Published on 14 April 2021
Since the 1980’s we have experienced the relentless financialisation of our economy. However, Industrial Capitalism has not been superseded, since the instruments of financial capitalism are still, directly or indirectly, funded off the balance sheet.
In 1986 the UK Government let loose a ‘Big Bang’ on the London Stock Exchange (LSE). Trade would be liberated from the floor by electronic means in a deregulated environment. At the time, the chairman of the LSE, Sir Nicholas Goodison, sold the changes to the public with the following statement:
We must never lose sight of that prime purpose of a stock market, which is to serve industry; to make sure that industry can raise capital on the finest possible terms. We have changed our rules for raising capital, but more importantly we have encouraged a great deal more competition to come into this market and competition must be good for industry because it will compete on price.
You can research into those changes, but basically the LSE became a laboratory for investment banks to apply their financial instruments without restraint. The price that competed with existing capital was not new equity, but capital debt. Today that debt outstrips equity; the industrial base of the UK is decimated; and the LSE no longer serves its prime purpose but is instead dominated by two dinosaurs: oil and banks.
A useful way to understand the unfolding history of the financial markets since the Big Bang is in terms of three related stages:
The last stage is both uncertain and yet to occur. But following the logic of an asset-based mentality it does make sense.
Infinite debt is nothing new. It is the founding instrument behind slavery and rent - debts to an owner that can never be paid off. Industrial Capitalism is a technique for applying infinite debt to a productive entity. From previous articles you will know that to pay off infinite debt polarity shift occurs inside the Capital Layer - the producer/owner rift defined by Company Law. There is no legal or practical obligation for the business to pay out the debt, because that is up to the owner of its shares. It is why Industrial Capitalism is not responsible for the dynamics of exponential growth.
With finite debt, the polarity shift occurs over the Asset Layers of two business entities in a debtor/creditor relation defined by Contract Law. When capital is raised in the form of long-term debt, the debtor is legally obliged to pay the creditor both the principle (the amount borrowed) plus interest on the contractually agreed terms. Since these payments are a liability, they must be taken from capital on the balance sheet. That obligation
The more capital is syphoned off, the more debt can be issued at an increasingly competitive price, reducing equity capital in proportion to the amount of capital debt. Because this process is orchestrated by the banks, they can accelerate the process by increasing the fiat money supply. In so doing, industry serves the stock market, who are forced to raise capital on the worst possible terms. This negative feedback loop is represented in Figure 1.
Since banks and all their ancillaries (hedge funds, asset management firms, VCs etc), are also capitalist entities, they too have an Asset Layer that is owned externally and must declare their balance sheet like everyone else. The capital on the banks’ balance sheet is owned by the shareholders. Therefore, the process of financialising industrial capital is in fact a technique for enriching these owners and the asset portfolios of their clients.
We could redraw the positive feedback loop of Industrial Capitalism, instead showing the negative feedback loop of financial capitalism. There is no point, however, because it would merely show the financial markets sucking the rights to capital out of the production layer. Over time, the economy becomes de-industrialised, and all the money ends up in the banks. Therefore, capital servicing finite debt repayments, not investments, is a kind of anti-capitalism, because Industrial Capital is being systematically eroded by its negative feedback loop.
Money creation issues infinite territory not infinite debt. For example, you own finite territory in the form of property and this bestows a right to legislate upon its use. You draw up a rental agreement which details the terms by which a tenant can obtain access to your territory. Once these laws are accepted by a tenant, they begin to pay off a debt that is without termination. If the debt is not paid, eviction follows, and another tenant takes up the responsibility. Therefore, your tenant must connect to the production layer to service the rent, which is normally via an employment contract issued by a business entity. Both contracts are manifestations of an owner’s UIP, the one swapping rights to consume for labour and the other taking away those rights for providing a home. Your tenant wants to break this cycle by going self-employed but needs start-up funds to buy a van. You offer to lend back the money you obtained from your finite territory in the form of a long-term loan, and issue another contract describing the repayment terms. This capital debt gives your tenant the right to produce, hopefully generating sufficient income to pay the rent. Here, the money supply is tied inextricably to finitude and there is no way you can change that. But central banks, who issue money, can.
The source of infinite debt is finite territory. Where territory is finite, increasing the money supply causes inflation because you are merely dividing the pie into ever thinner slices. However, if you have access to infinite territory, you can issue money against that and the pie keeps on growing. Because money is an allocation of rights, new money creates new rights, so the question is: who is getting them? Infinite territory (which exists in the future) is created by issuing finite debt by fiat. Finite territory (which exists in the present) is then swallowed up by those who have received the right to do so out of thin air. But the debts keep on piling up.
Because all this infinite territory is in the future, what happens when the burden of the future exceeds the bearing capacity of the present? This future is a unitary projection and therefore cannot be maintained save through a force field of supreme violence (such as the US military, financed from the infinite territory of US bonds1). How can the debtors write off their own debts except down the barrel of a gun? Or through the tried and tested methods of warfare, plunder and theft? But perhaps there is another way.
Even though the derivatives and capital bond markets are so immense, they are nevertheless credited against the Production Layer, because where else are these debts going to be ultimately paid off? That means every tradable asset in the financial system (whether bonds, derivatives or equity) are still either dependent upon, or paid through, capital on the balance sheet. You can stoke the market by increasing the amount of debt available for property assets. But how are these debts going to be paid off except through wages, which is again off the balance sheet, since capital is assets minus liabilities, and wages are the latter. Thus, finite debts are underpinned and financed by infinite debt, comparable to the age-old ownership of land. For the endgame, as the capital markets are systematically privatised, the many below the Asset Layer will by default be in debt to those few who remain above it, infinitely.
Here is another way to look at the three stages:
The third stage is often characterised by a return to some kind of gold standard. I think the reason for the return is a simple one - the need to terminate the unending escalation of debt caused by territorial infinitude.
Figure 2 is a process. As the allocation of rights are transferred into finitude, it pushes out the poor. The poor then obtain more rights to an infinite territory which is increasingly worthless (because it is falling into the past).
Crypto currencies are finite and superior to gold in that they have no physical presence. By replacing gold with crypto, the rights of the rich could be re-allocated back to mathematically enforced finitude. That process would be the horror of the world, for once done, how can it be undone?
In the Production Layer, transformations across spatial and temporal workflows never converge in a single point of connectivity. The networks of production and consumption are an ecology of ever evolving relations. It is incredible to think that the controlling forces of our world are the exact opposite of this arrangement.
Licenced by Ian Monnox under a Creative Commons Attribution-NoDerivatives 4.0 International License
Super Imperialism. Michael Hudson 1972. ↩
