Usury, Greed, Disorganized Capital and The Playtime EconomyEconomics / Global Debt Crisis 2013 Feb 16, 2013 - 11:56 AM GMT
The French law No 737 of July 2010 relating to and defining usury for consumer credit loans, and applied by the Bank of France on credit supplying establishments, defines the rate at which loans of less than 1524 euros become "usurious" and illegal at 20.30%. For loans of more than 1524 euros, usury starts at 19.89% annual, for loans from 1 January 2013. The less you borrow, the more you pay in interest - this is economics in motion, for example the notion that it is"logical" that borrowing less produces more risk for the lender! The European Central Bank, which at any time can lend to the Bank of France, for loans from July 2012, from its highest rate Marginal Lending Facility, presently charges 1.50% per year for these "higher risk" loans, which BoF can then distribute or on-lend to private banks at "advantageous rates". Obviously an interesting business.
Following the ECB's 489 billion euro loans to Europe's "troubled" private banks in late 2011, it followed this up with another 530 bn euros of cheap loans in February 2012. the ECB's mooted or planned "permanent rescue fund", the European Stability Mechanism should be able to recapitalise private banks directly, breaking the vicious and tiring circle of cliff edge crises before the State decided, ECB executed, taxpayer-funded bailouts are handed over to the greedy hands of private bank owners and operators. By 2014 this new special fund should have a lending capacity of another 500 bn euros. Only the churlish or the naive should ask what nominal or theoretical interest rates will be applied - not usurious, for sure.
Under current and emerging deflationary conditions but only in theory these mark-ups offer "super profit" potentials in mainstream or high street consumer banking. They should be enough to keep private bank CEOs smiling at the camera and not under threat of being "ejectable" or losing their jobs, but this is not so. The reasons feature the lure of really super profits.
THE PRIME ROLE OF GREED
Runaway profit gouging by the delinquant financial "community" is above all traditional, and always ends badly. The history of this process goes back at least 500 years in Europe.
The basic or even sole driver of the search for super profits is greed. You may be greedy enough to want 3 houses, 5 cars and several Hermes handbags, but under conditions where national survival is under threat, mass political action can "persuade" you to get along with one of each - and maybe not the handbags! Under wartime or siege conditions, food and fuel are always the first be taken away from the grasp of financial profit gougers. Rationing food by the quantities needed for normal daily living - not by price - does not present any particular technical problems. With computer chip embedded credit card-type identity cards, it will be easy to ensure that normal quantities of food needed for daily living are available to normal citizens. The greedy and economic delinquants can be quickly identified, and dealt with. Depending on the degree and intensity of economic social and political crisis their greed produces, the type of retribution they are likely to get can be predicted.
The quick argument about loss of liberty, or loss of the anonymous status of Innocent Consumer can be set against the fact that many consumer citizens, today, run around with an Apple-embedded GPS tag in their smart phone: a card enabling them to buy food and fuel at closely controlled prices should, in theory, not worry them all that much. When or if they want to speculate, creating artificial scarcity or intensifying natural scarcity, and profit from it to the detriment of normal citizens this will become a different story.
In wartime or under siege conditions (producing the term "siege economy"), food rationing is always first on the menu, to coin a pun. Food and fuel are always the first items to be taken outside the market-based distribution system, and placed under control by some type of organized political and social power: the State, local and city authorities, religious or ethnic community authorities, spontaneously organized social groups, self-helpers or others. Parallel monetization is often applied, or emerges, for example food stamps and fuel tokens.
The State is always rapid to apply food rationing under siege or wartime conditions - and other menacing conditions - for the simple reason that food shortage and famine soon causes the formerly controllable, easily fooled "masses" to rise up. The State can be overthrown, normally or often by a bloody civil war. As I noted in a recent article with a brief look at wartime, and non-wartime food rationing in UK, food rationing was prepared but not applied at the time of the 1926 UK General Strike. This was a full scale but shortlived struggle, in the street, between organized labour and organized capital, with the State (its no surprise) on the side of organized capital.
Today, 1926-style general strikes, and massive national strikes of the type that broke out in other European states through the 1920s, and in the USA early in the 1920s, would be a strange outdated phenomenon, the mainstream media in the pocket of organized and disorganized capital is pleased to tell us. The slogan is: It can't happen again, it can't happen here. Arab Spring riots, of course, feature mass street demonstrations still today, and play their time-honored role for overthrowing the State and chasing dictators from power, with a certain amount of bloodshed, but this does not primarily concern a struggle between organized labour and organized capital.
The key point is the reason why outright conflict between organized capital and organized labour is no longer possible, at least not yet, in the "mature democracies". This reason does not feature in the government-friendly 24-hour TV newshows (or news bytes between gushing torrents of publicity). Today, in the mature democracies there is only disorganized labour and disorganized capital. To be sure, the destruction of organized labour, the promotion of disorganized labour is a key theme of No Alternative neoliberal, mature democratic political parties. Organized labour is a threat not only to the State and capital, but also to the Middle Classes. Perhaps more important, the trains and planes might not run on time or (oh gosh) might not run at all. This terrible threat merits the placing of soldies and armed forces personnel to handle air traffic control or train station ticketing. The basic goal is simple: destroy organized labour.
Disorganized capital however does not need the State to organize or force it into existence. The morph of capitalism under specific and known historical conditions - like those of today - from organized, to disorganized, is very well known and is a recurring process, "hard wired" into capitalism.
The process can be dated, also. Whate we can call "modern type" disorganized or anarchic capital traces its origins to Europe of the 1500s. The process became quite rapidly larger, with time. Certainly by the early 1700s, even before, "pure play finance" existed and produced mega profits - not super profits. One of the simplest ways to think about the capital rent economy, compared with the economic rent economy, is to consider lottery plays. You can buy a lottery ticket for perhaps $2 but with it, just possibly, you might win $10 million. Calculate your profit margin!
Economic rent can and does produce 'only' super profits. A key example which given rise to thousands of studies, reports, books and even films concerns oil rent. Taking conventional or first generation oil production, still supplying roughly 60% of world oil, this can be operated with "no frills" technology, not including fancy add-ons like directional drilling, enhanced recovery, gas gathering (instead of cheap and easy flaring), and expensive environmental cleanup. The oil can be produced at a cost, excluding capital charges, taxes and royalties of well below $10 a barrel. The oil can be sold at more than $100 a barrel (Brent is about $119 a barrel today), offering a basic profit margin of more than 1000%. That is a super profit - but nothing like your lucky gain with a $2 lottery ticket!
THE PLAYTIME ECONOMY
What Thorstein Veblen called "the leisure class" above all likes gambling: from horses and football teams to oceangoing yacht racing and shiny balls circulating on the roulette wheel - and the chances of dying, called the life insurance industry. The link between the origins of the life insurance industry, investment or risk banking, and the capital rent economy is "organic".
One simple and documented example concerns the run-up to the first modern stock exchange collapse in 1721, in Paris. This featured the collapse of confidence in Mississippi Company stock. The company's stock issue and management was handled by John Law, the Scottish financial expert, on behalf of the Regent, or stand-in Sovereign, acting for underaged King Louis XIV. The Louis line of kings had run up massive debts, and was under intense pressure from its creditors. The letting or ceding of economic rents to creditors - the classic example being the right, for them, to set up highway tollbooths and tax all passing traffic - was not enough to hold down what was literally Sovereign debt.
John Law therefore set up a stock market scam enabling capital rent-type profits to be made. Even the investors or gamblers in Mississippi Company stock had been able to make 1100% profit in the go-go year of stock price growth, 1720-1721. But the issuers or creators of the stock made vastly higher profits than that. In addition, the creditors of underaged King Louis XIV, meeting in Paris coffee shops, took bets on whether or not he would die or be assassinated and be able, or not, to repay their loans - an early version of the life insurance gambling play or "industry".
The gambling chits used by the capital rentiers in their coffee shops were IOUs from the Regent, convertible into Mississippi Company stock, or into economic rent-generating opportunities like highway tollbooths, and bets on whether the King would survive. This gave way to active trading, with potential total losses, and potential "mega profit" gains across the coffee tables. Jerome Kerviel of Soc Gen or The Whale of London know all about it!
Most important of all, this activity is purely speculative and purely parasitic on the real economy. Its role and relation to physical activity in the economy is either zero or very close to zero. Put another way, the capital rent gaming economy can only exist on the back of the real economy - not the other way around. As Veblen put it, this capital rent economy is an "outgrowth" from the normal market capitalist economy, which we can consider as the ultimate stage of capitalism: it mutates from market capital, to economic rent capital, and finally to capital rent, before it collapses.
THE BETS ARE OFF
Removing parasites from the economy is relatively easy: products and services are taken outside the market distribution system and-or demonetized. With no playtime chits - money, stock certificates, bonds, loan agreements, credits, etcetera - there is nothing for capital rentiers to gamble with. They can retreat to highway tollbooth operations, paid in kind not cash, Dick Turpin style!
The main problem with this "simple solution" is that economic collapse will also happen, entraining almost certain revolution or civil war, and the rise of dictatorship, military junta or tyranny. Today, this is the real underlying threat of crony capitalism, no better but more complicated than King Louis XIV's crony capitalism, running out of control and producing what it always produces: market collapse due to collapse of confidence. This is normally followed by massive unemployment, increased social injustice, general strikes, civil wars, famines, epidemics and international wars.
This in a nutshell is today's main underlying problem - both political and economic. We can be certain that uncontrolled growth capital rent activity results in, or intensifies economic decline, measured as declining growth of GDP followed by outright contraction of GDP, and spiralling debt growth, among other key indicators. This reflects the sad but statistical reality of capital rentier plays: like the $2 lottery tickets, their total losses are frequent, even if their greed for mega profits keeps them toiling at their on-line playstation trading consoles sucking on a Starbucks takeout coffee.
By Andrew McKillop
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012
Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.
© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.
Andrew McKillop Archive
© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.