capitalism treats everything as "products" that can be sold or bought (for a profit), or at least that's its "natural instinct". NOTHING is free. You have to fight for every little thing in this life ("there is no such thing as a free lunch" in capitalism as the neoliberals famously -and rightly- declared). Movies, books, music songs, all these things are products -the fact that they are not physical doesn't really matter much. In fact, this is a big problem for the capitalists, as the "digital age" is still new, and the people haven't yet been taught that they must respect private property laws on the "digital products" (whereas they have been taught that they must respect private property laws on the "physical products", as they have been around for many years).

Here's another good point made by the azizonomics article:

[...] There are still many ways for big media to monetise their products in this new world: the music industry can stop concentrating on record sales, and started concentrating on concert tickets. Newspapers can move their businesses online, or use Apple’s tablet distribution model. Movie distributors can focus on high-definition content like Blu Ray, which is hard to redistribute online. That’s just off the top of my head.

But of course, this is creative destruction. Times change, societies change, fortunes will be made and fortunes will be lost.

So it’s in the interests of the big media elite to harness the power of government to create draconian laws to snub out the copy and paste new media culture that has developed, because that opens up a whole new revenue stream: litigation. If you can’t earn your millions, you might as well litigate your way to them [...]

This is correct, and if you click the article's link, you will find a lot of interesting graphs about this "creative destruction", as the "old media" are falling, and the "new media" are rising, as they are better, cheaper and they are not as controlled by a few rich oligarchs (who inhibit creation in order to get rich by asking us to respect private property - something that makes a lot of sense for them, the owners of pretty much everything, but makes no real sense to us who have (next to) nothing and are about to go bankrupt, just like it happens on any Monopoly game).

Here is a great article from the people of Pirate Bay (some of them got arrested today). It accurately describes a "cycle of events" that always leads to the formation of monopolies, that control our lives and inhibit growth and creation. This cycle must finally be broken - but this can only happen if our system of private property is replaced by a system run by those who work and actually produce wealth, not by those who own it and use it to control everyone else, with their own profits as their only "moral guide" in life. Today's system has trully reached a point of incredible decay, as it gives people the inceptive to fight against each other in order to survive. A few people will survive only by destroying the lives of many others.

This is what we are witnessing today before our very eyes - the internet is but one of many fronts, although its "digital" nature makes it a more compelling case, as the people haven't yet been taught to "respect private property" and they try to "make up excuses for their disobedience" ("it's not stealing; it's copying", etc.). But true victory can only come for the people only if and when they abolish private property all together - otherwise, they will over and over again be destined to repeat this vicious cycle:

A Message from the People at ThePirateBay.org

Over a century ago Thomas Edison got the patent for a device which would “do for the eye what the phonograph does for the ear”. He called it the Kinetoscope. He was not only amongst the first to record video, he was also the first person to own the copyright to a motion picture.

Because of Edison’s patents for the motion pictures, it was close to financially impossible to create motion pictures in the North American east coast. The movie studios therefor relocated to California, and founded what we today call Hollywood. The reason was mostly because there was no patent.

There was also no copyright to speak of, so the studios could copy old stories and make movies out of them — like Fantasia, one of Disney’s biggest hits ever.

So, the whole basis of this industry, that today is screaming about losing control over immaterial rights, is that they circumvented immaterial rights. They copied (or put in their terminology: “stole”) other people’s creative works, without paying for it. They did it in order to make a huge profit. Today, they’re all successful and most of the studios are on the Fortune 500 list of the richest companies in the world. Congratulations — it’s all based on being able to re-use other people’s creative works. And today they hold the rights to what other people create.

If you want to get something released, you have to abide [by] their rules. The ones they created after circumventing other people’s rules.

The reason they are always complaining about “pirates” today is simple. We’ve done what they did. We circumvented the rules they created and created our own. We crushed their monopoly by giving people something more efficient. We allow people to have direct communication between each other, circumventing the profitable middle [men, who] in some cases take over 107% of the profits (yes, you pay to work for them).

It’s all based on the fact that we’re competition. We’ve proven that their existence in their current form is no longer needed. We’re just better than they are.

And the funny part is that our rules are very similar to the founding ideas of the USA. We fight for freedom of speech. We see all people as equal. We believe that the public, not the elite, should rule the nation. We believe that laws should be created to serve the public, not the rich corporations.

The Pirate Bay is truly an international community. The team is spread all over the globe — but we’ve stayed out of the USA. We have Swedish roots and a Swedish friend said this:

The word SOPA means “trash” in Swedish. The word PIPA means “a pipe” in Swedish. This is of course not a coincidence. They want to make the Internet into a one way pipe, with them at the top, shoving trash through the pipe down to the rest of us obedient consumers.

The public opinion on this matter is clear. Ask anyone on the street and you’ll learn that no one wants to be fed with trash. Why the US government [wants] the American people to be fed with trash is beyond our imagination, but we hope that you will stop them, before we all drown [...]

How's that for competitiveness? Jon Stewart's video on the Foxconn workers and more

2012-01-18T18:39:00.000+02:00

Sorry for not posting during the last few days, but i had to deal with a medical emergency (my mother was in the hospital), so there was no time for me to write. I will resume writing about China, in the third and final post on the subject, where we shall discuss China's moves on the monetary plain, as it seeks to end the dollar's rain as the world reserve currency.

But for now, let's talk about something else - let's talk about my sick mother who went to the hospital and got better:

You see, if you get sick, you can (?) go to the hospital and get well. But what happens if you you have no or little money? Then you obviously or you are forced to carry this medical problem/injury for a long time, maybe even forever.

Not everyone is supposeed to make it - in fact the system relies on NOT everyone making it, as it tries to rationalize why a lot of people "should" die (mass murder) just because they were born in poverty, or because they just happened to be born during a war or a generalized capitalistic crisis.

The system has been very good at "rationalizing" this muss murdering process for a long time - in fact, there are many people who are genuinly surprised that the capitalist system is now leading them to their death or to mass poverty, as they don't even understand that this is not a failure of the system, but a necessary process for it to continue to function.

Think of it like monopoly:

Monopoly is a great simulation board game for the capitalist system, as it is based on the concept of private property (of course, the real thing is much more complicated than the board game).

In the early stages of the game, all the little squares of the board that represent streets, airports, the electric company, etc., are for sale. So, all the players can buy them. It's fun, isn't it?

But as game progresses, then sooner or later a few players (those who are luckier and/or better investors) will end up owning almost everything, forming powerful monopolies/oligopolies. As for the rest of the players, they end up going bankrupt one by one, as they own less and less, and they have to pay rent to the rich players on almsost every turn, as the rich players end up owning all the squares of the board. This is NOT a "failure" of the game, it is in fact its purpose. I mean, how can you play monopoly without bankrupting most of the players? It is simply not possible, and it is only a matter of time before it happens.

Real-life capitalism is of course a great system for creating new, better "squares" in order to replace the older ones, especially through technological advances (for example, M. Zuckerberg created Facebook, an entirely new "square in the board" and he now earns a lot of money ("rent") as everyone wants to use it).

So, the real-life "board" is constantly changing, and it does provide opportunities for someone to create a new "square". This makes the real-life game much more "interesting", and it also helps in delaying the inevitable bankruptcy of a lot of people. But, especially it times like these, when there aren't a lot of new "squares" being created, the process of bankrupting a lot of players cannot be stopped. It is the nature of the game - a lot of players must go bankrupt, so that a few oligarchs can own everything.

Sure, there are plenty of squares to go around for everybody - in fact, this is what marxism is all about: Abolishing private property, as it is the only way for the working class people, the majority of the population, to actually be able to produce without having to live in poverty, when at the same time a few oligarchs are living like kings. And, surprise surprise, they seem to prefer it of the workers live in poverty, just like the oligarxhs of the past, the oligarxhs they once violently overthrew during the Frech Revolution. Capitalism has created a lot of wealth, enough for everyone - and we whould praise capitalism for this great achievement. But capitalism has also helped a tiny minority of the population to control almost all the squares of the board. So, most of us will have to suffer greatly, or we have to abolish private property, so that all the squares of the board are free for everyone. This will of course NOT go down well with the oligarxhs, who will never accept this. But if they are not aliminated by us, then a lot of us WILL be elimited by them. This is a process that is becoming increasingly clear as time goes by. And let's not forget this very important fact: In the earleier stages of the "game", the palyers that were eliminated were usually people from the poorer countries (Third world countries, etc.). But now that the global workforce also includes the Asian workers, there are a lot of Western people who are deemed "not-competitive". So, for the first time in years, a lot of the people that are going bankrupt are Westerners, not just "unimportant" people from "unimportant" places.

Let's take a closer look at what it takes for a worker to be "competivie enough" to stay in the game and not go bankrupt. After all, the capitalists want us to give them incentives to do business in the West, instead of Asia, right? So, it would be a good idea to check out what is it about the Asian workers that they like so much:

Cage dogs of Hong Kong: The tragedy of tens of thousands living in 6ft by 2ft rabbit hutches - in a city with more Louis Vuitton shops than Paris

Hong Kong, one of the world's richest cities, is abuzz with a luxury property boom that has seen homes exchanged for record sums.

But the wealth of the city has a darker side, with tens of thousands priced out of housing altogether and forced to live in the most degrading conditions.

These pictures by British photographer Brian Cassey capture the misery of people - some estimates put the figure as high as 100,000 - who are forced to live in cages measuring just 6ft by 2 1/2ft.

Unscrupulous landlords are charging around US$200 a month for each cage, which are packed 20 to a room, and up to three levels high. Cockroaches, wall lizards, lice and rats are common.

And if that isn't enough, you should definately check out Jon Stewart's latest video from "The Daily Show", about the Chinese workers at Foxconn:
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On 100 Year Anniversery of 'Bread and Roses' Strike, Many Draw Connections to Today's Hurdles

2012-01-13T17:58:00.000+02:00

Repost from "Common Dreams":

Bread and Roses Strikers March

January 12, 2012 was the 100 year anniversary of the 'Bread and Roses' textile workers Strike in Lawrence, Mass. The dire conditions leading up to the strike remind some of the current socio-political climate and offer lessons for workers' struggles today.

The Boston Globe reports today:

The action, known as the Bread and Roses Strike, not only called attention to horrific conditions in the mills, but also to the concentration of wealth and power in the United States, an issue that 100 years later would spur protesters to Occupy Wall Street, Boston, and other cities across the country.

The essence of the Lawrence strike resonates loudly in today’s Main Street vs. Wall Street fight, with income disparities brought to light by the 1912 walkout reexamined through the lens of high unemployment, a shrinking middle class, and the view that most economic benefits have flowed to the wealthiest Americans. [...]

The desperation that drove poor textile workers to abandon their jobs for the picket lines is echoed in the frustration that drove people to camp out in financial districts across the country.

James Green, a labor historian at UMass Boston, sees similarities to the 1912 uprising in many recent events, not only in the Occupy movement but in the Tea Party, the aggressive tactics of striking Verizon workers last summer, and customers railing against new Bank of America fees.

Steve Early recently examined contemporary Lawrence for In These Times:

Lawrence remains a city of the working poor, better known for its sub-standard housing, high unemployment, political corruption, and troublesome street crime. Ninety percent of its public school students are Hispanic and few speak English as a first language. Although not condemned to factory work at an early age, these children struggle to learn under tenement-like conditions. A recent report by the teachers’ union describes “crowded classrooms and physical infrastructure in distress: leaking roofs, poor air quality, persistent mold problems, crumbling walls and rodent infestation.” Demoralized teachers have been working without a new contract for two years; student performance is so dismal that a state take-over the school system has been actively considered.
When worker solidarity prevailed over corporate power in the icy streets of Lawrence a century ago, it made the promise of a better life real for many. The Bread and Roses strike became a consciousness-raising experience, not only for textile workers and their families, but the nation as a whole. Nevertheless, at centennial events in Lawrence over the next several months, it will be hard not to notice that many immigrant workers there still lack “bread and roses”—in the form of living wage jobs, affordable housing, and better schools.
But that injustice will not be cured until U.S. workers and their allies, in Lawrence and elsewhere, find a way to make history again, not just celebrate it.

Writing for Common Dreams last week John de Graaf and David Batker remind us:

The strike is commonly referred to as the “Bread and Roses” strike, because some women were said to have held up a banner declaring, “We want bread, and roses, too!” [...]
Hearts starve as well as bodies. We do not live by bread alone. It’s an old message with wellsprings deep in our religious traditions, and one the Bread and Roses centennial calls back to our attention. And it’s a message we should not forget.

***

Here's another interesting article from the "Washington Post":

Study: Americans believe conflict between rich, poor is growing

About two-thirds of the public now believes there are strong conflicts between the rich and poor in America, making class a likelier source of tension than traditional flash points of race or nationality, a study from the Pew Research Center found.

“It is kind of amazing,” said Richard Morin, a senior editor at Pew who authored the study. “This is people not only sensing conflict, but people sensing an intensity of these conflicts — that’s what makes it striking and politically important.”

On China-Part 2: Is China a bubble? What about all those poor Chinese workers?

2012-01-12T01:01:00.001+02:00

This is a "before and after" picture of Shanghai that we found via the Atlantic magazine. It depicts the city's extraordinary growth within the last 20 years (1990-2010).

When the Berlin Wall fell, a whole new world was assimilated by the capitalists: The countries of the former "Soviet bloc" and, of course, China.

We have already discussed how this process of "globalization" affected the West (here) - as John Stapleton, British M.P., argued back in 1873 "If China should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors".

But how did "globalization" affect China? The picture we posted above is a great example of how good capitalism is at assimilating other societies that are using inferior modes of production:

Today, there is much more wealth being created in China than ever before - but of course inequalities are also greater than ever before.

This is because capitalism is based on the exploitation of the workers by the capitalists. China was like finding a "goldmine" of cheaplabour. So they started exploiting this "goldmine", by off shoring production to China at an amazing pace.

In the early stages of this process, the Chinese workforce was not skilled, so the only companies that could go to China were companies that only needed manual labour and very little specialization from their workers (for example companies that were making clothes, shoes, etc.). We' ve all seen the documentaries and we' ve all read the
articles that talk about the conditions there (horrible for the workers - great for the capitalists), so there is no need for me to repeat them.

But as China started accumulating more and more capital, the government build new schools and universities, and now a part of the Chinese workforce is skilled and can perform (almost) anything that a western worker can (and at a lower "price" (wage) too...).

So, now even the "white collar" jobs are being off shored to China, and there are Chinese companies that are competing against the Western companies even in sectors of the economy like solar-power (China is #1 in that sector worldwide), or telecommunications (Huawai, a Chinese company, is now Ericsson's main competitor).

Here's an article from the BBC:

China attracts record foreign investment in 2010

The country attracted $106bn of foreign direct investment - which excludes investments in financial instruments such as shares - up 17.4% from 2009, according to the Ministry of Commerce. That was enough to more than reverse the 2.3% fall seen during the previous year caused by the global recession.

Over a fifth of the money went into China's property sector. The Chinese authorities have been trying - with limited success - to head off a perceived bubble in property prices.

We shall talk more about this "bubble in property prices" soon. But for now, as capital continues to pile up in China, it is no wonder that the country has 3 of its banks in the top-10 of the world's biggest banks. Via The Economist:

Here are a few more of China's "accomplishments" - here are some infrastructure projects for example:

China to invest $106b in railways in 2011

China builds world's longest bridge

ANOTHER RECORD: China Is Now The World's Largest Shipbuilder

China, Colombia in talks over Panama canal rival
CHINA is in talks to build a 'dry canal' linking Colombia's Atlantic and Pacific coasts by rail, Colombian President Juan Manuel Santos was quoted as saying on Sunday.

And if you have keep getting bigger and bigger, then it obviously "makes sense" for you to expand, much like all the other the colonial/imperial powers of the past:

China beats out World Bank as biggest lender to Africa

As China increases its economic ties in Africa, has the continent entered a new era of colonialism?

And of course, as China grows into a great imperialist force, as any growing capitalist nation would do, they build up their military forces. After all, how can you become the world dominant force, unless you have a strong military? Who's going to protect your lands and investments? Who's going to fight for you, in order to gain control of
more lands and resources? Soldiers and weapons are necessary, as the imperialists have to "fight it out", as they always do, about "who gets what".

China Takes Aim at U.S. Naval Might
China is building a new class of ballistic missiles designed to arc through the stratosphere and explode onto the deck of a U.S. carrier, killing sailors and crippling its flight deck

China is even trying to end the dollar's rain as the world's reserve currency. This is pretty important, as the current monetary system is about to end, as we've mentioned in previous articles. But we shall discuss this topic in our next article.

So, let's get back to what we were saying for now, as China continues to grow and grow. It even surpassed Germany as the world leading export nation, and the USA as the world biggest consumer of oil.

At the same time of course, there are millions and millions of Chinese workers who are working incredibly long hours for just a few dollars/month, barely enough to keep them alive so that they can return to work the next day (after all, even if some of them don't
survive, who cares? There are plenty more workers that can take their place - in fact, it is a "good" thing for the capitalists if some of them die due to an accident or by killing themselves, because it helps keep unemployment levels down, and thus it is easier to control all the social unrest).

There are thousand of strikes each year in China, but "so far so good" for the capitalists, who don't even allow for "democratic elections", or for a free press in China. This is "great" for them, as it helps their authority to remain unchallenged.

An entire village (named Wukan) recentlyrevolted against the government's decision to take away the lands of the people, and of course everyone now knows about Foxconn, the Chinese company that makes all these gadgets we use, as it employs 1.000.000 workers who often commit suicide (or threaten to do so), due to the "ultra-competitive" working conditions.
Even as we speak, some of them are about to commit suicide, with Microsoft "investigating this issue", as they "had no idea" about the
conditions at this factory (in reality, of course they know, but who give a damn about the workers? After all, there are plenty more where they came from, right? So let's pay them 1$/day, and we'll make a fortune by selling them to the western consumers until they've run out of money).

Imagine if those 1.000.000 Foxconn employees would organize and revolt - they would form one of the largest armies in history! But they are "too poor" to realize their potential - and the same goes for almost all the workers in China. When you barely have enough money to eat, then it is not that easy to think about organizing a revolution, especially when your employer and the State are prepared to fire you or send the police and the army against you. Then again, when you barely have enough money to eat, then it is a good time to start thinking about a revolution, isn't? Unless the Chinese workers fight back against their oppressors, in order to at least improve their lives a bit, then not much can be done on a worldwide scale.

But there are "internal" problems as well: As we mentioned before, there are signs of a real estate bubble in China, and it seems to be a "hot" topic amongst the "investor's community", as some of them predict a "rosy" future for China, whereas others predict a huge crash because of this bubble. Here's a great piece on the subject:

China 2012: The Year of the Bull (Rogers) or the Bear (Chanos)?

Jim Chanos famously said that China's real estate market is "Dubai times 1,000 -- or worse." He's been saying that for over two years. Chanos points to a credit bubble, and says he's early and sticking with his short positions. Rogers insists "China is not in a
[credit] bubble," rather it's been in a price bubble in urban, coastal real estate, and to compare China to Dubai is a false analogy. Jim Rogers is bullish on China's long term prospects: "China is going to have many serious problems along the way as it rises, but 'Dubai 1000 times over'?!"

According to Rogers, China will have many set-backs as it grows, as did the U.K. and the U.S. He notes "the U.S.'s many Depressions in the 19th century, a devastating civil war, periodic massacres in the streets, and little rule of law, few human rights, and several military governments. As recently as 1907 the whole system collapsed just as the U.S. was on the verge of becoming the greatest success of the 20th century. Yet the U.S. did a good job for a long time."

This is a picture from one of China's "ghost cities". There are many cities (or malls and other infrastructure projects, etc.) in China that have been build, but the people don't have enough money to actually use/buy them.

This is the root cause of all crises: The capitalists are accumulating more and more wealth for themselves, leaving very little wealth for the workers. But the workers are not just creators of wealth, they are also supposed to consume some of it, otherwise the products will not be sold, and the shops that sell them will go bankrupt, then the factories that make them will also go bankrupt, etc.

The Chinese workers have almost no money to spend - so they cant afford to buy all these homes that they have built. The ruling class gave out a lot of loans and spent a lot of money in order to "keep the economy going", as the workers would have no jobs if there were no building/infrastructure projects. That would lead to even more social unrest, so they built "ghost cities" instead. The workers were relatively "happy", as they at least had a job, but now noone can afford to buy these houses (and the US real estate bubble shows us what happens when the bubble "bursts").

The Chinese government is aware of this, and they' ve been trying to give out less loans and "contain" the problem. They also decided to stop announcing home price data, in order to keep the whole thing as quiet as possible. But if they don't give out a lot of loans, then there is no growth, as you cant start a business if you don't get a loan. So, China is between a rock and a hard place, and banking lending is not really showing signs of any significant slowdown.

But, like Rogers says, China will face a big crisis, but it won't be "terminal". It will be more like the crisis the USA experienced before becoming the world's leading power. Even the Great Crash of 1929 didn't "kill" the USA - in fact, 15 years later, they were the Western world's leader. Of course, a lot of people suffered, especially the workers, as they went through 10 years of high unemployment and then they went to war, so many of them died (this is always how capitalists solve the "rising unemployment problem" if anything else fails).

Furthermore, the western consumer is "dying". The capitalists have been using a very effective model for maximizing their profits for the last 20 years or so: They would employ the cheaper Asian workers in order to actually make the goods, and they would sell them to the western workers, who spent all their money, and them some more through heavy borrowing (this is why the western workers are referred to as "consumers" instead of "workers", as this is their function in the world economy. If they don't consume, the world economy doesn't work).

As the age of the "western consumer" is coming to an end, who is going to buy all these products that are made in China?

The Chinese workers are "too poor" in order to do that. And the capitalists don't really like giving a raise to the workers, do they?

So, China has a big problem, as noone has the necessary "purchasing power" in order to buy the goods they export. This is after all the reason why trade is collapsing on a worldwide scale.

What can China do?

It can "create some consumers of its own". That is, to create a "middle class", so that there are some Chinese people with enough money to buy some of the things that used to be exported (these people must also have a "consumer-mentality", which is also very hard, as these people must be educated in such a way to "be addicted to shopping").

In order to do that, China must increase the wages of some workers (it is already doing so), either in a direct way, or in an "indirect" way (ie revalue the Yuan, its currency. This is also happening, but at a "slow pace". We will talk more about the Yuan in our next post)

Here's what Spiegel reported on the subject a while ago (Germany in very interested in this, because they are also a big exporting nation, and they are facing similar problems, as the western consumer is dying. So, the too want China to create a middle class that can consume their goods as well as China's. We shall talk more about China and Germany coming together in future posts):

How Beijing Plans to Turn the Chinese into Consumers

Exports fueled the initial stages of China's ongoing economic boom. Now, however, the government in Beijing is placing a greater emphasis on domestic consumption.

The arrival of Western chain stores symbolizes the beginning of China's next revolution. The country's rising middle class has embarked on a collective spending spree, at least in the affluent belt along the country's east coast, from Beijing to Shanghai and down to Shenzhen in the south.

The shift is a delight to Western brand-name companies. "Now is precisely the right time for us to enter the Chinese market," says Redmond Yeung, the head of the Gap's operations in China. Yeung plans to open another store in Shanghai and two in Beijing almost simultaneously. Competitors, such as the apparel retailers H&M and C&A, already have outlets in China.

China is becoming a promising market for Western corporations, particularly in light of the warm welcome they often receive from government economic planners. Consumption has become an acceptable form of patriotism. [LOL - it's amazing how the capitalists can name anything that suits them as "being patriotic" and force the masses into accepting it - my note] International experience, Vice Premier Li says, teaches us that "any major power's development process must be led by domestic demand."
[...]
"Many citizens of our city cannot afford the products that are on display, at least not yet," says one saleswoman there with a shy smile. "I can't afford them either." Most customers are high-ranking officials or business executives. "When they go shopping," she adds, "they spend 10,000 yuan or more, all in one go" -- more than she makes in an entire year.

On China-Part 1: The Fraying of China’s Gilded Age

2012-01-11T00:18:00.000+02:00

This is a repost from "The Diplomat". Tomorrow I will write two more posts (if I have the time of course) on China, and how its rise affects global politics, global trade, the global monetary system, etc.

Anyway, here's Abraham Denmark from the Diplomat:

***

China’s rapid economic advances over the past three decades are undeniable. But as social pressures build, is the country set to relive the trauma of America’s Gilded Age?

Published in 1873, Mark Twain’s novel The Gilded Age describes a post-Reconstruction United States in which rapid economic growth generated tremendous wealth for the upper class, and technological innovations improved the quality of life for a burgeoning middle class. Twain also detailed how America’s workers worked long hours in dangerous conditions for low pay, and how corruption rendered the country’s politicians unresponsive to the needs of their constituents. While many of the Occupy Wall Street protesters on U.S. streets may draw parallels between the America of that time with that of today, Twain’s novel provides an evocative window on contemporary China.

The rate and duration of China’s economic growth have no historical precedent. In just over 30 years, China has been transformed from one of the poorest countries in the world, in which tens of millions died of starvation, into the world’s second-largest economy. Where communal farms once languished, one can find modern skyscrapers and Starbucks. Where people once wore Mao suits and rode bicycles, there are now Prada, BMW, and iPhones galore.

Remarkable economic growth has created a new Chinese wealthy elite, an ironic statement about a country still formally dedicated to communism and the teachings of Karl Marx. There are now almost a million millionaires in China, and more than 400 billionaires (second only to the United States). A nascent middle class is also growing, making China the world’s largest market for consumer items like cars and PCs. This growth is driving economists to predict China’s inevitable rise to become the world’s largest economic power, with experts only disagreeing on the exact year it will happen. Thomas Friedman, though admitting he’s “not a China expert,” has proclaimed his envy of China’s “Reaganism.”

Yet several specters haunt China.

In order for these economic projections to come to fruition, China’s economic planners must navigate a set of structural and demographic challenges the scale of which has never been seen before. To continue economic growth, China’s economy will have to fundamentally shift away from its current orientation toward exports and grow based on its own consumption. Other structural challenges, from taxes and regulation to intellectual property and the rule of law, all must be reformed if China’s economic growth is to continue. China’s leaders will also have to manage an unprecedented level of urbanization, with an expected 400 million new urban residents (yes, that’s more than the entire U.S. population) by 2050. Just as daunting, China’s population is rapidly ageing, which will become a tremendous economic challenge given the effects of China’s One Child Policy and its Bachmann-beloved lack of a Social Security program.

Beyond economic and demographic challenges, China is roiling with discontent. As the Wall Street Journal recently pointed out, 40 percent of Chinese are unhappy with their lives, 70 percent of farmers are dissatisfied, and 60 percent of China’s rich are emigrating or considering doing so. While each group has its own reasons – farmers resent abusive land seizures by local government officials, city dwellers are regularly victims of government abuse, and China’s wealthy would prefer to live where their children have better educational opportunities and their wealth is more secure – this translates to a roiling hotbed of popular discontent. Tens of millions of Chinese who have moved from the countryside to the cities in search of work receive little basic government support, such as medical care and education, because they are generally considered to be illegal immigrants by city officials.

Riots, often violent, are a daily occurrence. According to official statistics, there were 127,000 so-called “mass incidents” in 2010 alone – an average of over 340 per day.

There are certainly ways to address these problems. The United States gradually developed tools to manage the negative effects of its own Gilded Age, by eventually allowing the rise of labor unions, laws to protect investment, efforts to stamp out official corruption, and eventually implementation of welfare and social security programs. Yet in each case, implementing these tools in China would require a fundamental change in how business is done. Labor unions are (naturally) controlled by the Chinese Communist Party, the rule of law in China is unreliable at best, and official corruption is a persistent problem on a scale that would even make Jack Abramoff blanch.

Most fundamentally, China’s ability to manage future problems will be hampered by its political system. The United States was able to (very gradually) adjust to the problems it faced because its leaders were accountable to a voting public that demanded reform. China’s leaders, however, aren’t directly held accountable by their people. While Chinese politicians routinely (and often genuinely) cite popular opinion as a driver in their decision-making, tying one’s position and job to regular elections has the effect of sharpening one’s need to represent the interests of the public.

The implications of these phenomena for China, and for the world, are staggering. Unlike with the democratic world, the Chinese people don’t have the ability to vent their frustration with free and fair elections. This has the effect of putting a lid on a political pressure cooker, forcing people to express their discontent through riots and difficult-to-censor microblogging. If something goes wrong, this pressure could explode.
Domestic problems in China, either caused by political discontent or structural economic difficulties, would have disastrous effects on the economies reliant on China as a source for trade, which basically includes every country on the planet. Economies around the world would fall, and history has demonstrated that countries during these difficult times can be unpredictable, at best, on the world stage.

China’s current leaders are acutely aware of the problems their country faces, and are trying to adjust economic growth and introduce policies designed to account for the problems created by unchecked economic growth. They have set a goal for slower economic growth, have called for increased development and investment in China’s poorer provinces, are considering policies to respond to concerns voiced by farmers and migrant workers, and are attempting to crack down on corruption. Ironically, China’s nominal communist ideology somewhat prepares China’s leaders for these challenges – after all, who understands the political challenges posed by burgeoning economic inequality and a rising middle class better than a Marxist?
America’s Gilded Age began after the national trauma that was the Civil War and a remarkable period of Reconstruction that saw significant internal development and stabilization. China’s Gilded Age began after the national trauma that was the Great Leap Forward and the Cultural Revolution, and occurred after a remarkable period of internal development and stabilization under Deng Xiaoping. The United States’ Gilded Age lasted for 16 years, ending with a financial panic in 1893 that turned into a depression, then a Progressive era that saw reform at home and adventurism abroad. It has been 22 years since 1989 signaled the end of Deng Xiaoping’s post-Mao Reconstruction and the beginning of Shanghai-style economic growth under the leadership of Jiang Zemin.

Ultimately, Beijing’s ability to navigate China’s staggering challenges will fall to the next generation of leadership in Beijing, set to come into power next year. There’s currently a debate roiling the halls of power in Beijing, with some calling for a retrenchment of unchecked economic growth and others hope to avoid the mistakes of their American predecessors and are calling for what amounts to a Chinese Progressive era. There’s no reason why China must follow America’s painful path out of the Gilded Age, and the United States should do everything it can to help ensure that China’s rise is peaceful and stable. Yet the past is not encouraging. Indeed, as Twain is often quoted as saying: history does not repeat itself, but it does often rhyme.

Abraham Denmark is Asia-Pacific Advisor for CNA Strategic Studies. He was previously a fellow with the Center for a New American Security and served as China Director for China Affairs in the Office of the Secretary of Defense.

Work till you drop, so that we can become even richer

2012-01-10T13:41:00.002+02:00

- THIS IS CAPITALISM: We don't need all of you, and we need need all of your children. We have many workers in Asia, who work longer hours for less money. And they teach their kids to do so, unlike the western workers who have the "audacity" to demand an 8-hour day, or a decent salary. So let the western workers starve, until they start accepting (much) lower wages and working conditions - here are some good examples:

Greece's financial crisis has made some families so desperate they are giving up their children

One morning a few weeks before Christmas a kindergarten teacher in Athens found a note about one of her four-year-old pupils.

"I will not be coming to pick up Anna today because I cannot afford to look after her," it read. "Please take good care of her. Sorry. Her mother."

In the last two months Father Antonios, a young Orthodox priest who runs a youth centre for the city's poor, has found four children on his doorstep - including a baby just days old.

Another charity was approached by a couple whose twin babies were in hospital being treated for malnutrition, because the mother herself was malnourished and unable to breastfeed.

"Over the last year we have hundreds of cases of parents who want to leave their children with us - they know us and trust us," Father Antonios says.

"They say they do not have any money or shelter or food for their kids, so they hope we might be able to provide them with what they need."

Requests of this kind were not unknown before the crisis - but Father Antonios has never until now come across children being simply abandoned.

- England: Pensioners 'will work into 70s'

A generation of "Wearies" - Working, Entrepreneurial and Active Retirees - could be forced to work into their 70s and beyond due to the looming pensions crisis.
It will result in the traditional image of the pensioner relaxing in old age changing completely as many will simply not be able to afford to retire, experts say.

Unilever Workers Announce 12 Days Of Strikes Starting 17 January Over End To Final Salary Pensions

Workers at consumer goods giant Unilever are to stage a new series of strikes in a huge escalation of a row over pensions, it was announced today.

Unilver said: "We believe the provision of final salary pensions is a broken model which is no longer appropriate for Unilever.

"It is our responsibility to protect the long-term sustainability and competitiveness of our business, and to do so is in the best interests of our people.

Meanwhile, the working conditions in China are "great" (if you're looking at it from the side of the capitalists) - so there is growth there (for now at least - we shall discuss more about China in the next couple of posts):

Volkswagen Brand Sales Surge As China Demand Matches Europe's

China became as important a market as Europe for Volkswagen AG's passenger car brand in 2011, as Chinese sales rose 14% to a record 1.72 million vehicles, the German auto maker said Friday.

Volkswagen, Europe's biggest auto maker by sales, said it is also gearing up to increase production in China and India.

Move Over Germany, China Is Now The Number 2 Market For Luxury Cars

Germany's luxury automakers are starting to shift more of their focus to the Far East.

According to Bloomberg, China is on track to edge out Germany as the second largest market for luxury cars. It is anticipated that 969,000 luxury models will be sold in China this year, while 914,000 will be delivered in Germany.

Here's why capitalists like China: Because they can keep all the profits for themselves, while the workers get nothing - this is the "most competitive" business environment the capitalists can find, but it is also the reason why the workers have a motive to overthrow them, as they are left to live (or even die) in poverty, while the capitalists are starting to look more and more like the feudal lords they once overthrew:

China Communist Party bureaucrats like their cars high end

A remnant of a decades-old Communist Party perks system, the luxe wheels are a conspicuous target of growing public outrage over the privileges of the elite. Angry Chinese have started posting photos.

Chinese officials love their cars — big, fancy, expensive cars. A chocolate-colored Bentley worth $560,000 is cruising the streets of Beijing with license plates indicating it is registered to Zhongnanhai, the Communist Party headquarters. The armed police, who handle riots and crowd control, have the same model of Bentley in blue.

And just in case it needs to go racing off to war, the Chinese army has a black Maserati that sells in China for $330,000.

"Corruption on wheels is an accurate description of this problem," said Wang Yukai, a professor at the Chinese Academy of Governance in Beijing, who has been advocating restrictions on officials' cars for years.

A remnant of a decades-old party perks system, the luxe wheels are a conspicuous target of growing public outrage over the privileges of the elite.

"Becoming like China" - a great way (for the capitalists) to "restore competitiveness". After all, we can't have the workers rallying against our policies, can we?

Obama Signs Bill Allowing Indefinite Detention of Americans

Obama signed the NDAA – including a provision allowing the indefinite detention of Americans - on New Year’s eve.

Obama issued a “signing statement” with the bill, which – at first blush – appears to say he won’t indefinitely detain Americans.

But a closer reading shows that the signing statement is just smoke and mirrors.

Specifically, it was Obama - not Congress – who originally requested that an exception for American citizens be removed from the bill. As such, his professed reluctance is wholly disingenuous.

Moreover, Obama signed a bill which would allow future presidents to indefinitely detain U.S. citizens, and his signing statement in no way limits their power to run roughshod over our rights.

If only I had a dime for every time someone said "The Euro Is Dead"...

2012-01-09T22:41:00.000+02:00

This was the cover of "The Economist" a few months ago, when concerns about the future of the euro had reached an all-time high, and the British (who of course never really liked the euro) were even talking about a British government's plan to help its citizens that have been "stranded" in in country that was part of the eurozone to get back to England!

But the euro didn't break up - not yet at least. And despite all the noise about its death (especially by the British/American media), the currency that is most in danger is...the dollar, as we've already discussed in a previous article. You see, the dollar is dying, as the world as about to reject it due to the continuous money-printing by the FED, and the euro is trying to become the "anti-dollar". After all, that was its mission when it was first launched, wasn't it?

Of course, the euro-system has many problems, and we shall discuss them in this article. So how can it become the "anti-dollar"? This is an important question, and we will try to answer it - but first we must discuss the flaws of the euro-system and remember a few things that we've previously mentioned when talking about the dollar.

The EU and the eurozone projects are proof that it is possible to have temporary agreements between capitalists and between states. However, we must never forget that in capitalism, each capitalist has to compete against the other capitalists, and each state has to compete against the other states. Europe is after all a continent that has hosted many battles between many nations, city-states, etc. for thousands of years.

In fact, the last few decades of relative "peace" are somewhat of a "paradox", as it is historically very rare for all those states to "unite" together for as long as they have, and history suggests that monetary unions in particular don't really last that long. The reasons for this "unification" were the following:

1) The European imperialists wanted to "counteract" the influence of the USA (and of other powerful states).

2) The stronger states (eg Germany, France) wanted a better way to exploit the weaker states.

In this article, we are not going to discuss about the EU, as we will concentrate on the euro-system of a common currency between all the member-states.

For each country to compete in the world market, they have a set of "tools" at their disposal, and one of them is monetary policy.

If for example a country's exports are not doing very well, then this country can devalue its currency, a policy that lowers the wages of the workers who are getting paid in that currency.

And if the labour costs are reduced, then the capitalists can sell the products at lower prices in the market, making them "more competitive". As the products become cheaper, more people prefer to buy them, and the country's exports start doing better.

In today's environment, all the western countries are more or less facing this problem, as they find it hard to compete against the cheaper Chinese goods. So, they all want to devalue their currencies - and they all do up to a point.

Furthermore, their economies are even worse than you think, as not only have the industrial capitalists fled to Asia, but the western nations have been "masking" this fact by using debt as a substitute, to keep their economies going. These debts cannot be repaid, so the banks that have given them out are now insolvent. So, the western nations want to "print money" and devalue their currencies not just to "screw the workers", but to "save the banks" as well (it's amazing how often these two objectives coincide).

This is the reason why the oil states are starting to reject the dollar, as they don't want to continue getting paid in a currency that is constantly being devalued. China and Russia don't like the dollar either. But what about the euro?

The theory is that currency unions work can work as long as the economies that are participating in them are “reasonably homogeneous”, i.e. they are almost "equals" in terms of how competitive they are, how much political and economic power each nation has, etc. This is known as an "optimal currency area".

Is the eurozone an optimal currency area? Obviously not. Didn't the politicians, the bankers and the corporations that are in charge know this? Of course they did (although few of them will publicly admit it - in fact, most of them will try to "play dumb"). But is suits their interests, so they did it anyway.

The eurozone was politically a creation of the Germans, and economically a creation of the bankers. It was relatively easy to get in (even Greece made it in - all it took was a little "creative accounting"), but it certainly isn't easy to get out.

Each state has different problems, in terms of debt and competitiveness. But the weaker member states have surrendered their right to devalue the currency they use. And the Germans don't want a lot of money-printing, as their economy is doing much better than the others (Germany is able to do well because labour costs are much higher than China's or India's, but the German workers are more productive and the products they produce have greater quality).

So, Germany can withstand a "strong euro", at least much more so than the rest of the eurozone members. So, they continue to do well, as their "eurozone partners" (competitors) are left to rot. This is great for the Germans, as they are become more and more dominant over them.

Everyone else is at their mercy, and the Germans are taking full advantage of this, as they ask for more and more "concessions" in exchange for devaluing the euro (it is obvious that they are pretty much in control of the ECB, as they are -by far- the strongest nation). Spiegel even went so far as to admit that Greece "has become little more than an EU protectorate" two years ago, and Germany is now on its way to do the same in Ireland, Italy and who knows where else. So, the Germans are quite happy to keep destroying the other nations economies - here's a German banker's response when asked about the implications of Germany's policy of not printing as much money as the others:

ECB Weidmann:Italy Can Cope W/Bond Yields Over 7% For A While

European Central Bank Governing Council member Jens Weidmann expects that Italy will be able to cope with interest rates on its government bonds of above 7% for a while.

In other words, let them suffer a bit longer, they can take it - and after all this suffering, they will have become even more desperate, so they'll agree to anything - even becoming a protectorate. This is also the reason why the Germans reject policies like the eurobond, because that would "share the burden" between Germany and the weaker countries. Why "share the burden", when you can dominate?

Furthermore, from a historical perspective, Germany experienced hyperinflation during the 1920's, and so they aren't very comfortable with this whole idea of "printing money out of thin air". But that's obviously not the only reason for their behaviour:

If there was no euro, the other countries would have been able to devalue their currencies and do a little better - so they wouldn't have to become "little more than EU protectorates". As for Germany, they would actually do worse, because their economy is doing well, so the Deutsch mark would rise, and that would make Germany's exports less competitive. But now, within the eurozone, Germany gets a slightly devalued currency (thanks to the PIIGS and some other state who are keeping it down), while the other nations get a revalued currency, which only worsens their competitiveness, and pushes them further into debt, as they "must" borrow money in order to "compensate" for their growing trade deficits (by the way, this is the reason why their bond yields are exploding higher, as the investors don't really believe that these nations can repay all these loans, especially when their productive base is being destroyed).

The best solution for these nations is to officially declare bankruptcy, but of course that would be a huge blow for the bankers, as they can't "absorb" all these losses (at least not now). So, no government is willing to do that until they've given enough "bailout packages" to the banks in order to keep them from going bankrupt when the weaker nations start defaulting on their debts.

Moreover, the austerity measures that are being implemented have the support of the big industrial capitalists of each country, as they reduce their labour costs, and eliminate some of their smaller competitors.

But what about the banks? Aren't they being bailed out? Sure they are. The ECB IS printing money. The Germans are delaying this process as much as they can, in order to make the others desperate/willing to accept their conditions. And they are trying to print as little as possible. But, after all, even the German banks are in trouble, so they have to choice but to print (a lot of) money and bail them out. Here's The Economist on the subject:

Is this really the end?
Unless Germany and the ECB move quickly, the single currency’s collapse is looming

Investors’ growing fears of a euro break-up have fed a run from the assets of weaker economies, a stampede that even strong actions by their governments cannot seem to stop. The latest example is Spain. Despite a sweeping election victory on November 20th for the People’s Party, committed to reform and austerity, the country’s borrowing costs have surged again. The government has just had to pay a 5.1% yield on three-month paper, more than twice as much as a month ago. Yields on ten-year bonds are above 6.5%. Italy’s new technocratic government under Mario Monti has not seen any relief either: ten-year yields remain well above 6%. Belgian and French borrowing costs are rising.

Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012—with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits.
[...]
Can anything be done to avert disaster? The answer is still yes, but the scale of action needed is growing even as the time to act is running out. The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral.

It is interesting to note however that the Germans are even "playing chicken" against the Americans, as the American banks would also be in trouble if Europe falls. So, by not printing enough money, the Germans are forcing the USA to print dollars in order to bail out European banks as well (via financing the IMF - the USA is the IMF's main creditor).

As for the people, they are starting to reject the euro (there is a rise of Euroscepticism in all countries, including Germany):

- The German people don't want to bail out "the lazy Greeks" (in reality of course, they are bailing out the bankers, including the German bankers, but it is so much more convenient for the elites to accuse all the Greeks of being lazy, and a lot of people buy into this sort of propagnada)

- The people of the other countries don't like the austerity measures, the endless bank bailouts, etc.

But the elites like the euro - especially the bankers. This is why they will try to keep it, even when -in the worst possible scenario- some countries fail or even if a two-tier euro-system is implemented, so that the weaken countries can use a weaker currency and not go into full-scale revolt (note: There is some talk of this two-tier euro, with the Euro of the North consisting of Germany, Holland, Finland, etc, and the Euro of the South consisting of the PIIGS, and possibly France).

But why do the bankers like the euro so much?

Click to enlarge - this table shows the world official gold holdings, and as you can see the combined gold holdings of all the eurozone countries rank as #1 on that list. The euro is the "least bad" major currency of the world, as it offers more gold backup that the dollar (which is its main rival).

Yes, I know what some of you might say? The world has been off the gold standard for years. And yet the banks keep hoarding gold, don't they?

And as the dollar's reign as the world's reserve currency is coming to an end, as we've discussed, the euro is the least bad option (apart from gold of course, which is already "making a comeback" in the hearts and minds of people as the world "truest" form of money).

For those of you who haven't read our article on the subject, here's the gist:

As the dollar -and the rest of the fiat currencies- are losing their value due to money printing, we are approaching a point where the world will simply reject them, and the West will not be able to have oil - at least not at "reasonable" prices by today's standards. We got a taste of that when Nixon first abolished the gold standard - the oil states demanded to be paid in gold instead of (inflated) dollars for their oil - thus the "oil crisis" of 1973.

This is why the USA "must" attack all the oil states who try to break free from the dollar, and start accepting other means of payment - because no mater how much it costs them to go to war, it will cost them a lot more if the world finally gets of the "dollar standard", and the value of the dollar goes to almost zero.

The main thing that prevents the oil states from rejecting the dollar right now is their fear of being attacked by the USA - if that fear goes away, then they will be free to choose what currency to accept as means of payment.

But, in the end,it is only a matter of time before the world "moves away" from the dollar. China, Russia, Iran, and even Japan have already signed various treaties, stating that they will use their own currencies instead of the dollar when they trade with each other.

When this happens, "gold will be king" - and the euro will be the least bad currency, as it has the most gold backing. This is why China is supportive of the euro, and of course Russia has great ties with Germany (Germany gets over 50% of its energy from Russia - we will talk more about how Germany is forming an alliance with Russia and China in a future post, as this is obviously an alliance that will upset the balance of power in the world).

The Euro-system even has a mark to market valuation of its gold - so when for example the euro falls, the gold holdings of the euro-system increase in value (and vice versa). The dollar system does not do that - the USA never change the exchage rate of their official gold holdings. In fact, they still value them at 35$/ounce, which was the original exchange rate between the dollar and gold that was set during the Bretton Woods agreement. In a nutshell, they don't want to officially accept that the dollar has lost almost all of its value since then.

The euro-system however can handle the end of the current dollar-centric monetary system. Not that it will do well, but will do "less bad" than the others. So, even if it destroys the lives of many people, even if entire European States fail, the elites like the euro-system, and they will fight to keep it running.

“From now on the bankers will rule”

2012-01-08T22:00:00.002+02:00

After the July Revolution [of 1830], when the liberal banker Laffitte led his Compère, the Duke of Orleans, in triumph to the Hotel de Ville, he let fall the words: “From now on the bankers will rule”. Laffitte had betrayed the secret of the revolution.

It was not the French bourgeoisie that ruled under Louis Philippe, but one faction of it: bankers, stock-exchange kings, railway kings, owners of coal and iron mines and forests, a part of the landed proprietors associated with them – the so-called financial aristocracy. It sat on the throne, it dictated laws in the Chambers, it distributed public offices, from cabinet portfolios to tobacco bureau posts.

The industrial bourgeoisie proper formed part of the official opposition, that is, it was represented only as a minority in the Chambers. Its opposition was expressed all the more resolutely the more unalloyed the autocracy of the finance aristocracy became, and the more it imagined that its domination over the working class was insured after the revolts of 1832, 1834, and 1839, which had been drowned in blood.

[...]

The petty bourgeoisie of all gradations, and the peasantry also, were completely excluded from political power. Finally, in the official opposition or entirely outside the pays lιgal [electorate], there were the ideological representatives and spokesmen of the above classes, their savants, lawyers, doctors, etc., in a word, their so-called men of talent.

Owing to its financial straits, the July Monarchy was dependent from the beginning on the big bourgeoisie, and its dependence on the big bourgeoisie was the inexhaustible source of increasing financial straits. It was impossible to subordinate the administration of the state to the interests of national production without balancing the budget, without establishing a balance between state expenditures and revenues. And how was this balance to be established without limiting state expenditures – that is, without encroaching on interests which were so many props of the ruling system – and without redistributing taxes – that is, without shifting a considerable share of the burden of taxation onto the shoulders of the big bourgeoisie itself?

On the contrary, the faction of the bourgeoisie that ruled and legislated through the Chambers had a direct interest in the indebtedness of the state. The state deficit was really the main object of its speculation and the chief source of its enrichment. At the end of each year a new deficit. After the lapse of four or five years a new loan. And every new loan offered new opportunities to the finance aristocracy for defrauding the state, which was kept artificially on the verge of bankruptcy – it had to negotiate with the bankers under the most unfavorable conditions. Each new loan gave a further opportunity, that of plundering the public which invested its capital in state bonds by means of stock-exchange manipulations, the secrets of which the government and the majority in the Chambers were privy to. In general, the instability of state credit and the possession of state secrets gave the bankers and their associates in the Chambers and on the throne the possibility of evoking sudden, extraordinary fluctuations in the quotations of government securities, the result of which was always bound to be the ruin of a mass of smaller capitalists and the fabulously rapid enrichment of the big gamblers. As the state deficit was in the direct interest of the ruling faction of the bourgeoisie, it is clear why the extraordinary state expenditure in the last years of Louis Philippe's reign was far more than double the extraordinary state expenditure under Napoleon, indeed reached a yearly sum of nearly 400,000,000 francs, whereas the whole average annual export of France seldom attained a volume amounting to 750,000,000 francs. The enormous sums which in this way flowed through the hands of the state facilitated, moreover, swindling contracts for deliveries, bribery, defalcations, and all kinds of roguery.

The defrauding of the state, practiced wholesale in connection with loans, was repeated retail in public works. What occurred in the relations between Chamber and government became multiplied in the relations between individual departments and individual entrepreneurs.

The ruling class exploited the building of railways in the same way it exploited state expenditures in general and state loans. The Chambers piled the main burdens on the state, and secured the golden fruits to the speculating finance aristocracy. One recalls the scandals in the Chamber of Deputies when by chance it leaked out that all the members of the majority, including a number of ministers, had been interested as shareholders in the very railway constructions which as legislators they had carried out afterward at the cost of the state.

On the other hand, the smallest financial reform was wrecked through the influence of the bankers. For example, the postal reform. Rothschild protested. Was it permissible for the state to curtail sources of revenue out of which interest was to be paid on its ever increasing debt?

The July Monarchy was nothing other than a joint stock company for the exploitation of France's national wealth, whose dividends were divided among ministers, Chambers, 240,000 voters, and their adherents. Louis Philippe was the director of this company – Robert Macaire on the throne. Trade, industry, agriculture, shipping, the interests of the industrial bourgeoisie, were bound to be continually endangered and prejudiced under this system. Cheap government, governement ΰ bon marchι, was what it had inscribed on its banner in the July days.

[...]

Since the finance aristocracy made the laws, was at the head of the administration of the state, had command of all the organized public authorities, dominated public opinion through the actual state of affairs and through the press, the same prostitution, the same shameless cheating, the same mania to get rich was repeated in every sphere, from the court to the Cafι Borgne to get rich not by production, but by pocketing the already available wealth of others, Clashing every moment with the bourgeois laws themselves, an unbridled assertion of unhealthy and dissolute appetites manifested itself, particularly at the top of bourgeois society – lusts wherein wealth derived from gambling naturally seeks its satisfaction, where pleasure becomes crapuleux [debauched], where money, filth, and blood commingle. The finance aristocracy, in its mode of acquisition as well as in its pleasures, is nothing but the rebirth of the lumpenproletariat on the heights of bourgeois society.

And the nonruling factions of the French bourgeoisie cried: Corruption! The people cried: ΐ bas les grands voleurs! ΐ bas les assassins! [Down with the big thieves! Down with the assassins!] when in 1847, on the most prominent stages of bourgeois society, the same scenes were publicly enacted that regularly lead the lumpenproletariat to brothels, to workhouses and lunatic asylums, to the bar of justice, to the dungeon, and to the scaffold. The industrial bourgeoisie saw its interests endangered, the petty bourgeoisie was filled with moral indignation, the imagination of the people was offended, Paris was flooded with pamphlets – “The Rothschild Dynasty,” “Usurers Kings of the Epoch,” etc. – in which the rule of the finance aristocracy was denounced and stigmatized with greater or less wit.

[...]

The eruption of the general discontent was finally accelerated and the mood for revolt ripened by two economic world events.

The potato blight and the crop failures of 1845 and 1846 increased the general ferment among the people. [...] The second great economic event that hastened the outbreak of the revolution was a general commercial and industrial crisis in England. Already heralded in the autumn of 1845 by the wholesale reverses of the speculators in railway shares, staved off during 1846 by a number of incidents such as the impending abolition of the Corn Laws, the crisis finally burst in the autumn of 1847 with the bankruptcy of the London wholesale grocers, on the heels of which followed the insolvencies of the land banks and the closing of the factories in the English industrial districts. The after-effect of this crisis on the Continent had not yet spent itself when the February Revolution broke out.

The devastation of trade and industry caused by the economic epidemic made the autocracy of the finance aristocracy still more unbearable.

[...]

Public credit and private credit were naturally shaken. Public credit rests on confidence that the state will allow itself to be exploited by the wolves of finance. But the old state had vanished and the revolution was directed above all against the finance aristocracy. The vibrations of the last European commercial crisis had not yet ceased. Bankruptcy still followed bankruptcy.

Private credit was therefore paralyzed, circulation restricted, production at a standstill before the February Revolution broke out. The revolutionary crisis increased the commercial crisis. And if private credit rests on confidence that bourgeois production in the entire scope of its relations – the bourgeois order – will not be touched, will remain inviolate, what effect must a revolution have had which questioned the basis of bourgeois production, the economic slavery of the proletariat, which set up against the Bourse the sphinx of the Luxembourg? The uprising of the proletariat is the abolition of bourgeois credit, for it is the abolition of bourgeois production and its order. Public credit and private credit are the economic thermometer by which the intensity of a revolution can be measured. The more they fall, the more the fervor and generative power of the revolution rises.

[...]

The financial embarrassment of the Provisional Government was naturally not lessened by a theatrical stroke which robbed it of its stock of ready cash. The financial pinch could no longer be concealed and petty bourgeois, domestic servants, and workers had to pay for the pleasant surprise which had been prepared for the state creditors.

It was announced that no more money could be drawn on savings bank books for an amount of over a hundred francs. The sums deposited in the savings banks were confiscated and by decree transformed into an irredeemable state debt. This embittered the already hard-pressed petty bourgeois against the republic. Since he received state debt certificates in place of his savings bank books, he was forced to go to the Bourse in order to sell them and thus deliver himself directly into the hands of the Bourse jobbers against whom he had made the February Revolution.

The finance aristocracy, which ruled under the July Monarchy, had its high church in the Bank. Just as the Bourse governs state credit, the Bank governs commercial credit.

Directly threatened not only in its rule but in its very existence by the February Revolution, the Bank tried from the outset to discredit the republic by making the lack of credit general. It suddenly stopped the credits of the bankers, the manufacturers, and the merchants. As it did not immediately call forth a counterrevolution, this maneuver necessarily reacted on the Bank itself. The capitalists drew out the money they had deposited in the vaults of the Bank. The possessors of bank notes rushed to the pay office in order to exchange them for gold and silver.

The Provisional Government could have forced the Bank into bankruptcy without forcible interference, in a legal manner; it would have had only to remain passive and leave the Bank to its fate. The bankruptcy of the Bank would have been the deluge which in an instant would have swept from French soil the finance aristocracy, the most powerful and dangerous enemy of the republic, the golden pedestal of the July Monarchy. And once the Bank was bankrupt, the bourgeoisie itself would have had to regard it as a last desperate attempt at rescue, if the government had formed a national bank and subjected national credit to the control of the nation.

The Provisional Government, on the contrary, fixed a compulsory quotation for the notes of the Bank. It did more. It transformed all provincial banks into branches of the Banque de France and allowed it to cast its net over the whole of France. Later it pledged the state forests to the Bank as a guarantee for a loan contracted from it. In this way the February Revolution directly strengthened and enlarged the bankocracy which it should have overthrown.

Meanwhile the Provisional Government was writhing under the incubus of a growing deficit. In vain it begged for patriotic sacrifices. Only the workers threw it their alms. Recourse had to be had to a heroic measure, to the imposition of a new tax. But who was to be taxed? The Bourse wolves, the bank kings, the state creditors, the rentiers, the industrialists? That was not the way to ingratiate the republic with the bourgeoisie. That would have meant, on the one hand, to endanger state credit and commercial credit, while on the other, attempts were made to purchase them with such great sacrifices and humiliations. But someone had to fork over the cash. Who was sacrificed to bourgeois credit? Jacques le bonhomme, the peasant.

[...]

Whereas the Revolution of 1789 began by shaking the feudal burdens off the peasants, the Revolution of 1848 announced itself to the rural population by the imposition of a new tax, in order not to endanger capital and to keep its state machine going.

There was only one means by which the Provisional Government could set aside all these inconveniences and jerk the state out of its old rut – a declaration of state bankruptcy.

[...]

By honoring the bills drawn on the state by the old bourgeois society, the Provisional Government succumbed to the latter. It had become the hard-pressed debtor of bourgeois society instead of confronting it as the pressing creditor that had to collect the revolutionary debts of many years. It had to consolidate the shaky bourgeois relationships in order to fulfill obligations which are only to be fulfilled within these relationships. Credit became a condition of life for it, and the concessions to the proletariat, the promises made to it, became so many fetters which had to be struck off. The emancipation of the workers – even as a phrase – became an unbearable danger to the new republic, for it was a standing protest against the restoration of credit, which rests on undisturbed and untroubled recognition of the existing economic class relations. Therefore, it was necessary to have done with the workers.

[...]

The workers were left no choice; they had to starve or let fly. They answered on June 22 with the tremendous insurrection in which the first great battle was fought between the two classes that split modern society. It was a fight for the preservation or annihilation of the bourgeois order. The veil that shrouded the republic was torn asunder.

[...]

The Paris proletariat was forced into the June insurrection by the bourgeoisie. This sufficed to mark its doom. Its immediate, avowed needs did not drive it to engage in a fight for the forcible overthrow of the bourgeoisie, nor was it equal to this task. The Moniteur had to inform it officially that the time was past when the republic saw any occasion to bow and scrape to its illusions, and only its defeat convinced it of the truth that the slightest improvement in its position remains a utopia within the bourgeois republic, a utopia that becomes a crime as soon as it wants to become a reality. In place of the demands, exuberant in form but still limited and even bourgeois in content, whose concession the proletariat wanted to wring from the February Republic, there appeared the bold slogan of revolutionary struggle: Overthrow of the bourgeoisie! Dictatorship of the Working class!"

- Karl Marx, “The Class Struggles in France, 1848 to 1850”

What might history tell us about the "Greek crisis"?

2012-01-08T17:09:00.000+02:00

We haven't talked about the euro yet in this blog - and this is something that we will have to remedy soon. But for now, we will focus on the "Greek crisis", as more and more analysts, banks and investors are preparing for a debt restructuring and/or a default.

There are plenty of articles on the subject - however, we will repost an article written by Michael Pettis two years ago, as he probably explains the situation better than everyone else.

When the crisis first started, all the banks were completely against any form of debt restructuring, "haircut", or default. They claimed that this would be disastrous for Greece (i know, i was there, as I am Greek, so i witnessed the events first hand). In reality, the banks knew that Greece is bankrupt, but they also knew that if Greece was allowed to officially declare bankruptcy, and stop paying making payments on its loans+interest, then they (the bankers) would also go bankrupt, as they couldn't absorb these losses.

So, they decided to lie about it, scare the population into thinking that a default would be disastrous, and present us with a "solution" that would only increase Greece's debts (The IMF was called in to implement this solution along with the troika and the Greek government, and even according to the IMF's own projections, the Greek debt will only rise after this "solution"). The bankers however liked the plan, as they would receive a lot of bailout money (they are the recipients of those, not the Greek people), and they would also have more time to get rid of all those bonds of the PIIGS nations that cannot be repaid.

But as the bankers are getting all that money and their balance sheets are improving, they are now becoming capable of withstanding those losses. So, they are starting to admit that "a Greek debt restructuring may be necessary after all". Some banks can now withstand a 50% haircut, so they propose a 50% haircut. Some other banks can withstand a 75% haircut, so they propose a 75% haircut, etc. In the end, when they are ready, they will even admit that Greece is bankrupt (100% haircut), but that will only happen when they've received all the bailout money they need to withstand this kind of losses. Until this time comes, their goal is a gradual and controlled bankruptcy.

Here is Michael Pettis on the subject (Jun 24th, 2010):

What might history tell us about the Greek crisis?

The Greek crisis may in many ways seem unprecedented, but of course it isn’t. I think by now everyone already knows that Greece has spent much of the past 200 years – more than half by some counts – in default or in one form or another of debt restructuring, but in fact there are plenty of other periods of sovereign default and restructuring that can tell us something about what is happening and what will happen. I would suggest that there at least five things we can “predict” with some degree of confidence from looking at historical precedents:

1. The euro will not survive in its current form.

We should always have been skeptical about the survivability of the euro. There is a history of currency unions from which we can draw two reasonable conclusions. First, without fiscal integration such as occurred in the US after the Civil War or in the German Customs Union under Prussian dominance, currency unions are no more permanent than other forms of monetary integration, such as adherence to gold or silver standards.

Without robust mechanisms to absorb imbalances that emerge in different parts of the economy, and Europe embodies many very different economies, countries normally are forced to rely on monetary adjustment [the not-so-competitive economies devalue their currencies - my note] . The European currency union eliminates this type of adjustment mechanism, leaving countries with only two, brutally difficult options for adjustment besides opting out – sovereign default or long periods of deflation and unemployment.

So along with very high levels of capital mobility (which Europe possesses to some extent) and labor mobility (of which it has much less), Europe also needed to assign a substantial amount of fiscal sovereignty to some entity. I have already explained elsewhere why I think this was always very unlikely. Difficult as it might be, opting out of the euro is likely to be much less unpalatable for many countries than sovereign default or long periods of high unemployment.

Second, when currency unions are successful, it is almost always during periods of rising global liquidity and expanding international capital flows. No currency union has been able to survive the great monetary contractions that spell the end of a globalization period. The 19th Century’s Latin Monetary Union and the Scandinavian Monetary Union, to take the most obvious examples, were both once considered great successes, but were forced into retreat when global monetary conditions turned sour.

So when will countries opt out of the euro? Ernest Hemingway once described the process of going broke as “Slowly. Then all at once.” That is not a very precise description, I know, but I would guess that support for the euro will erode very slowly until suddenly it seems inevitable and then the process will happen breathtakingly quickly.

2. This is the big one

One of the myths that we often hear repeated is that financial crises have been occurring with increased frequency in the past one or two decades. I think we only believe this because we remember the big crises of the past, which seem to occur every twenty to thirty years, and then look back all crises of the past two decades – Mexico in 1994, East Asia in 1997, LTCM and Russia in 1998, Brazil in 1999, the Internet Bubble in 2000, the Sub-Prime crisis in 2007, and Greece in 2010 – and conclude that there are an awful lot more crises nowadays.

But in my book, The Volatility Machine, I made sure to distinguish between the short-term liquidity crises that occur within globalization cycles, of which there are a lot and seemed to occur every two or three years, and the long-term liquidity contractions that spell the end of each of the major globalization cycles. The former can be brutal, but they are usually short-lived and the overall market recovers very quickly.

So, for example, although most of us know that the world experienced a deep and long-lasting crisis in 1873, which began a long period of contracting international trade, reduced capital flows, and the massive bankruptcies of the high technology companies of the period, including most notably the railroads, very few people seem to know about the Overend Gurney crisis of 1866, which seemed pretty horrific at the time but from which the markets recovered fairly quickly. Likewise the great and well-known LDC debt crisis beginning in 1982 was preceded by several smaller crises, most importantly I think in 1976 by a Mexican peso crisis, which two years later had all but been forgotten by the market.

In my opinion the current set of crises, beginning with the sub-prime crisis in the US and spreading throughout the world, is not a short-term liquidity crisis like LTCM, the Asian Crisis, or the Mexican crisis of 1994. I think this is likely to be one of those big events, one that represents a major re-adjustment in the world during which time the massive imbalances that had been built up during the long globalization cycle that started around the late 1980s and early 1990s are finally worked out.

Not only will Greece, in other words, get worse, but it is by no means the end of the crisis. A lot more countries in Southern Europe, Latin America and Asia are going to be caught up in this before it ends.

3. The European crisis will be accompanied by a trade shock.

In the early 1980s Latin America countries were suddenly cut off from funding during what was subsequently called the LDC Debt Crisis, or the Lost Decade. These countries had been running large current account deficits, and of course current account deficits require capital account surpluses. These surpluses were financed by the the huge petrodollar recycling of the 1970s, when commercial banks around the world made staggeringly large loans to many developing countries.

Of course after 1981-82 it became clear that the loans exceeded the repayment capacity of the borrowing countries, and suddenly financing dried up – almost overnight. What’s worse, the debt crisis had already been preceded by flight capital, so that when financing dried up, a capital account surplus quickly became a capital account deficit. Of course once Latin America began to experience capital outflows, its trade deficit necessarily had to become a trade surplus. This is exactly what happened.

The deficit countries of Europe, whose combined trade deficits are nearly two-thirds the size of the US trade deficit, will also be forced into a rapid contraction in their trade deficits for the very same reasons – they are going to find it hard enough simply to refinance themselves, let alone receive net capital inflows. Without a capital account surplus, however, they simply cannot run current account deficits. This contraction must, one way or another, be absorbed by the very unwilling rest of the world. I describe what this will entail in a May 19 entry.

4. The economic recovery in the countries hit by crisis will not begin until they are recognized as insolvent and receive debt forgiveness from their creditors.

Preceding every sovereign default is the fiction that the obligor country is simply facing a short-term financing problem, and that with a lot of discipline and a little bit of good will it will be able to work its way out of the crisis. During this period a number of restructuring “solutions” are proposed – all of which involve increasing debt, and often in the most financially destabilising way – which inevitably make the final resolution of the crisis much more difficult and which sharply raise financial distress costs. The most notorious recent example of these terrible “solutions” was Argentina’s disastrous debt swap in 2001, in which it dramatically increased the country’s total obligations while it desperately tried to maintain the fiction that it could somehow grow its way out of its impossible debt burden.

Greece, and probably two or three other countries, simply cannot repay their outstanding debt amounts. Ultimately they are going to default, and then in the restructuring process they will receive enough debt forgiveness that allows them to return to a sound footing and with a reasonable repayment prospect. But as long as they maintain the pretence that they can and will repay the full outstanding amount, and struggle with the burden, the resulting distortions in the economy will mean that businesses will disinvest and the country will not grow.

Historical precedence makes it clear that as long as the sovereign borrower is forced to struggle with an unrepayable debt burden, it will not grow. Eventually, as has happened in nearly every previous case, creditors and borrowers will acknowledge reality and will work out a debt forgiveness plan that will allow the economy to return to growth. Until then, expect weak growth, high unemployment, and constant battles over debt.

How long will it take for the world to recognize the inevitable? That leads us to the fifth thing we can learn from historical precedents.

5. Greece’s insolvency will not be recognized for many years.

When most of the obligations of an insolvent sovereign were widely dispersed among a wide variety of bondholders, market forces acted relatively quickly to force debt forgiveness. Defaulted bonds trade at deep discounts, and it is a lot easier for someone who bought the debt at one-quarter its face value to agree to 50% debt forgiveness than for someone who made the original loan.

But things are different with the current crop of insolvent European sovereign debts, as they were with the sovereign loans of the 1970s. They are heavily concentrated within the banking system, and the banks cannot recognize the losses without themselves collapsing into insolvency.

That cannot be allowed to happen. The LDC debt crisis of the 1980s raged on nearly a full decade – a decade of stopped payments, capital flight, and agonizingly low growth – before creditors formally acknowledged that most struggling borrowers could not repay their debt and would need partial debt forgiveness. The first formal recognition of debt forgiveness occurred with Mexico’s Brady Plan restructuring in 1990. Growth returned to most countries only after it became clear that they would receive debt forgiveness.

Why did it take so long? Were the banks stupid? No, banks knew full well that they weren’t going to get their money back as early as the mid-1980s, but to have acknowledge this would have required them to set aside more capital to absorb the losses than most of them possessed. The recognition of the obvious had to wait nearly a full decade so that banks could build a sufficient capital cushion to absorb the losses.

So too with the European crisis. Much of the Greek debt is held by European banks, and they simply do not have enough capital to absorb losses on Greek debt, let alone if Greece were to be joined by Portugal, Spain and others. The banks will need first to rebuild their capital bases before they can admit the obvious, and this could take several years.

So we are condemned to spend much of the next decade postponing a resolution of the crisis while banks rebuild their capital base. Until they do, we will all pretend that Greece isn’t insolvent and that other European countries will not face a crisis. Meanwhile none of these countries will be able to grow.

Odious debt - from Wikipedia:

In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

The doctrine was formalized in a 1927 treatise by Alexander Nahum Sack,[1] a Russian émigré legal theorist, based upon 19th-century precedents including Mexico's repudiation of debts incurred by Emperor Maximilian's regime, and the denial by the United States of Cuban liability for debts incurred by the Spanish colonial regime.

According to Sack:

When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfil one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State. Odious debts, contracted and utilised for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.

Albert Einstein: "Why Socialism?"

2012-01-08T09:42:00.000+02:00

Why Socialism?

Albert Einstein is the world-famous physicist. This article was originally published in the first issue of Monthly Review (May 1949). It was subsequently published in May 1998 to commemorate the first issue of MR‘s fiftieth year.

Is it advisable for one who is not an expert on economic and social issues to express views on the subject of socialism? I believe for a number of reasons that it is.

Let us first consider the question from the point of view of scientific knowledge. It might appear that there are no essential methodological differences between astronomy and economics: scientists in both fields attempt to discover laws of general acceptability for a circumscribed group of phenomena in order to make the interconnection of these phenomena as clearly understandable as possible. But in reality such methodological differences do exist. The discovery of general laws in the field of economics is made difficult by the circumstance that observed economic phenomena are often affected by many factors which are very hard to evaluate separately. In addition, the experience which has accumulated since the beginning of the so-called civilized period of human history has—as is well known—been largely influenced and limited by causes which are by no means exclusively economic in nature. For example, most of the major states of history owed their existence to conquest. The conquering peoples established themselves, legally and economically, as the privileged class of the conquered country. They seized for themselves a monopoly of the land ownership and appointed a priesthood from among their own ranks. The priests, in control of education, made the class division of society into a permanent institution and created a system of values by which the people were thenceforth, to a large extent unconsciously, guided in their social behavior.

But historic tradition is, so to speak, of yesterday; nowhere have we really overcome what Thorstein Veblen called “the predatory phase” of human development. The observable economic facts belong to that phase and even such laws as we can derive from them are not applicable to other phases. Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development, economic science in its present state can throw little light on the socialist society of the future.

Second, socialism is directed towards a social-ethical end. Science, however, cannot create ends and, even less, instill them in human beings; science, at most, can supply the means by which to attain certain ends. But the ends themselves are conceived by personalities with lofty ethical ideals and—if these ends are not stillborn, but vital and vigorous—are adopted and carried forward by those many human beings who, half unconsciously, determine the slow evolution of society.

For these reasons, we should be on our guard not to overestimate science and scientific methods when it is a question of human problems; and we should not assume that experts are the only ones who have a right to express themselves on questions affecting the organization of society.
Innumerable voices have been asserting for some time now that human society is passing through a crisis, that its stability has been gravely shattered. It is characteristic of such a situation that individuals feel indifferent or even hostile toward the group, small or large, to which they belong. In order to illustrate my meaning, let me record here a personal experience. I recently discussed with an intelligent and well-disposed man the threat of another war, which in my opinion would seriously endanger the existence of mankind, and I remarked that only a supra-national organization would offer protection from that danger. Thereupon my visitor, very calmly and coolly, said to me: “Why are you so deeply opposed to the disappearance of the human race?”
I am sure that as little as a century ago no one would have so lightly made a statement of this kind. It is the statement of a man who has striven in vain to attain an equilibrium within himself and has more or less lost hope of succeeding. It is the expression of a painful solitude and isolation from which so many people are suffering in these days. What is the cause? Is there a way out?

It is easy to raise such questions, but difficult to answer them with any degree of assurance. I must try, however, as best I can, although I am very conscious of the fact that our feelings and strivings are often contradictory and obscure and that they cannot be expressed in easy and simple formulas.

Man is, at one and the same time, a solitary being and a social being. As a solitary being, he attempts to protect his own existence and that of those who are closest to him, to satisfy his personal desires, and to develop his innate abilities. As a social being, he seeks to gain the recognition and affection of his fellow human beings, to share in their pleasures, to comfort them in their sorrows, and to improve their conditions of life. Only the existence of these varied, frequently conflicting, strivings accounts for the special character of a man, and their specific combination determines the extent to which an individual can achieve an inner equilibrium and can contribute to the well-being of society. It is quite possible that the relative strength of these two drives is, in the main, fixed by inheritance. But the personality that finally emerges is largely formed by the environment in which a man happens to find himself during his development, by the structure of the society in which he grows up, by the tradition of that society, and by its appraisal of particular types of behavior. The abstract concept “society” means to the individual human being the sum total of his direct and indirect relations to his contemporaries and to all the people of earlier generations. The individual is able to think, feel, strive, and work by himself; but he depends so much upon society—in his physical, intellectual, and emotional existence—that it is impossible to think of him, or to understand him, outside the framework of society. It is “society” which provides man with food, clothing, a home, the tools of work, language, the forms of thought, and most of the content of thought; his life is made possible through the labor and the accomplishments of the many millions past and present who are all hidden behind the small word “society.”

It is evident, therefore, that the dependence of the individual upon society is a fact of nature which cannot be abolished—just as in the case of ants and bees. However, while the whole life process of ants and bees is fixed down to the smallest detail by rigid, hereditary instincts, the social pattern and interrelationships of human beings are very variable and susceptible to change. Memory, the capacity to make new combinations, the gift of oral communication have made possible developments among human being which are not dictated by biological necessities. Such developments manifest themselves in traditions, institutions, and organizations; in literature; in scientific and engineering accomplishments; in works of art. This explains how it happens that, in a certain sense, man can influence his life through his own conduct, and that in this process conscious thinking and wanting can play a part.

Man acquires at birth, through heredity, a biological constitution which we must consider fixed and unalterable, including the natural urges which are characteristic of the human species. In addition, during his lifetime, he acquires a cultural constitution which he adopts from society through communication and through many other types of influences. It is this cultural constitution which, with the passage of time, is subject to change and which determines to a very large extent the relationship between the individual and society. Modern anthropology has taught us, through comparative investigation of so-called primitive cultures, that the social behavior of human beings may differ greatly, depending upon prevailing cultural patterns and the types of organization which predominate in society. It is on this that those who are striving to improve the lot of man may ground their hopes: human beings are not condemned, because of their biological constitution, to annihilate each other or to be at the mercy of a cruel, self-inflicted fate.
If we ask ourselves how the structure of society and the cultural attitude of man should be changed in order to make human life as satisfying as possible, we should constantly be conscious of the fact that there are certain conditions which we are unable to modify. As mentioned before, the biological nature of man is, for all practical purposes, not subject to change. Furthermore, technological and demographic developments of the last few centuries have created conditions which are here to stay. In relatively densely settled populations with the goods which are indispensable to their continued existence, an extreme division of labor and a highly-centralized productive apparatus are absolutely necessary. The time—which, looking back, seems so idyllic—is gone forever when individuals or relatively small groups could be completely self-sufficient. It is only a slight exaggeration to say that mankind constitutes even now a planetary community of production and consumption.

I have now reached the point where I may indicate briefly what to me constitutes the essence of the crisis of our time. It concerns the relationship of the individual to society. The individual has become more conscious than ever of his dependence upon society. But he does not experience this dependence as a positive asset, as an organic tie, as a protective force, but rather as a threat to his natural rights, or even to his economic existence. Moreover, his position in society is such that the egotistical drives of his make-up are constantly being accentuated, while his social drives, which are by nature weaker, progressively deteriorate. All human beings, whatever their position in society, are suffering from this process of deterioration. Unknowingly prisoners of their own egotism, they feel insecure, lonely, and deprived of the naive, simple, and unsophisticated enjoyment of life. Man can find meaning in life, short and perilous as it is, only through devoting himself to society.

The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil. We see before us a huge community of producers the members of which are unceasingly striving to deprive each other of the fruits of their collective labor—not by force, but on the whole in faithful compliance with legally established rules. In this respect, it is important to realize that the means of production—that is to say, the entire productive capacity that is needed for producing consumer goods as well as additional capital goods—may legally be, and for the most part are, the private property of individuals.

For the sake of simplicity, in the discussion that follows I shall call “workers” all those who do not share in the ownership of the means of production—although this does not quite correspond to the customary use of the term. The owner of the means of production is in a position to purchase the labor power of the worker. By using the means of production, the worker produces new goods which become the property of the capitalist. The essential point about this process is the relation between what the worker produces and what he is paid, both measured in terms of real value. Insofar as the labor contract is “free,” what the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists’ requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product.

Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population. Moreover, under existing conditions, private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult, and indeed in most cases quite impossible, for the individual citizen to come to objective conclusions and to make intelligent use of his political rights.

The situation prevailing in an economy based on the private ownership of capital is thus characterized by two main principles: first, means of production (capital) are privately owned and the owners dispose of them as they see fit; second, the labor contract is free. Of course, there is no such thing as a pure capitalist society in this sense. In particular, it should be noted that the workers, through long and bitter political struggles, have succeeded in securing a somewhat improved form of the “free labor contract” for certain categories of workers. But taken as a whole, the present day economy does not differ much from “pure” capitalism.
Production is carried on for profit, not for use. There is no provision that all those able and willing to work will always be in a position to find employment; an “army of unemployed” almost always exists. The worker is constantly in fear of losing his job. Since unemployed and poorly paid workers do not provide a profitable market, the production of consumers’ goods is restricted, and great hardship is the consequence. Technological progress frequently results in more unemployment rather than in an easing of the burden of work for all. The profit motive, in conjunction with competition among capitalists, is responsible for an instability in the accumulation and utilization of capital which leads to increasingly severe depressions. Unlimited competition leads to a huge waste of labor, and to that crippling of the social consciousness of individuals which I mentioned before.

This crippling of individuals I consider the worst evil of capitalism. Our whole educational system suffers from this evil. An exaggerated competitive attitude is inculcated into the student, who is trained to worship acquisitive success as a preparation for his future career.

I am convinced there is only one way to eliminate these grave evils, namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. In such an economy, the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child. The education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow men in place of the glorification of power and success in our present society.

Nevertheless, it is necessary to remember that a planned economy is not yet socialism. A planned economy as such may be accompanied by the complete enslavement of the individual. The achievement of socialism requires the solution of some extremely difficult socio-political problems: how is it possible, in view of the far-reaching centralization of political and economic power, to prevent bureaucracy from becoming all-powerful and overweening? How can the rights of the individual be protected and therewith a democratic counterweight to the power of bureaucracy be assured?

Clarity about the aims and problems of socialism is of greatest significance in our age of transition. Since, under present circumstances, free and unhindered discussion of these problems has come under a powerful taboo, I consider the foundation of this magazine to be an important public service.

Food for thought: Orwell on Pacifism and War

2012-01-07T21:47:00.002+02:00

During the Second World War, the battle lines were drawn and they were pretty clear.

But during the last few decades, there were no clear battle lines - but as the ruling class of capitalists is looting us, and more and more people are forced to live (or even die) in poverty, it is time to choose "which side are you on", as the song goes. Exploitation will either grow to unprecedented heights, or it will be abolished.

This post features an essay , written by G.Orwell 60 years ago (in the next post we will repost an essay by A. Einstein as well):

George Orwell - Pacifism and the War

[...] Pacifism is objectively pro-Fascist. This is elementary common sense. If you hamper the war effort of one side you automatically help that of the other. Nor is there any real way of remaining outside such a war as the present one. In practice, ‘he that is not with me is against me’. The idea that you can somehow remain aloof from and superior to the struggle, while living on food which British sailors have to risk their lives to bring you, is a bourgeois illusion bred of money and security. Mr Savage remarks that ‘according to this type of reasoning, a German or Japanese pacifist would be “objectively pro-British”.’ But of course he would be! [even if he wasn't able to realize it - my note] That is why pacifist activities are not permitted in those countries (in both of them the penalty is, or can be, beheading) while both the Germans and the Japanese do all they can to encourage the spread of pacifism in British and American territories. The Germans even run a spurious ‘freedom’ station which serves out pacifist propaganda indistinguishable from that of the P.P.U. [ the P.P.U = Peace Pledge Union, a British pacifists organization - my note] They would stimulate pacifism in Russia as well if they could, but in that case they have tougher babies to deal with. In so far as it takes effect at all, pacifist propaganda can only be effective against those countries where a certain amount of freedom of speech is still permitted; in other words it is helpful to totalitarianism.

I am not interested in pacifism as a ‘moral phenomenon’. If Mr Savage and others imagine that one can somehow ‘overcome’ the German army by lying on one’s back, let them go on imagining it, but let them also wonder occasionally whether this is not an illusion due to security, too much money and a simple ignorance of the way in which things actually happen. As an ex-Indian civil servant, it always makes me shout with laughter to hear, for instance, Gandhi named as an example of the success of non-violence. As long as twenty years ago it was cynically admitted in Anglo-Indian circles that Gandhi was very useful to the British government. So he will be to the Japanese if they get there. Despotic governments can stand ‘moral force’ till the cows come home; what they fear is physical force. But though not much interested in the ‘theory’ of pacifism, I am interested in the psychological processes by which pacifists who have started out with an alleged horror of violence end up with a marked tendency to be fascinated by the success and power of Nazism. Even pacifists who wouldn’t own to any such fascination are beginning to claim that a Nazi victory is desirable in itself. In the letter you sent on to me, Mr Comfort considers that an artist in occupied territory ought to ‘protest against such evils as he sees’, but considers that this is best done by ‘temporarily accepting the status quo’ (like Déat or Bergery, for instance?). a few weeks back he was hoping for a Nazi victory because of the stimulating effect it would have upon the arts:

"As far as I can see, no therapy short of complete military defeat has any chance of re-establishing the common stability of literature and of the man in the street. One can imagine the greater the adversity the greater the sudden realization of a stream of imaginative work, and the greater the sudden katharsis of poetry, from the isolated interpretation of war as calamity to the realization of the imaginative and actual tragedy of Man. When we have access again to the literature of the war years in France, Poland and Czechoslovakia, I am confident that that is what we shall fined." (From a letter to Horizon.)

I pass over the money-sheltered ignorance capable of believing that literary life is still going on in, for instance, Poland, and remark merely that statements like this justify me in saying that our English pacifists are tending towards active pro-Fascism. But I don’t particularly object to that. What I object to is the intellectual cowardice of people who are objectively and to some extent emotionally pro-Fascist, but who don’t care to say so and take refuge behind the formula ‘I am just as anti-fascist as anyone, but—’. The result of this is that so-called peace propaganda is just as dishonest and intellectually disgusting as war propaganda. Like war propaganda, it concentrates on putting forward a ‘case’, obscuring the opponent’s point of view and avoiding awkward questions. The line normally followed is ‘Those who fight against Fascism go Fascist themselves.’ In order to evade the quite obvious objections that can be raised to this, the following propaganda-tricks are used:
The Fascizing processes occurring in Britain as a result of war are systematically exaggerated.
The actual record of Fascism, especially its pre-war history, is ignored or pooh-poohed as ‘propaganda’. Discussion of what the world would actually be like if the Axis dominated it is evaded.
Those who want to struggle against Fascism are accused of being wholehearted defenders of capitalist ‘democracy’. The fact that the rich everywhere tend to be pro-Fascist and the working class are nearly always anti-Fascist is hushed up.
It is tacitly pretended that the war is only between Britain and Germany. Mention of Russia and China, and their fate if Fascism is permitted to win, is avoided. (You won’t find one word about Russia or China in the three letters you sent to me.)
My past and present. Mr Woodcock tries to discredit me by saying that (a) I once served in the Indian Imperial Police, (b) I have written article for the Adelphi and was mixed up with the Trotskyists in Spain, and (c) that I am at the B.B.C. ‘conducting British propaganda to fox the Indian masses’. With regard to (a), it is quite true that I served five years in the Indian Police. It is also true that I gave up that job, partly because it didn’t suit me but mainly because I would not any longer be a servant of imperialism. I am against imperialism because I know something about it from the inside. The whole history of this is to be found in my writings, including a novel (Burmese Days) which I think I can claim was a kind of prophecy of what happened this year in Burma. (b) Of course I have written for the Adelphi. Why not? I once wrote an article for a vegetarian paper. Does that make me a vegetarian? I was associated with the Trotskyists in Spain [Orwell went to Spain during the Spanish Civil War and fought the fascists, by joining POUM, a marxist organization - my note]. It was chance that I was serving in the P.O.U.M. militia and not another, and I largely disagreed with the P.O.U. M. ‘line’ and told its leaders so freely, but when they were afterwards accused of pro-Fascist activities I defended them as best it could. How does this contradict my present anti-Hitler attitude? It is news to me that Trotskyists are either pacifists or pro-Fascists. (c) Does Mr Woodcock really know what kind of stuff I put out in the Indian broadcasts? He does not — though I would be quite glad to tell him about it. He is careful not to mention what other people are associated with these Indian broadcasts. One for instance is Herbert Read, whom he mentions with approval. Others are T. S. Eliot, E. M. Forster, Reginald Reynolds, Stephen Spender, J. B. S. Haldane, Tom Wintringham. Most of our broadcasters are Indian left-wing intellectual, from Liberals to Trotskyists, some of them bitterly anti-British. They don’t do it to ‘fox the Indian masses’ but because they know what a Fascist victory would mean to the chances of India’s independence. Why not try to find out what I am doing before accusing my good faith?

‘Mr Orwell is intellectual-hunting again’ (Mr Comfort). I have never attacked ‘the intellectuals’ or ‘the intelligentsia’ en bloc. I have used a lot of ink and done myself a lot of harm by attacking the successive literary cliques which have infested this country, not because they were intellectuals but precisely because they were not what I mean by true intellectuals. The life of a clique is about five years and I have been writing long enough to see three of them come and two go — the Catholic gang, the Stalinist gang, and the present pacifist or, as they are sometimes nicknamed, Fascifist gang. My case against all of them is that they write mentally dishonest propaganda and degrade literary criticism to mutual arse-licking. But even with these various schools I would differentiate between individuals. I would never think of coupling Christopher Dawson with Arnold Lunn, or Malraux with Palme Dutt, or Max Plowman with the Duke of Bedford. And even the work of one individual can exist at very different levels. For instance Mr Comfort himself wrote one poem I value greatly (‘The Atoll in the Mind’), and I wish he would write more of them instead of lifeless propaganda tracts dressed up as novels. But his letter he has chosen to send you is a different matter. Instead of answering what I have said he tries to prejudice an audience to whom I am little known by a misrepresentation of my general line and sneers about my ‘status’ in England. (A writer isn’t judged by his ‘status’, he is judged by his work.) That is on a par with ‘peace’ propaganda which has to avoid mention of Hitler’s invasion of Russian, and it is not what I mean by intellectual honesty. It is just because I do take the function of the intelligentsia seriously that I don’t like the sneers, libels, parrot phrased and financially profitable back-scratching which flourish in our English literary world, and perhaps in yours also.

Restoring competitiveness by even "working for free"!

2012-01-07T15:41:00.000+02:00

Capitalism, as we've already discussed, is a system the workers have to compete against each other in order to get picked by the employers.

In today's environment, employers usually prefer the Asian workers, as they work ridiculously long hours for ridiculously low wages - that makes them more competitive than everyone else, except maybe the German workers, who may be "expensive", but they are also more productive/efficient.

So, apart from a few exceptions, the western workers "must" become more competitive, so that the employers will start picking them again in the labour market. After, all, who cares about poverty and inequality? The only thing that matters is maximizing your own personal profit, right? So, the workers need to be productive, obedient and cheap. And that's where "austerity" comes in:

A lot of people, especially the Social-Democrats, criticize austerity because it reinforces the recession and inhibits growth. This is true, but it also misses "the big picture". The capitalists are not stupid, or at least they are not that stupid - they know that these austerity measures inhibit growth, and even if they didn't know, they must have noticed it by know. And yet they persist, because this policy may inhibit growth on the short term, but it will also create a new generation of workers that will work longer hours for less money. So, in the long run, the capitalists will make a profit, even if they have to take some short-term hits as well (some businesses are going bankrupt because of austerity - they are "necessary sacrifices" in order to create a better future for the capitalists, at the expense of the workers). Here's how it works:

As unemployment keeps rising, the workers become desperate, as they have no money to sustain themselves and their families. This situation is very similar to a castle siege - the attackers would cut the supply lines of the people inside the castle, and these people would either starve to death (as they had no food), or they would be forced to surrender. The workers face a similar choice, as they have no job, and the employers will only offer them a job if they agree to give up their demands of an 8-hour day or of a "decent" wage, healthcare benefits, etc.

So, unless the workers fight for a system without employers, a system in which the workers are in charge of themselves, they will eventually be forced to accept working in poverty. The employers have all the labour force they need in Asia, at extremely low prices - so as long as they are in charge of production, they will keep picking the cheaper workers, forcing everyone else to accept similar conditions of poverty, or face unemployment and starvation. They even call today's generation "a lost generation", as a lot of them will not get "picked" for work, and they will be left to starve, in order for the next generations to accept working for pennies.

So how is this strategy working out for the capitalists? Actually, it's working great! Sure, there are some protests, but on the other hand a lot of workers have already accepted working for (a lot) less, and some of them have even accepted working...for free! That's something that even the slaves of the Dark Ages didn't accept, as they masters would at least give them food and water, in order to keep them alive so that they can continue to exploit them for as long as possible.

Today, as it turns out, there are some cases where you don't even have to do that - and I'm not talking about China or Africa or anything like that. I'm talking about the West:

Unpaid jobs: The new normal?

With nearly 14 million unemployed workers in America, many have gotten so desperate that they're willing to work for free. While some businesses are wary of the legal risks and supervision such an arrangement might require, companies that have used free workers say it can pay off when done right. [yeah, sure, it can pay off if you look at it from the capitalist's point of view - my note]

"People who work for free are far hungrier than anybody who has a salary, so they're going to outperform, they're going to try to please, they're going to be creative," says Kelly Fallis, chief executive of Remote Stylist, a Toronto and New York-based startup that provides Web-based interior design services.
[...]
In the last three years, Fallis has used about 50 unpaid interns for duties in marketing, editorial, advertising, sales, account management and public relations. She's convinced it's the wave of the future in human resources. "Ten years from now, this is going to be the norm," she says.
[...]
Cassie Johnson, a 27-year old in San Marcos, Calif., lost her job as an enrollment adviser for an online university in 2009 and was receiving unemployment benefits for a year before finding an assistant manager position at a Starbucks (SBUX) that's so far from her home she spends most of her pay on gas. Since starting a public relations internship in February, she feels a renewed sense of purpose.

"I'm learning a lot and I feel really good about it. I'm happy. I feel relevant. I'm not making any money, so it's tough, but I feel it's setting me up for a career," Johnson says. "I only have $1.50 left in my checking account right now but I'm living with my boyfriend and he's been really good about supporting me." [meanwhile, even the Chinese workers make more money that she does - but at least she's "relevant" - my note]

All work and no pay – the rise of workfare

As consumers, we may all be guilty of ignoring the poverty wages paid by companies such as Primark in their factories abroad. But how many of us are aware of the exploitation going on in the UK, as workfare schemes allow such companies to profit from free labour?

Karina’s story is not uncommon. More and more people are being compelled to work without pay on threat of losing the poverty income of £67 per week (if you’re over 25) that jobseeker’s allowance (JSA) provides.

Karina was mandated to work in Primark under New Labour’s Flexible New Deal. She had been sent to a private ‘welfare to work’ provider whose regime included putting claimants to work without pay in businesses, charity shops and public sector workplaces. Although regulations meant that she could only be obliged to work for up to 12 weeks without pay, she worked for 24 weeks, fearing she would have her benefits stopped if she did not agree. She had signed up to and paid for a college course that would help her find work but she had to give it up to do the placement: ‘They told me they would stop my JSA, so I stopped my English course.’

The younger generation of workers is the one suffering more - some graduates in England are even paying to get get a job (instead of getting paid for it)!

Graduates paying to work for free

When Roz Tuplin graduated in 2010 she thought that a post-graduate degree in English Literature would be good grounding for a job in the media. She knew she would have to gain work experience, but after a year of trying to get a placement, she has decided to pay employers £65 a day to let her through the door. "It seems to be the way things are going," she said.
[...]
Ms Tuplin, 23, from Wirral, will be paying £260 for a four-day work experience placement with a TV production company in London. Access to internships, many said to have been arranged through well-connected parents, has been an area of controversy.

"The government's own lawyers have warned work without pay is often illegal and HMRC should be investigating companies which offer unpaid and paid-for internships."

And it just keeps getting better and better:

Hundreds of Thousands of Lower-Wage Workers, Many of Whom Worked for Decades, Would Be Denied Unemployment Insurance Under Provision Now Under Consideration

A provision that congressional negotiators will consider for legislation to extend the payroll tax cut through the end of 2012 would deny unemployment insurance (UI) to hundreds of thousands of lower-wage workers who worked for years or even decades, effectively paid UI taxes while they worked, and then were laid off.

Unemployed Portuguese told to 'just emigrate'

Hounded by the economic crisis that shows no signs of letting up and by political leaders of all stripes, Portugal's conservative Prime Minister Pedro Passos Coelho sent out an unprecedented message to his fellow citizens: Emigrate.

A wave of indignation was triggered when Passos Coelho, in the face of the growing unemployment that is hitting young people and educators extremely hard, suggested to teachers on December 18 that as an alternative they could move to Portuguese-speaking countries like Brazil or Angola.

Meanwhile, back in "Plutocracy Land":

Since 2009, 88 Percent Of Income Growth Went To Corporate Profits, Just One Percent Went To Wages

“Between the second quarter of 2009 and the fourth quarter of 2010, real national income in the U.S. increased by $528 billion. Pre-tax corporate profits by themselves had increased by $464 billion while aggregate real wages and salaries rose by only $7 billion or only .1%. Over this six quarter period, corporate profits captured 88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income. …The absence of any positive share of national income growth due to wages and salaries received by American workers during the current economic recovery is historically unprecedented.”

No wonder the people are out on the streets - it took them long enough. They are of course in the very early stages of a process that could -and should- lead to a revolution, a revolution that should end this system where almost all the economic and political power is concentrated at the hands of a few oligarchs, who don't seem to mind when a lot of suffer, if that suits their interests...

This article from the Huffington Post describes a trend that will probably grow, as the people start opening their minds to alternative ways of organizing our societies. It would be premature, if not foolish, to talk about a socialist revolution in the West, as there is no preparation for such an event, at least not in the near future. But we should start discussing this possibility, as capitalism can only lead us to mass poverty, if not war:

Young People More Likely To Favor Socialism Than Capitalism: Pew

Young people -- the collegiate and post-college crowd, who have served as the most visible face of the Occupy Wall Street movement -- might be getting more comfortable with socialism. That's the surprising result from a Pew Research Center poll that aims to measure American sentiments toward different political labels.

The poll, published Wednesday, found that while Americans overall tend to oppose socialism by a strong margin -- 60 percent say they have a negative view of it, versus just 31 percent who say they have a positive view -- socialism has more fans than opponents among the 18-29 crowd. Forty-nine percent of people in that age bracket say they have a positive view of socialism; only 43 percent say they have a negative view.

And while those numbers aren't very far apart, it's noteworthy that they were reversed just 20 months ago, when Pew conducted a similar poll. In that survey, published May 2010, 43 percent of people age 18-29 said they had a positive view of socialism, and 49 percent said their opinion was negative.

No More ZIRP For US Government - and what about those cuts on military spending?

2012-01-07T10:34:00.000+02:00

This article is a repost from emsnews.wordpress.com. The article was written a few months ago, but it is as relevant today as it was back then - maybe even more so, with Obama announcing cuts in military spending:

***

The US Debt Death Dance continues with the entire elderly population sitting, watching in horror with a gun to the forehead is interesting since we are at war. We just increased our war against Libya, with London kicking out the Libyan staff there and installing the rebels in a coup de force. The whining about the budget is most astonishing here since we are at war. Bush started his wars while cutting taxes and now this insane tax cutting regime continues as the rich evade paying for their wars which they want very badly. They have basically declared war on nearly all Muslims and are planning a major global war against China while doing hot business with China.

These insane things run alongside the US bailing out the entire NATO banking system via letting the Federal Reserve with no oversight by anyone, lending over $16 trillion to private investment bankers and international central banks! At ZIRP rates which is, for free. This unleashed a global commodity/stock exchange inflation flurry which, in turn, is now causing revolutions, riots and defaults across the entire planet. Returning to the author of all this, the US which has run trade and budget deficits nonstop during nearly the entire Cold War and now the War On Terror, the very rich have skipped out on paying for this nearly continuously since 1980 with Reagan’s ascendancy to the throne.

Russia calls for “immediate end” to Libyan conflict and so Russia won’t recognize Libyan rebels – Lavrov. The former KGB officers know defeat when they see it, they have seen it happen before, in Russia so when they say, “There is no military solution to Libya situation”, we should take them seriously. [by the way, this statement was made by Medvedev and Merkel, as Germany sided with Russia and Chin on this one. We shalla talk more about this alliance in future posts - my note]

In Congress, which is now the Knesset on steroids, there is no ability to see looming defeat because the wars have been paid for via cheap credit. So never, ever has there been a call for even the slightest sacrifices by the rich. The rich, incidentally, own our military/industrial complex and make huge profits off of it and they seem little inclined to see this wealth return to the state to pay for the wars which fuel rises in their incomes. They literally want to eat their cakes and bomb them, too. This one-way feed whereby debt piles up while wars rage is a great way to bankrupt a country. Many an empire in the past has tried this and all had the same dire end: bankruptcy.

The wealthy have pushed as hard as possible, the idea that the poorest half of the country that holds approximately 2% of the wealth compared to the top 10% that holds over 50% of the wealth, be taxed heavily for these insane wars, too. Trying desperately to guilt trip the lower working classes who have seen jobs vanish and wages collapse, to pay for wars that enrich the wealthy even further, beyond their wildest dreams, is pure insanity. Yet, this meme has been ruthlessly pushed by wealthy publishers, AIPAC and other creeps who don’t care if the country goes bankrupt, they just don’t want to part with a farthing of their own wealth no matter how dangerous this is in the future.

And history is very clear about this: empires that go to war and then bring back no loot and spend via debt on adventures that bring back little or nothing, countries that do this while letting the elites pay no price for this, countries that tax the poor to pay for fruitless wars, end up dead. That is, their own people revolt and the foreign adventures collapse while the government at home collapses.

We have exactly one socialist in the Senate. He is a voice of reason who is often ignored. Here is his latest public statement about the mess in DC: Majority Rule? – Newsroom: U.S. Senator Bernie Sanders (Vermont)

With the clock ticking on an Aug. 2 deadline for raising the $14.3 trillion debt ceiling, another major national poll found that Washington is out of touch with a big majority of Americans who want to see a combination of government spending cuts and tax increases as part of any deal to bring down the U.S. budget deficit.[...] The idea is popular everywhere in America, it seems, except on Capitol Hill, where Republicans have ruled out ending tax breaks and closing loopholes for the wealthiest Americans and the most profitable corporations.

Since the dawn of religions created by fearful humans, when something goes bad or gods had to be fed human blood, the elites usually didn’t sacrifice themselves to save their followers, they sacrificed someone who was much more helpless. Prisoners, children, virgins, whoever: they tended to toss these into the maws of the irritated gods. So it is in modern times: when there is a need for any sacrifices, the rich and elites all point to the rest of us and tell us to go jump into a fiery lake, not them.
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In the last decade, the very rich who incidentally, own our military complex, have thrown multimillion dollar coming of age ceremonies for their own spawn while at the same time, sending the children of the working class and the poor into the wars which bring these huge profits. Celebrating their brats turning into ‘adults’ (these ceremonies tend to come at 13-16 years of age for the children) with sybaritic displays while the children (often quite young, themselves) come home mutilated, psychotic or dead, is part and parcel of the gulf between the rich and the poor which is ultimately the cause of the future revolt that will happen here eventually.

Here is a good speech by our only socialist Senator: Plutocracy: If Corporations and the Rich Paid 1960s-Level Taxes, the Debt Would Vanish – Newsroom: U.S. Senator Bernie Sanders (Vermont)

If corporations and households taking in $1 million or more in income each year were now paying taxes at the same annual rates as they did back in 1961, the IPS researchers found, the federal treasury would be collecting an additional $716 billion a year.

In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade. [In reality, if the government did try to raise taxes on the rich, they would simply take their money and move/invest it somewhere else, like Asia for example. So, this "solution" that Sanders is suggesting will not work, leaving us with no other choice that to try and completely overthrow them, not increase their taxation - my note]

So why aren’t we taxing the rich? Why are we now suffering such fearsome “debt crisis” angst? Why are our politicos so intent on shoving the “fiscal discipline” of layoffs and cutbacks – austerity – down the throats of average Americans?

No mystery here. Our political system is failing to tax the rich because the rich have fortunes large enough to buy off the political system.

The free ride to many wars is now ending. Before, Republican Presidents starting with Reagan, figured out that the public would buy into crazy wars if they didn’t have to pay for them. So the idea of using debt to pay for wars become the Holy Grail of the military/industrialists who thought Pentagon spending could double every 4-6 years and no one would notice this is a classic hockey stick graph which leads to infinity.

Now that the rich are talking about cutting social security and Medicare and possibly all other services used by American citizens while increasing the war spending, Public support is finally waning for defense spending – Stripes Central – Stripes. And about time! The majority of Americans want the war gravy train to stop. If we have to starve at home or die of disease thanks to our wars, then it is much easier to just stop the wars, isn’t it?
[...]

The banks were reliquified by the Fed just 2 years ago and now they are setting themselves up to float above this mess which they and their buddies created in the first place. When the GOP ideology of no regulation of credit markets, no usury laws, no taxes on the rich first were proposed by Reagan’s gang, the bankers cheered. Now that the mess they endorsed and pushed for is pushing our empire off the cliff, they get cold feet. Well, all the cash holdings they have are dwarfed by the FOREX cash held by foreign powers, all of whom ran up huge trade surplus profits against the US since Reagan.
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THEY are getting nervous and Chinese warnings have been disregarded. The US cannot print its way out of this mess without using the Weimar option which is to destroy the value of the dollar until it can’t buy even a loaf of bread with a wheel barrel of cash. Foreign powers hold tons of US debt and if it is suddenly priced at above 3% per annum, this means our government will be forced to spend 100% revenues on interest and this will be money flowing OUT of the US to pay for our red ink, not into the country.

The pirates and gnomes running Goldman Sachs, an entity that ought to have been forced into bankruptcy, a monster bailed out at great cost by our own central bank, is freaking out over all of this: Goldman Sachs: US Faces Credit ‘Downgrade’ if it Counts Eventual End of War as ‘Deficit Reduction’

Senate Democrats have issued a new “savings” plan that would nominally pare the projected deficit by over $1 trillion simply by assuming that the costs of the wars in Iraq and Afghanistan will eventually go away by virtue of those wars ending. This has spawned a myriad of criticism, including a leaked Goldman Sachs memo warning that the nation faces a credit downgrade if it tries to use this sort of on-paper gimmick instead of actual cuts in spending.

Goldman Sachs wants real cuts? HAHAHA. Cut them! Of course, they run our government via bribes to politicians, etc. And these creeps pay little to no taxes. They scheme to enrich themselves and beggar us. And as typical of such fiends, they want cuts to things that keep us alive while evading responsibility for funding our government.
[...]

I grew up in an End of Times household where the adults worked tirelessly to create nuclear missiles so this would happen. I was told, ‘This will protect us!’ even as we talked about how we were going to die. ’That’s OK since Jesus will save us,’ was the answer, one that I seriously doubted. Nay, I feared. Insanity of this sort infects religious believers which is why the many religious wars raging around the planet, sucking us in, are so dangerous.
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Thousands of years ago, humans invented religions due to fear of death. To save themselves, they then created the concept of human sacrifices to save themselves from angry gods. This meant killing someone, of course. So, to save themselves, our ancestors killed others! Who didn’t deserve to be allowed to be saved, of course. This is a fundamental problem with all religions even if they ceased sacrificing humans and animals to bloody gods. The impulse is still very much there. It is part of our brains.
[...]

This idiot from Utah thinks it is funny if he destroys the nation in order to stop overspending money. Did he vote for the military budgets? Yup, enthusiastically, every time! Did he vote to raise taxes every time he doubled the Pentagon spending? Nope, never. Perhaps making it impossible to raise taxes will fix our military problems by stopping all wars. Except this won’t happen. They will use this as a way of cutting social services to zero. For the rich want everything and they want to share nothing. Again: this is Ice Age thinking. Eliminate all rivals and then one can hunt mastodons in peace.
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Due to insane religious nuts like Senator Lee, the elites have decided to have a legal but unconstitutional coup: ‘Super Congress’: Debt Ceiling Negotiators Aim To Create New Legislative Body. Good lord, what’s next? The guillotine? French Directory – Wikipedia, the free encyclopedia

Under the French Constitution of 1795, qualified property holders elected 750 legislators, who divided themselves into the Council of Five Hundred and the Council of Ancients. This bicameral legislature had a term of three years, with one-third of the members renewed every year. The Ancients held a suspensory veto, but possessed no initiative in legislation.
[...]
The system made provision for the stringent control of all local authorities by the central government. Since the new constitution sought to create a separation of powers, the directors had no voice in legislation or taxation, nor could directors or ministers sit in either house. The law guaranteed freedom of religion, freedom of the press, and freedom of labour, but forbade armed assemblies and even public meetings of political societies. Only individuals or public authorities could tender petitions…The finances had been so thoroughly ruined that the government could not have met its expenses without the plunder and the tribute of foreign countries. If peace were made, the armies would return home and the directors would have to face the exasperation of the rank-and-file who had lost their livelihood, as well as the ambition of generals who could, in a moment, brush them aside.

The end result was Napoleon. When the Weimar government floundered, the end result was Hitler when Germany finally went bankrupt. Since the military is sucking down a huge, huge hunk of our budget, if this is endangered and the wages of the military aren’t paid on time, they will take over the government just like we saw in Egypt. This will fix nothing since the military leaders want more wars which is what happened when Hitler and Napoleon took over bankrupt empires that still had strong military systems pretty much intact.
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Both Hitler and Napoleon promised guns and butter and brought in lots of loot for a while until military defeats reversed this and the people let invaders (Russia in both cases!) overthrow their armies. In the US, we have a very dangerous military machine that is mainly overseas. If Congress doesn’t pay them or if the US debt is degraded and thus, less desirable, we will have a coup more likely than an election. The military will not tolerate civilian spending if they have to be cut, too. Ending the many wars goes against the grain for the military which wants more of these wars for it increases their power.

. Even if the soldiers don’t want more wars, the generals at the top do. And until the soldiers revolt (and they certainly did in the Vietnam War!) the generals will cheerfully expand wars to infinity. This is a big mess the US has to discuss. Do we want eternal, increasingly expensive wars of attrition run by assassins? Or do we want peace and plenty? The rich want the former, the bulk of Americans wan the latter. But enough Americans want the End of Times to tip the scales in favor of the elites who want wars to enrich themselves. This is a tragedy history has written so often, it becomes tedious to even bring up the many examples of this dynamic and how stupid it all is since we know the obvious end results. History is utterly clear about this. Fatally clear.

Oil wars - The stakes are higher than just Iran

2012-01-06T17:49:00.000+02:00

As we all know the West is on the verge of launching an attack against Iran: The Americans have been talking about it for years, trying really hard to look Ahmadinejad look like the bad guy (granted, that's not the hardest thing in the world to accomplish). As for the Israelis, America's watchdog in that area, they would have already launched an attack if they could. There are NATO military bases all around Iran, and Iran's nuclear program is a great excuse for the West to invade them (after all, they invaded Iraq using Saddam's "weapons of mass destruction" as an excuse, even though these weapons never existed. Excuses, unlike facts, are always easy to come by if you truly want to find them).

Anyway, Iran is not an easy target: It has much greater defensive capabilities than Iraq or Libya, not to mention the fact that it has an alliance with Russia and China (who are opposing an invasion - a Chinese military officer even threatened the West with full-scale war if they attack Iran). Iran also controls the Strait of Hormuz, a naval passage of huge importance, as the oil tankers have to cross it to bring the oil to the West. So, if Iran gets attacked, they are threatening to close it down, causing a shortage of oil and a huge spike in its price. This is not bad of course if you are an exporter of oil (like Russia), but it will obviously have devastating consequences for the economies of the West.

Of course, you probably already know most of this stuff - so in this post we're going to talk about the history of oil, and how it is linked to the dollar and the monetary system in general.

After all, everyone knows what the oil states are exporting to the West: They are exporting oil, the world #1 source of energy. That's pretty important, right? But what are they getting in return? They are getting paid in dollars, so in order to truly understand "how the world works", it would be a good idea to see what this "dollar" really is.

This will provide us with a much better understanding of the world economy, and it will also help us understand why the world is heading towards a new "oil crisis", one that will be much bigger than the one we experienced back in the 70's.

The current monetary system, with the dollar as its reserve currency, was born during the Bretton Woods agreement, which was signed right after the end of the Second World War. All the countries had been bombed, even the ones that where on the winning side. Moreover, they all had large budget deficits, as they had to borrow heavily in order to fund their war efforts. But the USA was not bombed, and its economy was almost intact. The factories were working, and its exports accounted for more than 50% of the world's exports. So, they were by far the strongest nation (at least in the West - Soviet Union was pretty strong but they followed a different path), and they were also the world's creditor nation. So, they imposed their will on everyone else - here's something from wikipedia on the subject:

U.S. allies—economically exhausted by the war—accepted this leadership. They needed U.S. assistance to rebuild their domestic production and to finance their international trade; indeed, they needed it to survive.

One of the reasons Bretton Woods worked was that the US was clearly the most powerful country at the table and so ultimately was able to impose its will on the others, including an often-dismayed Britain. At the time, one senior official at the Bank of England described the deal reached at Bretton Woods as “the greatest blow to Britain next to the war”, largely because it underlined the way in which financial power had moved from the UK to the US. (source: Business Spectator_

A devastated Britain had little choice. Two world wars had destroyed the country's principal industries that paid for the importation of half the nation's food and nearly all its raw materials except coal. The British had no choice but to ask for aid. Not until the United States signed an agreement on December 6, 1945 to grant Britain aid of $4.4 billion did the British Parliament ratify the Bretton Woods Agreements

It gets better:

In theory the reserve currency would be the bancor (a World Currency Unit that was never implemented), suggested by John Maynard Keynes; however, the United States objected and their request was granted, making the "reserve currency" the U.S. dollar. This meant that other countries would peg their currencies to the U.S. dollar, and—once convertibility was restored—would buy and sell U.S. dollars to keep market exchange rates within plus or minus 1% of parity. Thus, the U.S. dollar took over the role that gold had played under the gold standard in the international financial system. (Rogue Nation, 2003, Clyde Prestowitz)

Meanwhile, to bolster faith in the dollar, the U.S. agreed separately to link the dollar to gold at the rate of $35 per ounce of gold. At this rate, foreign governments and central banks were able to exchange dollars for gold. Bretton Woods established a system of payments based on the dollar, in which all currencies were defined in relation to the dollar, itself convertible into gold, and above all, "as good as gold".

The only currency strong enough to meet the rising demands for international currency transactions was the U.S. dollar. The strength of the U.S. economy, the fixed relationship of the dollar to gold ($35 an ounce), and the commitment of the U.S. government to convert dollars into gold at that price made the dollar as good as gold.

The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed by gold. Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United States. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the key currency of the Bretton Woods system.

Another view is that in the time of discount banks, discount was the interest earned on gold, and that the only way to repay interest on government bonds is by printing more dollars, thus raising the price of gold. If gold is fixed at $35 then other countries will demand gold and not accept dollars. The closing of the gold window in 1971 was the result.

A second structural change that undermined monetary management was the decline of U.S. hegemony. The U.S. was no longer the dominant economic power it had been for more than two decades. By the mid-1960s, the E.E.C. and Japan had become international economic powers in their own right. With total reserves exceeding those of the U.S., with higher levels of growth and trade, and with per capita income approaching that of the U.S., Europe and Japan were narrowing the gap between themselves and the United States.

What do all these things have to do with oil? Patience dear reader, the answers are coming.

When the dollar become the world's reserve currency, the USA were ruing huge trade surpluses, and they also owned a lot of gold to back the dollar up. Keynes's proposal of a world reserve currency was dismissed, as there was a state that could impose its will on all the others, the USA.

But as other countries, such as Germany and Japan, rebuilt their productive bases, USA had to face a lot of competition, and they weren't running such huge trade surpluses anymore. Furthermore, as Triffin pointed out in what became known as "the Triffin dilemma", owning the world's reserve currency meant that the USA would have to make a choice:

A) They could continue to print new dollars in order to meet the ever-increasing demand (as everyone wanted dollars in order to do business transactions and store his wealth). This would provide the global economy with enough liquidity to continue to grow, but the result is obviously inflation (devaluation of the dollar).

OR

B) They could stop printing new dollars, in order not to [hyper]inflate the dollar. That however would have devastating results for world trade, as the dollar is what the world uses as a means of transaction.

The U.S. chose to print money, and during the Vietnam war in the Nixon years, they needed a lot of new dollars in order to fund it. So, they printed even more dollars.

But remember what we said earlier: The dollar was linked to gold at a fixed rate.

But gold remains stable - so the 35$/ounce exchange rate could not be kept stable anymore, as the dollar was constantly being devalued. So, Nixon decided to end the gold standard, and print as many dollars as the USA wanted.

Here's a video of Nixon's public announcement of this policy - if you listen to him, you will see that he is blaming the "evil speculators" who are for some "unknown reason" attacking the economy of the USA. Not that i like the speculators myself, but they are of course not "evil", nor "psychopaths". They simply want "to make a profit", no matter the cost, and when they realized that gold's true value was greater than 35$/ounce, they started demanding gold instead of dollars. The most notable example of this was De Gaulle's preference of gold over dollars (De Gaulle was the president of France). Here's a link to an article from the Times of that period (Feb. 12, 1965) for those of you we wish to know more. De Gaulle even called for a new, international reserve currency to replace the dollar, and he thought of gold as the "centre" of this new monetary system.

A few years later, things got even uglier for the dollar:

Nixon abolished the gold standard in 1971. Two years later, in 1973, the world was shocked by an"oil crisis", as the oil states stopped accepting the dollar as a means of payment, and demanded gold instead. This is why the gas station depicted in the photograph above had "no gas" during that time. Here's wikipedia on the subject:

US off the Gold Exchange Standard (whereby only the value of the US dollar had been pegged to the price of gold and all other currencies were pegged to the US dollar), allowing the dollar to "float".

Shortly thereafter, Britain followed, floating the pound sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world. Because oil was priced in dollars, this meant that oil producers were receiving less real income for the same price. The OPEC cartel issued a joint communique stating that forthwith they would price a barrel of oil against gold.

This led to the "Oil Shock" of the mid-seventies. In the years after 1971, OPEC was slow to readjust prices to reflect this depreciation. From 1947-1967 the price of oil in U.S. dollars had risen by less than two percent per year. Until the Oil Shock, the price remained fairly stable versus other currencies and commodities, but suddenly became extremely volatile thereafter. OPEC ministers had not developed the institutional mechanisms to update prices rapidly enough to keep up with changing market conditions, so their real incomes lagged for several years. The substantial price increases of 1973-74 largely caught up their incomes to Bretton Woods levels in terms of other commodities such as gold.

Today, these "long forgotten" problems are resurfacing, as everyone is engaged in massive "money printing" - and the oil states are not happy about it. The USA managed to overcome the oil crisis of 1973, but know their productive base is much worse off, and the money printing has intensified, in order to bail out the banks and impoverish the workers.

But as the oil crisis of 1973 has proven, there is at least one powerful force amongst the imperialists that does not like money printing: The oil states. Moreover, Russia and China are obviously also not in favour of the USA - they too want the dollar's reign to end. We shall talk about their moves, and also about Europe's moves and the euro in future posts.

For now, let's just say that as the dollar -and the rest of the fiat currencies- are losing their value due to money printing, we are approaching a point where the world will simply reject them, and the West will not be able to have oil - at least not at "reasonable" prices by today's standards.

This is why the USA "must" attack all the oil states who try to break free from the dollar, and start accepting other means of payment - because no mater how much it costs them to go to war, it will cost them a lot more if the world finally gets of the "dollar standard", and the value of the dollar goes to almost zero.

The main thing that prevents the oil states from rejecting the dollar right now is their fear of being attacked by the USA - if that fear goes away, then they will be free to choose what currency to accept as means of payment.

Here is a brief history of the oil states that the USA has attacked (or is about to attack) over the last 10 years - these states all tried to "move away" from the dollar:

Back in 2000, Iraq began selling oil for euros, and they even made a profit, as the euro appreciated against to the dollar. Here's an article from "the Guardian":

Iraq nets handsome profit by dumping dollar for euro

A bizarre political statement by Saddam Hussein has earned Iraq a windfall of hundreds of million of euros. In October 2000 Iraq insisted on dumping the US dollar - 'the currency of the enemy' - for the more multilateral euro.

Almost all of Iraq's oil exports under the United Nations oil-for-food programme have been paid in euros since 2001.

After this move by Saddam, the USA invaded Iraq and one of the first things they did when they destroyed him, was to force Iraq to sell its oil for dollars, not euros. They also hung Saddam Hussein, in order to show to the world what would happen if they even tried to get away from the dollar.

But a few years later, another "crazy" guy appeared, and he didn't seem to like the dollar either:

Here is an article from Reuters, published in 2007:

Iran stops selling oil in U.S. dollars -report

For nearly two years, OPEC's second biggest producer has been reducing its exposure to the dollar, saying the weak U.S. currency is eroding its purchasing power.

Iranian President Mahmoud Ahmadinejad, who often rails against the West, has called the U.S. currency a "worthless piece of paper."

Nozari told ISNA: "In regards to the decrease in the dollar's value and the loss exporters of crude oil have endured from this trend, the dollar is no longer a reliable currency."

"This is why, at the meeting of the heads of states, Iran proposed to OPEC members that a currency (for oil exports) would be determined that would be reliable and would not cause any loss to exporter countries," he said.

Ahmadinejad is no saint, but he is right: the weak U.S. currency is eroding the dollar's purchasing power, and this is why he doesn't like it. I am not sure if the USA can handle Iran, Iraq and Afghanistan at the same time: Three war fronts is a lot to handle, especially if you are "an empire in decline". Maybe this is why the Americans left Iraq - in order to allocate more resources to Iran. But even if one oil state is allowed to reject the dollar, the USA is finished, as the others will quickly follow suit. This is why the Americans want to invade Iran. And it also one of the main reasons the the recent NATO invasion in Libya:

Saving the world economy from Gaddafi

Some believe it is about protecting civilians, others say it is about oil, but some are convinced intervention in Libya is all about Gaddafi’s plan to introduce the gold dinar, a single African currency made from gold, a true sharing of the wealth.

In the months leading up to the military intervention, he called on African and Muslim nations to join together to create this new currency that would rival the dollar and euro. They would sell oil and other resources around the world only for gold dinars.

Trade wars, protectionism, military spending and war; Who is Nikolai Bukharin?

2012-01-05T20:26:00.000+02:00

As smaller capitalists are being eradicated by the bigger capitalists, and the workers are not yet ready to take matters into their own hands, a return to protectionism is likely, as smaller capitalists would love to reinstate tariffs as a way to protect themselves against cheaper goods that are being imported from places like China or India.

Here's something from Marx's "Communist Manifesto":

Of all the classes that stand face to face with the bourgeoisie today, the proletariat alone is a genuinely revolutionary class. The other classes decay and finally disappear in the face of Modern Industry; the proletariat is its special and essential product.

The lower middle class, the small manufacturer, the shopkeeper, the artisan, the peasant, all these fight against the bourgeoisie, to save from extinction their existence as fractions of the middle class. They are therefore not revolutionary, but conservative. Nay, more, they are reactionary, for they try to roll back the wheel of history. If, by chance, they are revolutionary, they are only so in view of their impending transfer into the proletariat; they thus defend not their present, but their future interests; they desert their own standpoint to place themselves at that of the proletariat.

Capitalism has created a world market through the process of "globalization" - that's great, but as capitalism has found a new, better "host" in Asia, the western people are experiencing a huge drop in their standard of living. Apart from a few oligarchs, and especially multinational corporations, the majority of the population is suffering. Will the workers rise up? In the near term, that seems unlikely.

Most of the protests we've seen so far are not "anti-capitalist", they are simply demanding a "social-democratic" version of capitalism. However, this version of capitalism is not possible anymore, as the western nations cannot compete against the likes of China and India under such terms: Why would any capitalist invest his capital in the West, and share some of the profits with the workers (giving them higher wages, health care, public education, etc.), when he can invest his capital in Asia, and keep almost all the profits for himself?

Sure, there are many exceptions to this trend - for example Germany has been able to counteract it thanks to its higher quality of manufacturing and its superior technical "know-how", which make German products very competitive, despite the higher labour costs. But this is just an exception - the general trend is "the end of the "social-democratic" version of capitalism, with "neo-liberalism" as the only version that is competitive enough (as it breaks the working class down to coolie status).

But what about the other nations? We've already mentioned that they are all engaged in money-printing ("currency wars') in order to bail-out the banks and indirectly reduce the wages of the workers, thus making them "more competitive".

But as they are still failing to "restore their competitiveness", protectionism is a rising trend - here's a WTO report:

Crisis Threatens to Increase Protectionism: WTO

The economic crisis threatens to increase protectionism as governments think more on a national than an international level, Pascal Lamy, Director General of the World Trade Organization (WTO) told CNBC Thursday.

He added that it is now much more difficult to get big players such as the US and China to commit to agreements than a few years ago, and warned of “increasing protectionism pressures” and a “vicious circle” if countries don’t co-operate.

“We are in a vicious circle where crisis erodes the capacity of governance to cooperate well as the necessity of co-operation increases,” Lamy said.

“The paradox being that the less they co-operate on international issues, the more difficult exiting this global crisis will be.”

“I’m afraid we have to expect difficult times for the world economy at large. This leads national politicians to focus more on their numerous problems at home, with unemployment rising,” said Lamy.

“They are obviously less available for international cooperation.”

WTO in right - " the less they co-operate on international issues, the more difficult exiting this global crisis will be". Then again, capitalism has never been about "cooperation" between the nation-states , it's always been about them competing against each other, , over economic and political power ("law of the jungle").

This cartoon colorfully demonstrates the doctrine of "mutual destruction", where two opposing factions destroy each other precisely because of the competition between them. The doctrine of "mutual destruction" became very popular during the "Cold War" between the U.S.A. and the former USSR, as each one of these two superpowers had the firepower to potentially to destroy the other.

However, this doctrine of "mutual destruction" can be applied on many occasions - and one of them is a return to protectionism.

After all, a return to protectionism was exactly what the nations-states did during the Great Depression of 1929: As the states are competing against each other, each one "attacks" the exports of the others, by imposing duties on their exports.

Protectionism is by nature NOT a "creative" policy - quite the opposite, it is a "destructive" policy. More - it is a "mutual destruction", as country A targets and hits state B's exports, which leads the state B to hit back at the exports of country A, etc.

Those who advocate a return to protectionism claim that they want to help domestic production to grow. But what protectionism actually does is not to help domestic production to grow, but to hurt the production of the other states. The end result is the collapse of global trade (this is what happened during the Great Crash of 1929). Many historians even believe that this collapse in trade, which exacerbated the crisis, was as a major cause for the outbreak of the Second World War.

- From an ideological standpoint, protectionism leads to the rising of nationalism (eg "we are Americans so we must buy American products", "we are English so we must buy English products", "we are German so we must buy German products", etc.).

- From an economic perspective, protectionism brought about an even greater collapse of world trade. Every worker essentially sided with his domestic ruling class, in hitting the workers of the other states. Rather than attack against their exploiters, the workers started hitting each other. And as each state's ruling class started attacking against the ruling classes of the other states, each state destroyed some parts of the other state's productive base, causing even more bankruptcies, and workers suffered even more, as unemployment spiked. However, in some sectors of the economy, this return to protectionism actually did create (or retained) jobs, but at the same time it deprived us of other jobs in other sectors, due to tariffs that were making a lot of exported goods not-competitive. Duties caused prices to rise, and ultimately consumption fell even further, as the workers could not afford to buy those expensive imported goods, and the depression deepened.

Unless we overthrow the capitalist system, which gives wealth and power to a handful of capitalists, who in order to maximize their profits go to Asia, leaving the West to rot, we can only expect poverty for the workers, and increasing trade wars, that could escalate to a full scale war (war is a topic that we shall discuss in more detail in future posts).

For now, here's something from N. Bukharin's "Imperialism and World Economy":

Both Bukharin and Lenin wrote about imperialism, heavily criticizing those who viewed militarism and war as a "deviation" from "normal" capitalism.

The most prominent theoretician of social democracy of that time, Karl Kaoutski, put forward this view. For Kaoutski, imperialism, the acquisition of colonies, and the spending of money on military weapons and supplies, was something that only benefited a few capitalists, not the bourgeoisie as a whole. This is the reason why 'every far-sighted capitalist', as Kautsky put it, 'must call to his comrades: Capitalists of the world, unite!'. Capitalists are of course adversaries, not comrades, and this is why they simply ignored Kautsky's cries and they have already given us two world wars. Kaoutski is the father of the theory of "Ultra-imperialism", which is followed today by some economists, including M. Hudson.

Bukharin and Lenin disagreed with that view - and rightly so: Imperialism is not a "deviation" from "normal" capitalism, but rather its "next logical step", the next stage in the system's evolution, as it becomes completely rotten.

What has changed since the time Marx presented us with his analysis of capitalism, argues Bukharin, is the appearance of gigantic capitalist enterprises, which control entire sectors of the economy of each country, eliminating or "swallowing" their competitors. They eventually reach a point when the "national" market is too small for the activities of these giant companies.

The economy becomes truly global, says Bukharin. Today, just like the times of Bukharin and Lenin so today, there are some who think that in a global economy, states and the competition between them are an "anachronism".

These views were wrong then, and they are wrong now as well. The capitalists need their own state, in order to defend their interests both at home and abroad. Capitalism is a system based on blind and chaotic competition for profits, and this turns one capitalist against the other in a race to secure more markets, more access to raw materials, sales and profits.

That's why Bukharin stresses that "It does not follow from this, however, that social progress has already reached a stage where "national" states can co-exist harmoniously. For the process of the intemationalisation of economic life is by no means identical with the process of the intemationalisation of capital interests".

Competition between the capitalists becomes global, and the various "ethnic groups of the ruling class" resort to their own state's power to promote their interests. The state has the power to pass laws that are in their favour, impose favourable taxation, impose tariffs on foreign companies or even to subsidize their "own" capitalists at the expense of its competitors (today's fights on subsidies between China, USA, and the EU is one such example). Above all, the state has at its disposal weapons and military force.

Here's Bukharin's take on it:

If state power is generally growing in significance, the growth of its military organisation, the army and the navy, is particularly striking. The struggle between state capitalist trusts is decided in the first place by the relation between their military forces, for the military power of the country is the last resort of the struggling "national" groups of capitalists.
[..]
And just as it is not true that low prices cause competition but, on the contrary, competition causes low prices, it is equally not true that the existence of arms is the prime cause and the moving force in wars (although wars are obviously impossible without arms) but, on the contrary, the inevitableness of economic conflicts conditions the existence of arms. This is why in our times, when economic conflicts have reached an unusual degree of intensity, we are witnessing a mad orgy of armaments. Thus the rule of finance capital implies both imperialism and militarism. In this sense militarism is no less a typical historic phenomenon than finance capital itself.

Leveraging/Deleveraging: “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world”

2012-01-05T13:38:00.000+02:00

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
- Archimedes

In this post, we will refer to a "technical term" that constantly keep appearing on TV, newpapers and in all kinds of political and economic discussion, but very few people really understand exactly what it means: Leveraging (and de-leveraging).

Through this "technical term" we can increase our understanding of how the monetary and banking system works, as leveraging plays an important role in our daily lives, even we don't fully realize it..

To better understand what leveraging is, we will use a simple example from everyday life: The health care system.

In order to have maximum protection, a health care system should privide "one doctor per person" (ratio 1:1). If we could achieve this ratio, then the population would be very secured in case of disease, even in "extreme" cases of an epidemic, as there would be enough medical staff to treat the sick and fight the epidemic.

But if we do apply a ratio of 1:1 ("one doctor per person"), then half of the world's population would have to be doctors (!). That only leaves the remaining 50% of the population to actually produce wealth. For this, and for a number of other reasons, the option of having one doctor per person was rejected.

So what we do have is a health care system where there is one doctor per 10, 20 or even 100 people (i do not know the exact numbers - and of course the exact numbers vary from one country to another, depending on the state of each country's economy, or how "humanitarian" each society is (how much people view life as "the most important thing in the world"), etc.).

Thus, the health care system is based on a ratio much greater than 1:1. For simplicity reasons, suppose that the ratio is 1:100 ("one doctor per 100 people"). Such a ratio does not privide us with as much protection as to have "one doctor per person" (eg in case of an epidemic or some other major medical emergency). However, such a ratio provides a "good enough" coverage, and it does so without converting 50% of the population into doctors.

A doctor simply treats the "worker-drones" that have been "damaged" so that they can return to production, just like the parts of a machine need repair or maintenance every now and again. Therefore, the doctor provides an important but secondary (auxiliary) service. He does not directly produce wealth, he is however necessaryin order to "keep the machine going" for as long as possible and as efficiently as possible. And of course he also treats the capitalists, who own the machine.

This basic principle that "one doctor can treat many people" (for example one doctor can treat up to 100 people, if the ratio is 1:100), is an example of leveraging.

The same principle is used in the banking system: If the bank has 10$ in its vault, it can give out loans of up to 100$ (leverage 1:10). This is why if all depositors simultaneously go to the bank and withdraw their deposits, the bank will go bankrupt. This is called "fractional reserve banking", and many people think of it as "the source of all evil". Here's wikipedia on how the system works:

Fractional reserve banking

Fractional-reserve banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction (called the reserve ratio) of the quantity of deposits as reserves. Some of the funds lent out are subsequently deposited with another bank, increasing deposits at that second bank and allowing further lending. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money. Due to the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple larger than the amount of base money created by the country's central bank...

Criticism of fractional-reserve banking

One criticism posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process. For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. This implies that debt must grow exponentially in order for the monetary system to remain solvent....

Leveraging is also used today in the monetary system: When the gold standard was in place, each state was forced to issue currency that corresponded to the amount of gold it owned (ratio 1:1). Now that the gold standard is gone, states can print as much much surrency as they want (the ratio of currency:gold has been rising for years).

But is leveraging really that bad? Moreover, is it really "the source of all evil"?

Here is Marx's take on it - from wikipedia:

Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 29 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capital" which is capital actually invested in physical means of production and workers, and "money capital" (actual cash held). The market value of fictitious capital assets (such as stocks and securities) varies according to the expected return or yield of those assets in the future, which is at best only indirectly related to the growth of real production. Effectively, fictitious capital represents "accumulated claims, legal titles, to future production" and more specifically claims to the income generated by that production.
[...]
The formation of fictitious capital is, for Marx, linked to the wider contradiction between the financial system in capitalism and its monetary basis. Marx writes: "With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands. The greater portion of this 'money-capital' is purely fictitious. All the deposits, with the exception of the reserve fund, are merely claims on the banker, which, however, never exist as deposits." The expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system; but in periods of economic crisis and uncertainty, capitalists tend, Marx argues, to look to the security of the "money-commodity" (gold) as the ultimate measure of value. Marx tends to assume the convertibility of paper money into gold. However, the modern system of inconvertible paper money, backed by the authority of states, poses greater problems. Here, in periods of crisis, "the capitalist class appears to have a choice between devaluing money or commodities, between inflation or depression. In the event that monetary policy is dedicated to avoiding both, it will merely end up incurring both"

As Marx correctly pointed out, "The expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system". So, those who support capitalism should in fact thank the bankers and the politicians who make all this leveraging possible. Leveraging allows the capitalist system to grow - and bank loans or other forms of leveraging have always existed. In fact, there are many capitalists that will tell us, and they would be right, that they got a business loan from a bank, they started a business, and now factory workers are working, goods are being produced, etc. That's not that bad, is it?

Leveraging can help capitalism achieve growth. If it wasn't for leveraging, then banks wouldn't have been able to give out all these loans, and there would have been no growth. This is why most people liked this system, until they realized that they can no long pay all these loans. But we will get to that in a minute.

First, let's go back to the example of the health care system: If there was no leveraging, then we should have "one doctor per person", and half the population would have to be doctors! This would obviously inhibit production and growth. In today's "leveraged" health care system, we need less doctors, so that the majority of people can be mobilized in production. To have half the world's population practicing medicine is absurd, because it actually prevents the production of new wealth.

Here is a contradiction of capitalism:

If the ratio of leveraging is "low" (eg, 1:1 in the most extreme case where there is no leveraging), then it inhibits growth. There would be little growth if half the population are doctors, or if banks do not give out business loans. Leveraging is a good way for banks to utilize their capitals more efficiently, as they can give out a lot more loans that they could if their only utilize their capital at a ratio of 1:1 (= if they only give out a few loans, using only the moeny they actually have in their vaults).

If the ratio of leveraging is "high", then although there is growth, the system becomes unstable and collapses. For example, if there is only one doctor per 1.000.000 people, then even an "ordinary" case of flu can become really serious. If there are no doctors in a society, then this society will have the greatest possible number of workers producing goods, but who will "fix" all these workers if they "brake down"? The same goes for the "excessive leveraging" of today's banking system.

Some might get the impression that the best solution would be to "restrain the banks", and to use "moderate" leveraging (ie a "social-democratic" approach). In fact, there are many Keynesian -and other- economists who -rightly- accuse the banking system for being "out of control", asking essentially a status of "moderate leveraging".

This approach was in fact tried during the Great Despession of 1929 - the big banks were broken up, and the ratio of leveraging was somewhat reduced, in order to prevent the system from crashing again. This approach worked for a few decades, but as always, it didn't last long.

This is because, as we said before, greater leveraging leads to greater growth, even if it makes the system more unstable in the long run. The capitalists, blinded by their greed, always end up applying more and more leverage. If for example a bank has 10$, then deep down inside it prefers to give out loans totaling 1000$ instead of "just" 100$, because that will increase its profits, at least in the short term. But this makes the system more unstable. Here lies the problem with capitalism as a system based on accumulation of personal wealth.

Today we are being told that there is "too much leveraging": For example, financial derivatives that circulate globally are worth 700 trillion $ (!) - W. Buffett called derivatives "financial weapons of mass destruction", as their value far exceeds the world's GDP.

The system has being growing for many years through accumulating debt - this is why it needed increased leveraging, so that the banks could create this debt and "compesate" for the flight of industrial capital from the West to Asia.

Now that these loans can not be repaid, the system collapses, and this is why even a "small" country like Greece is causing such large shocks in the world's financial market: Leveraging is so great that even if one borrower can't pay what the bank expects, then the bank will collapse. This is called "de-leveraging", as the banks are forced to accept major losses. This is not something that the banks like of course, so in order to avoid bankruptcy, the banks are looting theworkers, constantly asking for "sacrifices".And will not stop until they get trillions more.

EFSF, the fund that the European capitalists set up in order to save "the PIIGS nations" (=in order to save the banks), is a good example of how the world does not accept any more leveraging: EFSF was only given a few billions at best, and the Germans wanted to use a high ratio of leveraging those billions, so that the EFSF could lend out 1 trillion euros (even though its actual funds were nowhere near that number). The world rejected it, as everyone is starting to reralize that the PIIGS nations will require a lot of money, and the EFSF does not actually have this money. So, nobody really liked the EFSF - here's a great comic illustration of it as a box that is shinny on the outside, but...empty on the inside:

We are going to see a lot more of these "rejections" over the next few years. In the mean time, here's a famous quote by JP Morgan - something for everyone to think about:

"Gold is Money. Everything Else is Credit".

What happens when an "era of leveraging" ends? Maybe "credit" will not do so well from now on...

What is "money"? Is it the same as "currency"? What about gold?

2012-01-04T20:25:00.002+02:00

What is money? Everyone talks about it, but what is it exactly? Why did we created it the first place? A lot of people seem to blame money for all the problems in the world, and yet "money makes the world go round".

In order to truly understand what is happening today, we must first explore how money came to be, and the purpose it serves.

In primitive human societies, humans were all hunters, with no or little/simple tools, so there was no real specialization. These people barely had enough in order to survive - nothing more.This is why there was no private property, or trade transactions (some primitive races in places like the Amazon still live in such a state).

But then humans began to improve their tools and weapons, and they also developed agriculture as well, which was a huge leap forward. It today's terms, people become more productive, and "specialization" started to appear, as some people became "professional farmers", some others were "professional craftsman" creating tools etc. For the first time in history, there were different "professions" - this "specialization" allowed people to become more productive in more and more tasks, and every "professional" (eg farmer, hunter, builder, craftsman, etc) was not self-sufficient, but also relied on others in order to live a better life.

By increasing productivity, humanity could create more wealth than before, and by increasing specialization some people (eg the farmers) had a surplus of wheat, and some other people (eg the craftsmen) had a surplus of tools or clothes. So, this is when private property firsts appears, and trade starts to grow, as one person exchanges "something that belongs to him" with "something else" that belongs to "someone else".

This barter system had some problems however: For example, some products are not easy to carry, or they don't last long (food is a good example, as it must be consumed within a few days). Furthermore, as specialization deepens, there are more and more trade transactions.

This is why people turned to something else, a "super-product" that could be used as a benchmark for all other products: Money. All other goods have a value that could now be expressed through it.

Mankind has used many different forms of money, but gold (and secondarily silver) is the form that dominated over all the other forms. The reason is that gold is durable, easily transferable from one place to another and rare. Many other forms of money where tried, but nothing could beat gold's advantages as money.

Today, specialization has grown to an incredible degree - capitalism has created an international system, where everyone is more or less dependent on others from around the world in order to live a good life. When such systems collapse, humanity suffers greatly - here's Tony Jackson from the Financial Times:

Four years ago, I related in this column how a stockbroker acquaintance of mine had likened the outlook to 1929. A couple of weeks ago he was back on the phone. Forget 1929, he said: we are looking at the Dark Ages.

The Dark Ages, of course, are something else again. But let me repeat here what I said four years ago: that the purpose of such comparisons is not to indulge in fancies about history repeating itself, but to expand our conception of the possible.

Quantifying the effects of the collapse of the Roman Empire is not an exact science. But from the start to the finish of the first millenium AD, according to the economic historian Angus Maddison, the economy of Western Europe shrank by around a quarter, and that of Italy itself by nearly half.

What this meant for Britain has been spelt out by the Oxford historian Bryan Ward-Perkins. After the Romans left in 410 AD, the archaeological record suggests that the economy slumped to a much more primitive level than on their arrival nearly 400 years earlier.

The reason is clear enough. The more complex and specialised an economy becomes, the more helpless its individuals are in the face of breakdown. The Romans introduced a higher level of complexity to Britain, then took it back home again.

It is here that parallels with today start to look rather stretched. But the theme of periodic collapse is perhaps borne out by the longer historical record.

Unless capitalism is overthrown, and private property is abolished, capitalism is about to send us in a new "Dark Age”, as antagonisms create trade wars, protectionism and full-scale military wars. We are dependent on each other, but we are divided by a handful of oligarchs, who don't produce anything but exploit us, grabbing an ever-increasing part of the wealth for themselves, leaving nothing but crumbs for us to fight over.

We will talk more about this in the future, but for now let's get back to the history of money, as gold ("money") has today been replaced by "currency".

Money and currency are two different things - and the fact that most people thing of them as being the same thing is one of the great misconceptions of our time.

When the Roman Empire collapsed, the coins it was issuing as currency had no silver in them (the Romans used silver, not gold). As it has happened many times before in history, gold has today been replaced by fiat currencies. We will discuss the reasons for this in future posts over the next few days.

For now, we will discuss something else:

If today's currency is not money (gold), and there is no gold standard to link these two, then what holds these currencies together? There is not enough gold to back all of them up (at least not in today's exchange rates), so what does back them up?

These currencies are 100% based on faith ("trust"). Faith is always an important factor in capitalism and in the monetary plane in particular, but today's currency in circulation is of value purely because the world believes that they are. If people stop believing that they are "of value", then the value of these currencies will go down to zero. Today's currency is ultimately nothing more than pieces of paper with some beautiful images and the signature of the Trichets and Bernankes of the world.

How much do you trust their signature?

Many say that "gold is a bubble" or "i am not interested in investing my money in gold because i do not want to invest, I want my money to be stable and not having to worry about how my investment will perform".

In reality, these people have no money. They only have currency.

All of humanity is today participating in an "experiment" where we are all investors, even without realizing it. We are by default investing our money in various currencies (apart from all the other investments that someone can make such as shares, etc).

These currencies, like any other investment, can rise and fall - maybe you will make a profit if the currency you use rises, or even completely lose your money (if the value of the currency in which you invest goes to zero (hyperinflation)).

In contrast, gold is money (not currency), and it remains constant. In fact, it is the only thing that remains constant. Its value has never gone down to zero in the thousand of years that it has been used as money, and actually it has not changed much. Gold just stays constant, as a storage of wealth.

As for the value of gold against all the currencies breaking one record after another, it is not because gold is rising, but because the currencies are falling.

So, anyone looking for stability and wanting to protect his wealth, will actually have to resort to gold.

Unfortunately, most people are economically illiterate (the ruling class has made sure of it for it, and the today's "left" has not done much better). This is why most people think that that the currency is what remains constant, and that gold is what is changing. This way of thinking suits the ruling class, which is why they propagate it, as it enables them to steal from people by inflating the currency, without the people realizing it (since in the minds of most people, the currency is stable, and gold is "an investment" that may or may not do well. Most people do not want to invest their money, they just want to store it, so they choose currency over gold, when if fact gold is what they are looking for stability-wise).

Someone could argue that maybe the dollar, the euro or some other currency will actually do well - if they do, then maybe it is better for someone to own currency instead of money (gold). And if the economy is growing, then this is true - for the short term at least: If you decide to invest your money and start a business, maybe this business will do well, and you will become a rich person with lots of money. But what happens if your business does not go well?

“Don’t be a pessimist”, some will say, maybe businesses will do well in the future.

In today's environment however, this is impossible - and here's why:

We have already explained that after the fall of the USSR, and the integration of China in the global market, the productive base of the West is being wiped out because industrial capitalists are fleeing to Asia (mainly because of cheap labor costs which make them more competitive).

The West would have collapsed, if it wasn't for all the loans the banks have been giving out, in order to "mask" the flight of industrial capital.

But these loans can not be repaid, so the West now has a very small productive sector, and it is also loaded with huge debts (and of course the ruling class wants us to pay for them, while they are getting "bailed out").

Since these loans can not be repaid, banks are insolvent (like Lehman Brothers was).

The only way for the global banking system not to go bankrupt, governments around the world are printing massive amounts of "money" (currency), and giving it out to the banks.

This process is possible because there are no limits to the amount of currency that the governments can print. There is no gold standard, so they will print as much as they need in order to save the banks. The banks are their friends, not "the people". So, they obviously have the political will to "print until we run out of paper". The derivatives market alone is worth 700 trillion $ according to Marketwatch, so we will see a lot of "money" printing over the next few years.

But as governments are printing huge amounts of "money", the value of this "money" is falling - this is why gold is making such a comeback after decades of being considered as "a fringe investment"

This policy of unlimited "money" printing is supported primarily by banks, but it is also supported by the industrial capitalists as well, because the more the currency depreciates, the lower the salary of the worker becomes. Thus, labor costs become smaller, and "competitiveness" is restored, so exports rise.

All states want to save their banks and to enhance their exports against foreign competitors - so all states print money. Hence the phrase "currency wars", with each state competing against the others in a game of who will devalue their currency more than their competitors.

But the more "money" governments print, the more people's thinking about them changes.

The U.S. dollar, euro, yen, etc. have value because people think that they do and they use them. But as these currencies are being inflated, people are starting to think that "these currencies are becoming worthless" (and this is why ordinary citizens, and -especially- central banks of the non-Western world are buying gold at an increasing rate - see here, here and here for some examples of this trend).

And this is also why the oil oligarchs who control humanity's #1 source of energy, but are paid exclusively in dollars are against the USA - because they do not want to be paid in a currency when its value is constantly falling (this is why the oil crisis of 1973 happened: It took place shortly after the abolition of the gold standard by Nixon. The oil states did not want to be paid in dollars but in gold. This is something that has to be discussed in more detail in future posts. However, it is interesting to note that Saddam Hussein, Qaddafi and Ahmadinejad were all trying to sell their oil in a currency other than the dollar...).

This process of "moving away" from the dollar as the world's reserve currency (and all the other fiat currencies as well) will continue, as more and more people start to realize that the value of all currencies is constantly falling. So, sooner or later, people will reject these currencies, because nobody wants a currency when he knows that the value of it is constantly falling. Then, there will be chaos as everyone will try to convert all of their currencies to money, ie in gold. [note: Before that happens, we will first witness the destruction of the "paper gold" market that capitalists have created. But "paper gold" is something that we haven't yet discussed, so i'll just leave it as a sidenote for now)

Many riches will be lost (because they is "paper"), while some others who are more "awake" who own gold will escape the real bubble (ie currencies). Gold is the only thing that will remain "stable" when the rest of the monetary system is destroyed and replaced by a new one, in which clearly gold will play a central role.

As for the future of the workers, it is dystopic to say the least, unless they organize in order to overthrow their masters - even if they do find a job, they will be paid in [hyper]inflated currencies (a tremendous reduction in wages).

Of course, the transfer of wealth and power from the U.S. and the West to China, Russia (the Est), will probably not be allowed to continue in a "peaceful" fashion. The U.S. will not fall without a fight, especially since their military machine is the only thing that they have going for them. Wars may be expensive, but they are also the only thing that keeps the rest of the world in place, as all the oil states are forced to use dollars as a "means of payment" for their oil. This is the only thing that keeps the dollar and the USA going (Russia and China are already rejecting the dollar - they are buying gold and they are using their own currencies for the exchanges between them. Even Japan, a traditional US ally, decided to use its own currency in its transactions with China instead of the dollar).

Citigroup tells it like it is

2012-01-04T13:32:00.000+02:00

Income inequality is one of the hottest topics right now - and with good reason, as it has reached record heights, and is continuing to grow.

Citigroup, one of the world's largest financial institutions, wrote an excellent report on the subject back in 2005, which can be downloaded in two parts here and here. Even though it was written six years ago, it offers a much better insight as to how the world trully works, instead of all the usual delusions about "democracy". No wonder Citigroup is constantly trying to disappear its "Plutonomy Report" which was leaked (it was never supposed to be published).

In a nutshell, Citigroup describes the currect structure of our society as a "plutonomy", an economy "powered by the wealthy". But it also has some really interesting points to make about the rest of us, the "non-rich" people.

Here are some excerpts from Citigroup's report:

"The World is dividing into two blocs - the Plutonomy and the rest. The U.S.,UK, and Canada are the key Plutonomies - economies powered by the wealthy.
[...]
"We should at this point make clear that we have no view on whether plutonomies aregood or bad, our analysis here is based on the facts, not what we want society to look like."
...
In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take.There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie."
[...]
the top 1% of households in the U.S., (about 1 million households) accounted for about 20% of overall U.S. income in 2000, slightly smaller than the share of income of the bottom 60% of households puttogether. That’s about 1 million households compared with 60 million households, both with similar slices of the income pie! Clearly, the analysis of the top 1% of U.S. households is paramount. The usual analysis of the “average” U.S. consumer is flawedfrom the start. To continue with the U.S., the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better(or worse, depending on your political stripe) - the top 1% of households account for40% of financial net worth, more than the bottom 95% of households put together."

The report even mentions the first signs of a crisis, which where becoming increasingly clear back in 2006, when Citigroup sent out this report to its wealthiest clients. However, Citigroup advices its clients "not to worry", because...we live in a "plutonomy", and the rich are in control. So even if a crisis does occur, they have the economic and political power to deal with it. And, unfortunatelly for us, Citigroup's analysis was spot-on, as Citigroup managed to receive billions of dollars from the US government, along with most of the other major banks. And these bailouts never seem to end, as workers, small-time businessmen, and even entire countries can't possibly repay all of their loans and mortgages, as they become poorer and poorer. This makes the banks insolvent, and they need trillions of dollars to cover their losses. But, just like Citigroup predicted, their huge economic and political power allows them to act like blacks holes "sucking in all the available recources", leaving no recources for the rest of us. No wonder they are ofter descrided as "zombies", or "vampires", etc.):

Most “Global Imbalances” (high current account deficits and low savings rates, highconsumer debt levels in the Anglo-Saxon world, etc) that continue to (unprofitably) pre-occupy the world’s intelligentsia look a lot less threatening when examined through the prism of plutonomy. The risk premium on equities that might derive from the dyspeptic “global imbalance” school is unwarranted - the earth is not going to be shaken off itsaxis, and sucked into the cosmos by these “imbalances”. The earth is being held up by the muscular arms of its entrepreneur-plutocrats, like it, or not."

Here's another prediction by the analysts of Citigroup: The rich will continue to get richer

"We think the rich are likely to get even wealthier in the coming years.
[...]
These“content” providers, the tech whizzes who own the pipes and distribution, the lawyers and bankers who intermediate globalization and productivity, the CEOs who lead the charge inconverting globalization and technology to increase the profit share of the economy at the expense of labor, all contribute to plutonomy. Indeed, David Gordon and Ian Dew-Becker ofthe NBER demonstrate that the top 10%, particularly the top 1% of the US – the plutonomists in our parlance – have benefited disproportionately from the recent productivity surge in the US. ( See “Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income”, NBER Working Paper 11842, December 2005)."

Are there any dangers for this "plutonomy"? Yes, there are, and Citigroup seems to be aware of the fact that the poor can only take "so much" (as Machiavelli famously described "When neither their property nor honour is touched, the majority of men live content", but what happens when lose both of these things?)

"Plutonomy, we suspect is elastic. Concentration of wealth and spending in the hands ofa few, probably has its limits. What might cause the elastic to snap back? We can see a number of potential challenges to plutonomy.The first, and probably most potent, is through a labor backlash. Outsourcing,offshoring or insourcing of cheap labor is done to undercut current labor costs." [...]

We saved the best for last however, as Citigroup accurately describes the main reason why the capitalists are able to keep the lower classes "under control": It's the illusion that "everyone can join in", and become a member of the plutocracy himself. Why fight them, when you can become one of them and live the rest of your life as a wealthy and powerful individual?

However, wealth and power have become so concentrated, that more and more workers are realizing that they will never become a part of the upper class - in fact, they will never become a part of the middle class either (because the "middle class" is a "luxury" that western countries cannot afford anymore, as they have to compete against the likes of China, India, etc.). This is why more and more workers will have to fight back against the capitalists, instead of trying to become like them. This is a process that has already started (protests are becoming a wide-spread phenomenon, although we obviously have a long way to go before the working class actually is ready to seize power fot itself). Here's Citigroup's take on it:

Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Pluto-participant. Why kill it off, if you can join it? In a sense this is the embodiment of the “American dream”. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to being truly rich.

Could the plutonomies die because the dream is dead, because enough of society doesnot believe they can participate? The answer is of course yes. But we suspect this is athreat more clearly felt during recessions, and periods of falling wealth, than when average citizens feel that they are better off. There are signs around the world that society is unhappy with plutonomy - judging by how tight electoral races are. But as yet, there seems little political fight being born out on this battleground.

Our overall conclusion is that a backlash against plutonomy is probable at some point. However, that point is not now. So long as economies continue to grow, and enough of the electorates feel that they are benefiting and getting rich in absolute terms, even if they are less well off in relative terms, there is little threat to Plutonomy in the U.S., UK,etc.

Income inequality is greater today than it was in the Roman Empire

2012-01-03T23:21:00.000+02:00

The Roman Empire finally collapsed, and humanity entered the "Dark Ages". What will follow today's society?

Repost from persquaremile.com:

Over the last 30 years, wealth in the United States has been steadily concentrating in the upper economic echelons. Whereas the top 1 percent used to control a little over 30 percent of the wealth, they now control 40 percent. It’s a trend that was for decades brushed under the rug but is now on the tops of minds and at the tips of tongues.

Since too much inequality can foment revolt and instability, the CIA regularly updates statistics on income distribution for countries around the world, including the U.S. Between 1997 and 2007, inequality in the U.S. grew by almost 10 percent, making it more unequal than Russia, infamous for its powerful oligarchs. The U.S. is not faring well historically, either. Even the Roman Empire, a society built on conquest and slave labor, had a more equitable income distribution.

To determine the size of the Roman economy and the distribution of income, historians Walter Schiedel and Steven Friesen pored over papyri ledgers, previous scholarly estimates, imperial edicts, and Biblical passages. Their target was the state of the economy when the empire was at its population zenith, around 150 C.E. Schiedel and Friesen estimate that the top 1 percent of Roman society controlled 16 percent of the wealth, less than half of what America’s top 1 percent control.

To arrive at that number, they broke down Roman society into its established and implicit classes. Deriving income for the majority of plebeians required estimating the amount of wheat they might have consumed. From there, they could backtrack to daily wages based on wheat costs (most plebs did not have much, if any, discretionary income). Next they estimated the incomes of the “respectable” and “middling” sectors by multiplying the wages of the bottom class by a coefficient derived from a review of the literature. The few “respectable” and “middling” Romans enjoyed comfortable, but not lavish, lifestyles.

Above the plebs were perched the elite Roman orders. These well-defined classes played important roles in politics and commerce. The ruling patricians sat at the top, though their numbers were likely too few to consider. Below them were the senators. Their numbers are well known—there were 600 in 150 C.E.—but estimating their wealth was difficult. Like most politicians today, they were wealthy—to become a senator, a man had to be worth at least 1 million sesterces (a Roman coin, abbreviated HS). In reality, most possessed even greater fortunes. Schiedel and Friesen estimate the average senator was worth over HS5 million and drew annual incomes of more than HS300,000.

After the senators came the equestrians. Originally the Roman army’s cavalry, they evolved into a commercial class after senators were banned from business deals in 218 B.C. An equestrian’s holdings were worth on average about HS600,000, and he earned an average of HS40,000 per year. The decuriones, or city councilmen, occupied the step below the equestrians. They earning about HS9,000 per year and held assets of around HS150,000. Other miscellaneous wealthy people drew incomes and held fortunes of about the same amount as the decuriones.

In total, Schiedel and Friesen figure the elite orders and other wealthy made up about 1.5 percent of the 70 million inhabitants the empire claimed at its peak. Together, they controlled around 20 percent of the wealth.

These numbers paint a picture of two Romes, one of respectable, if not fabulous, wealth and the other of meager wages, enough to survive day-to-day but not enough to prosper. The wealthy were also largely concentrated in the cities. It’s not unlike the U.S. today. Indeed, based on a widely used measure of income inequality, the Gini coefficient, imperial Rome was slightly more equal than the U.S.
[...]
The Gini coefficient scales from 0 to 1, where 0 means each portion of the population gathers an equal amount of income and 1 means a single person collects everything. Schiedel and Friesen calculated a Gini coefficient of 0.42–0.44 for Rome. By comparison, the Gini coefficient in the U.S. in 2007 was 0.45.

Schiedel and Friesen aren’t passing judgement on the ancient Romans, nor are they on modern day Americans. Theirs is an academic study, one used to further scholarship on one of the great ancient civilizations. But buried at the end, they make a point that’s difficult to parse, yet provocative. They point out that the majority of extant Roman ruins resulted from the economic activities of the top 10 percent. “Yet the disproportionate visibility of this ‘fortunate decile’ must not let us forget the vast but—to us—inconspicuous majority that failed even to begin to share in the moderate amount of economic growth associated with large-scale formation in the ancient Mediterranean and its hinterlands.”

In other words, what we see as the glory of Rome is really just the rubble of the rich, built on the backs of poor farmers and laborers, traces of whom have all but vanished. It’s as though Rome’s 99 percent never existed. Which makes me wonder, what will future civilizations think of us?

Source:

Scheidel, W., & Friesen, S. (2010). The Size of the Economy and the Distribution of Income in the Roman Empire Journal of Roman Studies, 99 DOI: 10.3815/007543509789745223

Greater productivity, and the eight-hour day

2012-01-03T18:00:00.000+02:00

I received a comment from one of my readers in yesterday's post, asking me to translate in English some of my older articles about the monetary system and gold (i have been blogging in Greek for 5 years now). However, before we get there, we must first explore some issues that are much more important, despite the fact that they are not discussed as much as gold, or the fall of the dollar-centric monetary system we have today.

Here's something from the Keynesian economist Joseph Stiglitz (source: Vanity Fair):

[...] The argument has been made that the Fed caused the [1929] Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.
[...]
The banking crisis undoubtedly compounded all these problems, and extended and deepened the downturn. But any analysis of financial disruption has to begin with what started off the chain reaction.
[...]
The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.

Stiglitz is right - today's problems go much deeper than just "a few greedy and reckless bankers". And he is also correct in identifying globalization and greater productivity as the two most important reasons for the decline in manufacturing jobs in the West.

We talked about globalization yesterday - so today we will talk about "greater productivity". Here's a chart about the USA:

Workers are becoming more and more productive, mainly due to great technological progress. Computers revolutionized production, and huge advances are occurring at a blistering pace (check out 3D "printing" of products for example, a revolutionary new way of producing goods with very little human effort required).

This increased productivity leads -obviously- to the production of more wealth than ever. And yet wages are stagnant at best - so who gets all this new wealth that is being produced if not the workers?

You guessed it, it's a handful of capitalists. Prof Rajan notes that “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households”. (Martin Wolf, Financial Times, "Three years and new fault lines threaten").

Ever since the working class stopped "fighting the good fight" against being exploited by the capitalists, the capitalists have been able to seize a huge (and ever-increasing) portion of the wealth that is being created. Unions, workers political parties, etc. are "a thing of the past" - and off shoring production to China was "the nail in the coffin" for the Western workers.

Check out these charts, and compare them to the one above: You will see that they all follow a (VERY) similar pattern:

But let's get back to how greater productivity has resulted in the loss of jobs (and what can be done to fix this problem). Here's "a blast from the past" from Wikipedia:

Luddite fallacy

The Luddite fallacy is an opinion in development economics related to the belief that labour-saving technologies (i.e., technologies that increase output-per-worker) increase unemployment by reducing demand for labour. The concept is named after the Luddites of early nineteenth century England.

The original Luddites were hosiery and lace workers in Nottingham, England in 1811. They smashed knitting machines that embodied new labor-saving technology as a protest against unemployment, publicizing their actions in circulars mysteriously signed, "King Ludd."

This is considered fallacious because, according to neoclassical economists, labour-saving technologies will increase output per worker and thus the production of goods, causing the costs of goods to decline and demand for goods to increase. As a result, the demand for workers to produce those goods will not decrease. Thus, the "fallacy" of the Luddites lay in their assumption that employers would keep production constant by employing a smaller albeit more productive workforce instead of allowing production to grow while keeping workforce size constant.
[...]
Businessman Martin Ford, author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, argues that the Luddite Fallacy is merely an historical observation, rather than a rule that applies indefinitely into the future. Ford describes how high technology improves geometrically, driving productivity gains which inevitably will outstrip human driven consumption increases that go up in a more linear fashion. Comparing consumption to a river of purchasing power, as companies along the river become more automated they extract more purchasing power from the river than they return in the form of employee wages and lower cost of goods. During the period that technology created jobs at the rate that they were made obsolete in other industries, Luddism was indeed a fallacy. Ford asks what the factual support is for the belief that the rate of job creation will match job destruction in perpetuity, especially in light of the phenomenon that increased capabilities of machines reduces the need for human labor in newly created enterprises at an exponential rate. Martin Ford proposes that like rivers, purchasing power be regarded as a public resource that industries cannot be allowed to pump dry. To do otherwise would fuel a deflationary spiral as lowered employment reduces purchasing power, forcing lower prices to compensate. The deflationary pressure perpetuates a cycle of shrinking of the economy as profitability plummets, resulting in further reduction in money put in the hands of worker-consumers. From the perspective of Ford and others such as Jeremy Rifkin who share this perspective, the Luddites may have simply been 200 years too early.

Besides job destruction, Luddites claimed that automation made the rich richer and the poor poorer. Economists have found that between 1980 and 2005, American jobs vulnerable to automation were lost, forcing workers into either low paying manual work or high paying technical work that is inherently difficult to automate. One study by MIT economists David Autor and David Dorn drew on evidence from the United States Department of Labor to show that automation caused sharp losses of middle class jobs, forcing a polarization of wages and greater income inequality. The phenomenon of polarization due to automation is not confined to the US, also occurring in 15 of 16 European countries for which data is available.

As robotics and artificial intelligence develop further, even many skilled jobs may be threatened. Technologies such as machine learning may ultimately allow computers to do many knowledge-based jobs that require significant education. This may result in substantial unemployment at all skill levels, stagnant or falling wages for most workers, and increased concentration of income and wealth as the owners of capital capture an ever larger fraction of the economy. This in turn could lead to depressed consumer spending and economic growth as the bulk of the population lacks sufficient discretionary income to purchase the products and services produced by the economy.

Photo of Luddites "raging against the machine" (literally): Luddism tries to turn back the wheel of time, instead of trying to use the new technological advances in a way that benefits the workers. Machines aren't the enemy, the control of production by a handful of capitalists is.

What Ford is describing is what K.Marx identified more accurately as "a tendency of the rate of profit to fall" - Marx understood that this is just a tendency, not a rule, as there are many factors that can counteract this tendency, such as more intense exploitation of labour, cheaper raw materials, etc.

It is however true that utilizing new technologies in out times has created less jobs than it has destroyed.

It's not the first time this has happened in history:

A century ago, the workers realized that there was no point in destroying the machines - instead, they started to make a demand for the eight-hour day and coined the slogan "Eight hours labour, Eight hours recreation, Eight hours rest". Here's wikipedia on the subject:

The eight-hour day movement or 40-hour week movement, also known as the short-time movement, had its origins in the Industrial Revolution in Britain, where industrial production in large factories transformed working life and imposed long hours and poor working conditions. With working conditions unregulated, the health, welfare and morale of working people suffered. The use of child labour was common. The working day could range from 10 to 16 hours for six days a week.

Is this not what is happening right now, especially in Asia? And is this not what the future looks like for the workers of the West?

What's the answer to all this? Unfortunately, the Chinese workers are still "too hungry" in order to organize and demand something like the 8-hour day (although their protests are becoming more frequent and organized).

As for the Western workers, they still remember (?) some of their history. Especially the European workers, who still celebrate Mayday and the worker's uprising in Chicago which resulted in the formal institution of the 8-hour day (incredibly, the American workers have very little memory of these events, even though they took place in the USA).

Here's something from Paul Lafargue's famous pamphlet "The Right To Be Lazy", which played a key role in helping the workers of his era (just before the Mayday uprising) realize that they need to use the technological advances of the industrial revolution to their advantage, instead of trying to destroy them:

[...] “The prejudice of slavery dominated the minds of Pythagoras and Aristotle,” – this has been written disdainfully; and yet Aristotle foresaw: “that if every tool could by itself execute its proper function, as the masterpieces of Daedalus moved themselves or as the tripods of Vulcan set themselves spontaneously at their sacred work; if for example the shuttles of the weavers did their own weaving, the foreman of the workshop would have no more need of helpers, nor the master of slaves.”

Aristotle’s dream is our reality.

Our machines, with breath of fire, with limbs of unwearying steel, with fruitfulness, wonderful inexhaustible, accomplish by themselves with docility their sacred labor. And nevertheless the genius of the great philosophers of capitalism remains dominated by the prejudice of the wage system, worst of slaveries. They do not yet understand that the machine is the saviour of humanity, the god who shall redeem man from the sordidae artes and from working for hire, the god who shall give him leisure and liberty.

And yet, today nobody talks about decreasing the working day. But as long as billions of workers in Asia work 10, 12 or even 16 hours/day, and get very little in return, it is pretty clear that a lot of workers, especially in the West, will remain unemployed and starve to death.

These workers "are not competitive enough", so they will live (or die) in extreme poverty. This process will result in many deaths, and much more misery for the workers, yet this is the only way for the capitalists to make them competitive enough, so that their profits can be maximized. Austerity is obviously not a strategy to restore growth, it is a strategy that only aims to reducing the wages of the future generations of workers, even if it re-enforces the economic downturn in the short-term. It is only when the workers have accepted poverty as a way of life that the capitalists will restart investing in the West. Until then, the workers will be left to starve.

The working class MUST demand a shorter working day - for example, even if we could reduce the working day by only an hour, (7-hour day instead of an 8-hour day), we would in effect have created a new job for every 7 workers (instead of employing 7 workers for 8 hours/day, we could employ 8 workers for 7 hours/day).

The problem is of course that the capitalists are the ones in charge, not the workers. And the capitalists will never accept this, as it reduces their profits. And even if some of them do, the rest of them will not, and they latter will dominate over the former, since they will have a big competitive advantage (they exploit the workers more, so they can sell their products at cheaper prices, or produce more products, etc.).

Even Keynes predicted that by 2030, we'd be working a 15-hour week, mainly thanks to greater productivity. (source: Guardian) .

Keynes's mistake was that he underestimated the ability of the capitalists to keep all the newly created wealth for themselves, by increasing the rate of exploitation of the workers.

Yes, capitalism has created the technology to work for only 15 hours/week. But it has also created a class of oligarchs who prefer to live at the expense of the workers, and make some of them work for 15 hours/day, and leave some others unemployed and with no income at all. And it is this realization that has created the incentive for the workers to overthrow the capitalists, or face a life in poverty, even a death of starvation.

The Chinese Democracy World Tour: Guns n Roses were trying to criticize China's version of democracy - if only they know that capitalists think of China's version of democracy as a "role model"...

Echoes of the past: Who are John Stapleton and James Goldsmith?

2012-01-02T17:01:00.002+02:00

"If China," says Mr. Stapleton, M.P., to his constituents, "should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors." (Times, Sept. 3, 1873, p. 8.).

John Stapleton was an English Liberal Party politician who sat in the House of Commons between 1852 and 1874. And yet in just one sentence he explains today's situation much better than most of today's various economists, analysts, reporters, etc. Karl Marx included this quote from Stapleton in his famous book Capital - here's his take on it:

A writer of the 18th century, often quoted already, the author of the "Essay on Trade and Commerce," only betrays the innermost secret soul of English capitalism, when he declares the historic mission of England to be the forcing down of English wages to the level of the French and the Dutch. [37] With other things he says naively: "But if our poor" (technical term for labourers) "will live luxuriously ... then labour must, of course, be dear.... When it is considered what luxuries the manufacturing populace consume, such as brandy, gin, tea, sugar, foreign fruit, strong beer, printed linens, snuff, tobacco, etc." [38] He quotes the work of a Northamptonshire manufacturer, who, with eyes squinting heavenward moans: "Labour is one-third cheaper in France than in England; for their poor work hard, and fare hard, as to their food and clothing. Their chief diet is bread, fruit, herbs, roots, and dried fish; for they very seldom eat flesh; and when wheat is dear, they eat very little bread." [39] "To which may be added," our essayist goes on, "that their drink is either water or other small liquors, so that they spend very little money.... These things are very difficult to be brought about; but they are not impracticable, since they have been effected both in France and in Holland." [40] (Capital I, chap. 24)

And the footnote amplifies:

[40] Today, thanks to the competition on the world-market, established since then, we have advanced much further. "If China," says Mr. Stapleton, M.P., to his constituents, "should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors." (Times, Sept. 3, 1873, p. 8.) The wished-for goal of English capital is no longer Continental wages but Chinese.

What was once a "wished-for goal of English capital" is now becoming a "dream come true" for Western capital.

Marx was probably the first to realize that, in capitalism, the worker is a actually...a merchant, who trades his labour force - he sells it to a capitalist in the market that has been created for this purpose (the "labour market").

The worker has to sell his "merchandise" to a capitalist in order to survive - if he doesn't, he will starve to death, just like any other merchant. The difference is that in this case, the capitalists are the consumers, and just like any other consumer, they like "low prices" (low wages, pensions, health benefits, etc.), and good quality (high quality products, etc.), and they certainly don't like "cartels" (labour unions, worker's political parties, etc.) which prevent prices from going down.

Suppose you were a capitalist - which of these stores would you prefer?

- Shop A: Let's call this shop "England". It offers

1200 euros in monthly wages
8-10 hours working day
a pension when you retire at age 67
some rights to form a trade union
some social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc.

- Shop B: Let's call this shop "Spain". It offers

1000 euros in monthly wages
8-10 hours working day
a pension when you retire at age 67
some rights to form a trade union
some social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc.

- Shop C: Let's call this shop "Bulgaria". It offers

500 euros in monthly wages
10-12 hours working day
a [ smaller] pension when you retire at age 67
some rights to form a trade union
some social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc.

- Shop D: Let's call this shop "China". It offers

200 euros in monthly wages
12-14 hours working day
a [much smaller] pension when you retire at age 67
Very little -if any- rights to form a trade union
Very few social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc. In fact, the is no free press in China, the State arrests those who disagree with the regime, it uses the police and even the army to crack down on protesters, etc.

"One man's version of heaven is another man's version of hell". In the eyes of a capitalist, the terrible conditions for the workers in China are in fact..."great" - labour force is today one of the most undervalued "commodities", since the capitalists can buy it in the cheap in countries like China, India, etc.
Why share some of the wealth with the western workers, who demand wages of 1000$/month (and they go on strike if they don't get it), when you can keep almost all of the wealth for yourself, by employing Chinese workers for just 1 or 2 dollars per day (30-60$/month)?

After the fall of the Soviet Union, capitalism integrated the countries that were "freed from communism" into the world market. Those countries were, for better or worse, "shielded" from competition on the world market. In fact, the model used in these countries had little to do with Marx's vision of communism, and it is more accurately described as "state capitalism".

One of capitalism's strongest points has always been its Borg-like quality of assimilating all other anachronistic (inferior) modes of production, and we should always support this admirable trade of capitalism (and for those of you that may be wondering, yes, i am referring to the Borg from the Star Trek series and movies).

Shortly after the fall of the Soviet Union, in 1994, the GATT agreement was signed, and tariffs in world trade were abolished, allowing for the full integration of China into the global market.

This gave birth to a new era of "globalization", as billions of new workers were now available in the global "labour market". These new workers (workers from the ex-Soviet states + Chinese workers) were not very competitive in terms of "technical knowledge" - but they were willing to work for cheap wages.

The rest, as the say, is history: The thing that matters most to a capitalist is his own, private property and he's always searching for new ways to increase it. China in particular offered an abundance of cheap labour force, and the industrial capitalists begun off-shoring industrial production to Asia.

This process increased the profits for the capitalists, especially the "big players" in the markets, who had the ability to move their production to Asia (the 'smaller capitalists" are being wiped out, because they can't move to Asia, and, as a result, they simply cannot compete against the cheaper goods coming from Asia. This explains why they are in favour of reverting to protectionism. This is something we should be against - we will talk about this subject in a future post).

This process of "globalization" has helped create a truly world market - and this is an admirable accomplishment for capitalism. The only problem of course is that capitalism has done it they only way capitalism can do anything: By exploiting the workers (social inequalities are breaking one record after another, and they are now -at last- a dominant theme in the "public discussion").

Globalization also means that the "western way of life" is being wiped out: The West is going down, and all the western nations are now "facing a terrible crisis". Germany is the only notable exception, as their superior quality in production and their superior technical know-how is a big "competitive advantage", that balances out the "competitive dis-advantage" of "too high wages and pensions" that all the westerns nations have when compared to the likes of China, India, etc. There are also important differences between the various countries of the West (for example France is not doing very well, but it is not doing as bad as Greece), but they all share the "western way of living", the legacy of past workers struggles, which led to the 8-hour day, a reasonable wage for a big part of the working class people, public healthcare and education system for (almost) all, etc. This is why things were decaying much more slowly before the integration of China and the ex-Soviet countries into the world market - because the world market was somewhat "homogeneous", and there wasn't much profit for a capitalist in off-shoring his business elsewhere. Thing have of course changed.

Globalization is a process that has been going on for 20 years - how was the West able to last for that long, and why is it breaking down now?

In fact, the West would have "gone down" much sooner than 2008, if it wasn't for the bankers.

Don't get me wrong though, i don't blame the bankers. Well, actually i am, but i don't blame them for...everything like most people do these days:

The "banksters" have gone out of control - this much is clear to everyone. What most have not yet understood is the reason why the banks became as big and powerful as they did.

Capitalism needed capital - the industrial capitalists were off-shoring production to Asia, and the western workers would probably have revolted in order to stop this process. Yet, the "anti-globalization" movement never became that massive. The reason was that banks provided the perfect substitute for the loss of industrial capital: Debt (loans). "Fictitious capital" as Marx called it, grew and grew and grew.

We are going to study this topic in more detail in future posts, as levering/deleveraging, gold, and currency matters are now a central part of the discussion.

For now, here are some quotes by Marx on the subject - from Wikipedia:

Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 29 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capital" which is capital actually invested in physical means of production and workers, and "money capital" (actual cash held). The market value of fictitious capital assets (such as stocks and securities) varies according to the expected return or yield of those assets in the future, which is at best only indirectly related to the growth of real production. Effectively, fictitious capital represents "accumulated claims, legal titles, to future production" and more specifically claims to the income generated by that production.
[...]
The formation of fictitious capital is, for Marx, linked to the wider contradiction between the financial system in capitalism and its monetary basis. Marx writes: "With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands. The greater portion of this 'money-capital' is purely fictitious. All the deposits, with the exception of the reserve fund, are merely claims on the banker, which, however, never exist as deposits." The expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system; but in periods of economic crisis and uncertainty, capitalists tend, Marx argues, to look to the security of the "money-commodity" (gold) as the ultimate measure of value. Marx tends to assume the convertibility of paper money into gold. However, the modern system of inconvertible paper money, backed by the authority of states, poses greater problems. Here, in periods of crisis, "the capitalist class appears to have a choice between devaluing money or commodities, between inflation or depression. In the event that monetary policy is dedicated to avoiding both, it will merely end up incurring both"
[...]
Profit can be made purely from trading in a variety of financial claims existing only on paper. This is an extreme form of the fetishism of commodities in which the underlying source of surplus-value in exploitation of labour power is disguised. Indeed, profit can be made by using only borrowed capital to engage in (speculative) trade, not backed up by any tangible asset.

In short, what happened was that banks started giving out more and more loans, and this provided the economy with enough capital to create a business, to buy a house, to buy a new electronic gadget, to pay for your tuition fees if you are a student, or even to fund a nation's budget/trade deficit (almost all the western nations are running trade deficits for many years now).

As Marx claims, the expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system. Indeed, some loans can be used for starting a business that produces something useful, or to go to a university and become a great engineer. That's great. But what happens if the West can't compete against the Chinese?

Then a lot of these loans (private and public) cannot be repaid. After all, fictitious capital represents "accumulated claims, legal titles, to future production" and more specifically claims to the income generated by that production. But the West's production is shrinking, because it is not as competitive as China's. So, businesses are going bankrupt, unemployment is rising, wages are falling, and the workers or the small capitalists cannot repay the loans they have taken on, the students can't find a job when they graduate so they can't repay the student loans they have taken on, entire nations can't repay the loans they have taken on, etc.

The West finds itself in a position where it has delayed the inevitable crisis (through extensive borrowing), but at a terrible price:

- The banks have become stronger than ever, because they had to grow in order to give out all these loans.

- The industrial capitalists safely off-shored production to Asia, without the workers noticing or fully understanding the meaning and importance of what was happening.

- The process of globalization was allowed to continue for almost 20 years - that means that the industrial capitalists have been able to off-shore a huge part of production to Asia (much more that the workers would have allowed if it wasn't for the "bribe"/"substitute" they were offered in the form of debt. And this is something that the working class is responsible for - instead of overthrowing capitalism, they opted to take the loans the capitalists offered to them).

- All the western nations have now accumulated great debts. A lot of these debts can be categorized as odious debt, as they mainly benefited a few bankers and businessmen, not the workers. We are going to talk about odious debt much more extensively in future posts.

- They biggest problem is that the working class has little understanding of what is happening. What class struggles? Marx is "outdated" - at least that was the general consensus up until now.

- As for the future, the capitalists are using austerity measures in order to "restore competitiveness" (= to reduce the wages of the workers), and they are also inflating their currencies ("printing money"), in order to rescue the banks (all the banks are insolvent, since the loans they have given out cannot possibly be repaid), and also to indirectly reduce the wages of the workers who are getting paid in that currency (the "currency wars" are nothing more than a sub-battle of the trade war between the capitalists - every country tries to lower the wages of its workers, in order to attract investors).

- As almost all the governments print "money" (= currency) out of thin air, capitalists prefer gold. This is a topic that will require a series of posts in the future. We shall talk about the gold market, the "paper gold market" that the capitalists have "created out of thin air", and the coming oil crisis (the oil states do not like selling their oil, the world's #1 energy source, in exchange for dollars that are becoming more and more worthless. It is only a matter of time before they reject them, and ask to be paid in gold, much like they did during the 1973 oil crisis, when they asked for gold in exchange for oil, as a response to US President Nixon's decision to abolish the gold standard, in order to print as many dollars as the USA desired).

And since this is the holiday season, and some of you may have more free time, i highly recommend watching his one-hour interview of Sir James Goldsmith, an industrial capitalist, who was against the signing of GATT (GATT was the treaty that allowed for global free trade, and the integration of China into the global market). His interview in the Charlie Rose show back in 1994 is "prophetic", and it truly stands the test of time. Goldsmith accurately foresees the consequences GATT would have on the workers and on the western nations. He is a capitalist (and "proud of it", as he argues), yet he is fully aware of the class struggles between labour and capital. Although his solution is practically impossible (he suggests that capitalists should refrain from signing this treaty, because he can't understand, or doesn't like to admit, that capitalists are drown to bigger profits, and asking them not to sign GATT is like asking a shark not to eat fish), his analysis is top-notch. This is a must-watch video: