Martin Wolf in a Zoom interview with James Livingston, January 2023
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Here are the opening paragraphs of my review of four new books on finance, for Project Syndicate:
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In January 2023, I interviewed Martin Wolf, the famed columnist at the Financial Times, hoping the conversation would flesh out the review I was writing of his recent book, The Crisis of Democratic Capitalism. Toward the end of the session, I asked him to comment on Mervyn King’s book, The End of Alchemy, which I had previously reviewed when it came out in 2016. I knew that Wolf and King had known each other since their student days at Oxford, and wondered about their different paths to authoritative positions astride the global financial system—King had recently retired as the head of the Bank of England, Wolf was then at the peak of his influence within the higher circles of high finance. (Not that he’s lost any standing since.)
My more pressing concern in asking Wolf about King was the radical doubt they seemed to share in describing the financial system they knew so well: they both echoed Willem Buitter, another alumnus of the Bank of England, who has suggested in various venues that there are no rational grounds for private control of banking. To me, all three sound like the Marxists that Donald Trump now accuses the Democrats of being. What’s up with that, I wondered, worried that I was over-reading these eminent authorities to follow my own political compass, which does point due Left.
King, for example, had argued in his book that the best way to prevent crises on the scale of the Great Recession was to abolish banking as we know it—you read that right—that is, the practice of lending money at interest with liquid collateral on hand that has only a small fraction of the value of the money lent, which often goes toward investment in fixed assets. In support of this argument, King had enlisted none other than William H. Kellogg, the leader of the New York Workingman’s Party in the 1840s, who proposed to reform the wildcat system of antebellum America by forcing all banks to hold liquid collateral with value equal to that of the loans they made. This would make bank runs of the kind George Bailey survived simply inconceivable. (See: “It’s a Wonderful Life” [1946].)
I asked Wolf why his friend the former banker-in-chief of England would endorse the ideas of an obscure American widely known as a “money crank,” and go on to quote, approvingly, William Jennings Bryan’s famous “Cross of Gold” speech at the Democratic Party’s nominating convention of 1896, in which the candidate-to-be denounced the national banks for deducting their unearned, unjustifiable incomes from the sum of value produced by workers and farmers, then proposed to expand the money supply and inflate prices—thus letting debtors off the hook—by establishing a US currency tied to silver, not the international gold standard.
Wolf’s quick answer was, “Mervyn is right. Banking is a very special problem. . . . The core problem is that these institutions are absolutely central to modern economies, [but] they’re running a con game.” [See accompanying video below at 39:00 and following] That astonishing answer now seems to characterize the consensus of writers from every angle on the political spectrum, Left to Right, and all positions in between—or well beyond, even unto the Area 51 of financial history where the Rothschilds still reign. No matter where you look, there it is, the idea that banking as we know it is a very long con, a public utility pretending to be a private enterprise.
What in God’s name follows? Can we live forward with such knowledge as Kierkegaard would have us do, proceeding on faith alone? Or should we follow his other advice and understand backward, to ask how we got to the place where everybody knows the emperor is a nudist, a ruler who, having lost interest in any fashion, is eager to go flamboyantly forth among his subjects with no clothes to cover his private parts because he has none?
https://drive.google.com/file/d/1o7Gzh4LqWnrYzPfcBgXiGU_hrqMaawwo/view
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The review appears in full next week at Project Syndicate.
Perhaps Lenin asked a better question than Kierkegaard’s: What Is To Be Done? I mean, if the expert practitioners are telling us that the traders and the bankers and the hedge fund gurus are playing us for fools, every day, why aren’t we demanding that they do more than pay slightly higher taxes on their ill-gotten gains? Like what? Like, how about act on the common knowledge that we, the taxpayers, have socialized their risks, and therefore have every right to treat them as our employees, public servants with the duty to secure our financial futures, not gamble with our hard-earned money in the name of bigger bonuses? Which would entail the protection of the future as such, for example by divesting from fossil fuels and genocidal regimes, meanwhile investing in environmental integrity and politicians who aren’t war criminals.
What is it that constrains us? A fervent belief in private enterprise? That’s doubtful, because we come from the classrooms of the tenured radicals who taught their students to think with Marx and Keynes, to treat the profit motive as “a somewhat disgusting morbidity.” Some of us are those retired radicals. It’s a little late to be espousing any faith in free markets, anyway. We, the people, the taxpayers, already own the banks—we just lack any control over them. In other words, we’ve long since “nationalized” or “expropriated” the means of distribution, but we haven’t assumed the responsibility of supervising them.
It’s difficult to accept these conclusions because to do so is to diagnose ourselves—us well-read, well-educated, coastal elite, beltway kind of people—as suffering from false consciousness, which means not acting in what is obviously, “objectively,” our class interest. You know, like those yahoos out in Kansas who mistook evangelical appeals for real politics, or those dumb workers who vote for Donald Trump, or identify with The Boss, or think Jon Stewart is funny.
John Lanchester, the London Review of Books regular who is an accomplished novelist as well as an acute observer of the economic scene, asks similar questions and reaches similar conclusions in a recent review of two books. He wants to know why we’re not aware of the long con that is modern finance, and if we are, why we’re not doing something about it. Here’s an excerpt from his review in the 12 September issue, where he begins by noting that in 2015, the UK banking sector had assets of roughly $9 trillion:
“Lending to firms and individuals engaged in the production of goods and services—which most people would imagine is the principal business of a bank—amounts to 3 percent of that total. Lending money where it’s needed is what the modern form of finance, for the most part, does not do. What modern finance does, for the most part, is gamble. It speculates on the movement of prices and makes bets on their direction.
“The total value of all the economic activity in the world is estimated at $105 trillion. . . . The value of the financial derivatives which arises from this activity—that’s the subsequent trading [betting on price movements]—is $667 trillion. That makes it the biggest business in the world. And in terms of the things it produces, that business is useless. It does nothing and adds no value. It is just one speculator betting against another and for every winner, on every single transaction, there is an exactly equivalent loser. . . . The only benefit to [the] wider society is the tax paid by the winners; though we need to remember that the losers will have their losses offset against tax, so the net tax benefit is not as clear as it might at first seem.”
The point that Lanchester makes without quite declaring it, and that I would stress, is this: modern finance is exactly what Marx predicted it would become, the headquarters of a socialized mode of production, from where it has been presiding over the gradual erasure of capitalism from “within the bounds of capitalist production itself.” The transfer of effective claims on property from one social class to another, the economic signature of modern revolution—think of the abolition of claims on property in human beings announced in the 13th Amendment to the US Constitution, worth roughly $4 billion in 1900 dollars—has already taken place, insofar as taxpayers (not just citizens) have assumed the fiduciary obligations of the financial system by insuring, indeed guaranteeing, the liquidity of all banking institutions, including the ghostly inhabitants of “shadow banking,”
The completion of this revolution will not require the storming of the Capitol and the overthrow of the state, or any other such outsize gesture. A stroke of the pen will do.
We used to think that the difference between proletarian and bourgeois revolution was that the makers of the latter kind had accumulated their claims to property long before any armed stand-off between the landed nobility and the new middle class became necessary, and had merely to assert those claims to undermine the ancien regime—think of the century before 1641 in England, and before 1789 in France—whereas the leaders of the former kind had to abolish the property rights of the ruling class by force of arms—think of what followed from the military victories of the revolutionaries in 20th century Russia, China, and Cuba.
That difference has disappeared, as far as I can tell. A more or less proletarian revolution has been underway for at least a century, since the modern corporation separated the ownership and control of industrial assets and turned day-to-day decisions regarding resource allocation over to managers with no claim to, or responsibility for, the property at stake in those decisions. This is something like what happened in the century before 1641 in England, as the landed nobility turned day-to-day decisions regarding resource allocation over to rent-paying peasants with neither fealty to the crown nor commitment to the commons.
The analogy isn’t perfect. But these events are enough alike to remind us that revolutions are, after all, in the minds of the people.
By golly! Raising the ghost of Ezra Pound and through him John Adams. In Pound's paraphrase of Adams; Aug. 28, 1811 letter to Benjamin Rush: "Every bank of discount is a downright corruption/ taxing the public for private individuals' gain./ and if i say this in my will/ the American people wd/ pronounce I died crazy." See Pound (canto 71/ p. 416). Here is Adams: fuller language: A national bank of deposit I believe to be wise, just, prudent, economical and necessary. But every bank of discount, every bank by which interest is paid or profit of any kind made by the deponent, is downright corruption. It is taxing the public for the benefit and profit of individuals..." Adams WORKS IX , 638.