Changing course

Considering that unpaid added value can only realise its value by granting credit, that the accumulation of capital needs a corresponding accumulation of debts, and that debts grow faster than incomes and lead to financial breakdowns, it should be possible to find a more rational, less catastrophic way to produce and exchange goods and services. Instead of consumer credit for households and governments, there could be investment credit for businesses. Instead of labour having to borrow to pay for capital’s profits, capital would do the borrowing and would make no profits.

Investment credit goes to production and becomes part of the value produced and sold. Consumer credit is simply consumed. Invested value is restituted and consumed value is not, which means that businesses can pay back their debts whereas households and governments cannot. If perchance they do pay back, demand will contract. As unpaid added value depends on debts for demand, a shrinking debt reduces the amount of unpaid added value that finds a buyer. A lack of demand for unpaid added value that sets off a price war – as it is better to sell for less than not at all – and the sequel is the usual tale of woe. So, just supposing, businesses would make no profits and invest with interest free credit, because interest is paid with profits, while employees would receive all their added value, providing demand for all production. This simple rational model faces a series of objections, notably that abolishing profits would supress incentive to start up and expand businesses, that free credit would need a completely different banking system, and that property rights would be in danger.

Building and running a business needs a helmsman, there is little doubt about that. But a good salary, happy well paid collaborators and contented customers should be sufficient motivations for a commander, without the need for profits. And most business leaders are just that, while the push for profits comes from shareholders. The concentration of property into a few hands began with land, then came money and, finally, the machines and buildings of industry. This is the property that demands – and obtains by the force of law – rent, interest and profits. This is the property that refuses to let, to lend and to hire when the return is not up to expectations. The property grabbed by medieval barons, Renaissance bankers and Industrial Revolution magnates is as present as ever. A thousand years of rapacious appropriations is today’s heritage, but universal intercommunications could relegate that old world to the dustbin of history. The confrontation is ideological, between conserving and progressing, but the key is financial, it all depends on who controls the payment of exchanges.

Banks lend money at interest, often at usurious rates. They also borrow money at interest, the lowest rates possible, and they can then lend it out again many times over. They dispose of current accounts for free and, for the past few years, central banks have been lending them for free. Banks have all the common wealth at their disposal for free and they lend it out selectively and grudgingly, or extravagantly, at interest. This being so, the common wealth could be lent directly to those who are building businesses, without the intermediary of banks. Free credit exists, but the only beneficiaries are banks who leverage it and practise usury.

Political will could reduce the banking system to mere accountancy and people could decide what, where and when investments are made with their money. It would bring down the House of Morgan and bring about a radical transformation of property rights. A colossal reactionary force that seems unshakable, but confronting it is the unprecedented power of social media. The intellectual and material capacity to express opinions and influence decisions was once limited to courtiers and king’s advisors, before spreading to parliaments. Then mass media invented public opinion and went on to express and shape it. The press, radio and television were successive stages of a propaganda machine in the hands of governments and big business, alongside education. Technology did occasionally let through a little subversion, Roneo, offset, FM, provoking underground tremors that jolted the status quo and faded away. Today’s internet technology can propagate alternative ideas in print, sound and image around the globe. The potential force of its subversive shock waves is still unknown, as most applications are in their infancy, but the establishment’s outcry for greater control, bans and shutdowns is a clear sign of anxiety. And the media giants, CNN, Time-Warner, Sony, etc. may soon have less influence than Taylor Swift. The omnivorous nature of internet is modifying every aspect of society, and many changes have yet to come. What is already obvious, however, is the proliferation of independent ideas and original creations, and their unlimited diffusion. A frail enough weapon to combat the Leviathan, but it can be wielded simultaneously by millions.

Fleecing season

Practically all companies have excess production capacities, so they are not increasing their productive investments and, at the same time, the cost of renewing existing investments is going down. This being so, companies have disposable profits and borrowing possibilities to buy back their shares on the stock market. This is a reversal of the norm, where companies sell shares to finance investments, and is on a big enough scale to perturb market values.

Companies are not investing to increase production and are reinvesting at lesser cost to maintain production. They are not growing but they are making more profits. However, company buy backs and generous profits do not alone explain the record highs of stock exchange indexes. The other major factor is the low rate of interest. Bonds and shares compete for demand on the stock market. Bonds bring a return that is fixed at the time of emission, though the percentage changes when they are sold for more or less than their face value. This rate of interest is guaranteed, whereas the dividend paid to shares varies according to profits. The first is secure and the second is speculative. The past few years have seen such a glut of money on the stock market – largely due to quantitative easing – that rates of interest have been unusually low, share prices have been correspondingly high and returns on investments quite mediocre. The accumulated value of capital on the stock exchange has grown considerably – Dow Jones Index: Sept 2007, 16,000 (Feb 2009, 8,000) Feb 2015, 18,000 – but production has not followed and profits only partly.

Share prices have risen and stayed up because of low rates of interest and company buy backs. Behind this is quantitative easing. Banks were given wads of cash in exchange for overvalued bonds, and offered any more they wanted at negative interest. They multiplied the money and lent it out, thereby aggravating the general level of debt. Quantitative easing is over (though the ECB as a late starter is still practising it on a monthly basis, which explains why some European stock markets are still buoyant) and interest rates can only move upward, so share prices can only go down. The question is how far. They will have to compensate a swing to the security of bonds and the end of cheap credit, on top of falling sales and profits as austerity measures cut back demand. Added together these different factors look more like a fleecing than a haircut.

New Age

The egalitarian dream of hairy youths fifty years ago can be blamed on the rainbow colours that had lit up the post-war greyness, on electric guitars and psychedelic drugs, but it was also nourished by the ageless speculation on the virtues of isonomy. Though it may have happened elsewhere, the first occurrence that left any trace was in the Greek Peloponnese when the Dorian invaders discovered the remains of Mycenaean kingdoms with their vast palaces at the heart of the urban architecture. The absolute monarchs and the heroes of Achaean times went to war in chariots and were prone to individual feats and deaths. The Dorian soldiers fought on foot in a phalanx of hoplites armed with long lances. Their efficacy came from training and unity of purpose. The phalanx was the union of free and equal members who practised the martial arts. This originated in the family bonds that tie together clans and tribes in pre-urban societies. The problem was how to maintain their homogeneity in a wealthy metropolis. The Spartans resolved it by uniformity for housing, clothing, food, property and just about everything. The Athenians adopted the agora, a place for debate and argument, for mixing and confronting ideas, a realm of reason. The Spartan solution proved to be a military success, but it blocked evolution and change in every domain. The Athenian experiment put the gods on a hill and opened the city centre for the people to discuss and decide, setting off an insatiable quest for discoveries and wealth.

The attempts by Sparta and Athens to extend isonomy beyond the tribal level were based on the evidence that union is power and that unity is best obtained by equality. But power produces hubris and dominion, empire, overreach and ultimate decline. Athens and Sparta introduced the two models that have been reproduced ever since, with often long intermediary periods of monarchic and tyrannical rule. And the paths followed by the USA and the USSR were not exceptions, with isonomy by discussion and majority decision, where money buys the best debaters, and isonomy by constraint, where change is forbidden. The Soviet system failed because of a growing technology lag. The Spartan model cannot evolve, it congeals society. The American system is failing because of a growing wealth gap. The Athenian model measures in money, so the rule of reason becomes accountancy.

Isonomy generates unlimited imaginative and physical energy. Its togetherness is a force that has always been used for war and occasionally for social progress. It has been repeatedly perverted by demagogues and oligarchs, by sweet talkers and commanders-in-chief. But its main pitfall is its exclusiveness. Even after its expansion by Solon, Clisthenes and Pericles, Athenian isonomy excluded women, foreigners and slaves. However real and sincere the equality, it only concerns members of the group. And, however large the group, a city, a nation, an alliance of nations, even the United Nations, it will exclude some human beings. It could be that togetherness needs a contrary otherness, just as “we” and “us” are not possible without “they” and “them”. Union and equality are natural partners, but a union defines itself by distinguishing members and non-members, equals and different.

Fifty years ago, the union was generational. It cut across social, racial and sexual differences to oppose an ageing system that was waging a pointless and costly war while oppressing its minorities. It was a union of youth against gerontocracy, new ideas against old ones. “Don’t trust anyone over thirty” was its slogan. Unfortunately (or not), youth is evanescent and the union was short lived, leaving behind some nostalgic memories and a deep sense of futility. The social revolution failed but the electronic revolution that had partly caused the generational malaise could not be stopped. After gunpowder, steam and internal combustion, electronics have reduced the role of muscle power in human activities to almost nothing, hence the growing prevalence of physical exercise for the sake of physical exercise, or as entertainment. This final blow to male strength has benefited the weak and notably the weaker sex, whose members can compete equally with men in every domain except sport.

Women have always shown their capacity to equal men in all but strength, but physical strength has been the deciding factor for most occupations until very recently. As that necessity regressed, women were able to invest new activities, though they still had to overcome ideological obstructions and prejudice. WW2 put millions into uniform while, on the home front, women were doing jobs that had previously been reserved for men. The end of the war, demobilisation and the return of a male work force meant sending women back to domesticity. A move that was promoted by the glorification of the middle class housewife, who sees off her husband to work and her children to school, and busies herself all day preparing for their return. But feminism was on the march trampling this supposed ideal and, by the late-sixties, the Rolling Stones would sing “so she buys an instant cake and she burns her frozen steak, and goes running for the shelter of a mother’s little helper”. The model had failed and women were demanding equal opportunities, careers and pay. Male dominated society wavered and gave way begrudgingly, as it also had to deal with contestation from sexual and ethnic minorities and from youths who were dropping out in droves.

The 1970s experienced a profound social transformation where households were earning two salaries, two living wages. It was an existential upheaval for men and an access to property for working class families. Women were moving towards equality with men in the workplace, a slow progress that has still quite a way to go, even in the most “developed” countries. But this equal status obliged them to compete. The female work force that had always been consigned to subordinate tasks was filling jobs all the way up the hierarchies of competence and remuneration. And employers were quick to take advantage, by obtaining more competence for less remuneration. Anyway, two living wages per household is contrary to the principles of capitalism. These assert that the labour force must only earn what it needs to reproduce itself, with no surplus for accumulation. Accumulating wealth is the employer’s business, not the employee’s. So wages were cranked down until two of them were no longer sufficient for living expenses and mortgage payments. All that was gained by struggles in the 1960s has been clawed back, to the extent that, with debts hanging over them, ever more people are back to working six or seven days a week to keep their jobs and survive.

Women have fought for equal rights, pay and opportunities and have succeeded everywhere, even at the pinnacles of power (M. Thatcher, A. Merkel). The feminist protest, alongside ethnic and sexual minorities, has challenged the system of white heterosexual male domination and has proved that XX and XY have the same capabilities, as have minorities vis-à-vis the majority. But this new form of isonomy has bolstered the pyramid of social inequality rather than undermined it. The price for being equal is being the same, sharing the ideology of dominion and accepting its rules. It is a one-to-one equality, he and she, dark and pale, gay and straight, the market equality of buying and selling with the same money. The equality of all together for a common destiny becomes the equality of all against all for individual fame and fortune. The persistent failure of a common weal, by constraint or by argument, could signify that the isonomy of an extended family, clan or tribe cannot apply to larger groups such as cities and states. The empathy that makes isonomy possible cannot include more than so much difference and so many numbers. Someone once remarked that modern humans are a species of apes trying to live like termites. And the truth is that urbanisation is a recent trend in humanity’s long evolution. The oldest known cities, Eridu, Uruk, Ur, Memphis, only date back five thousand years or so. They may have been a mistake, the first step on the path to destruction, one of those unpredictable turns taken by a species that leads to its extinction. Meanwhile, urban life has proved the power of mind over matter and has constantly developed technologies that had not even been dreamed of before. Homo sapiens sapiens has not changed much genetically since spreading out from Africa during the Ice Age. The human species knew from the start how to modify the shape of matter – that is what defined it – but not how to change its nature. That knowledge came slowly with the mastery of fire. It began with cooking and hardening wood. That was followed by pottery, metallurgy, chemistry and nuclear fission. Plants and animals were also modified by selective breeding and pollination, long before genetic tinkering was imagined. The Palaeolithic mind was so developed and imaginative that it has remodelled the planet. The process has created uniformity and sameness, and has destroyed variety, as though the power to transform matter has no alternative paths. It has interconnected the planet in a 24/7 flow of instantaneous communications that is duplicating the new isonomy everywhere.

Animals have evolved to adapt to ecosystems that are modified by the Earth’s tectonic activity and its changing climate. Having learned to mediate their environment with tools, clothes and shelters, humans adapted to all ecosystems, hot and cold, wet and dry, high and low. This variety of situations produced an equal variety of cultures and life-styles and, over time, of physical traits and skin pigmentation. It was a vast human movement that began some thirty thousand years ago. Time enough for a common African source to diversify and adapt. The same humans became very different and were mostly oblivious of their distant cousins elsewhere on the planet. These communities nurtured the group isonomy of us and them, by family feuds, tribal conflicts and ultimately by confederated tribes conquering and submitting strangers. The Electronic Age has produced a different one-to-one isonomy in complete contradiction with the previous model, and the two are confronting each other. Individuals empowered by electronic technology confront groups empowered by numbers. In the past numbers have prevailed, but so has technology though they have seldom been in opposition. Not since the rarity of bronze (of tin even more than copper) weapons gave power to a few over the Stone Age throng. Iron, by its abundance, could be used to equip large numbers, and it has been an essential element of human enterprises since it was first smelted. The Iron Age favoured national group isonomy and mass production/consumption. The Electronic Age favours global one-to-one isonomy and customised production/consumption. This complete transformation of the paradigms of production and social intercourse is causing havoc everywhere, in the “developed” world, where the industrial landscape has to remodel itself for an uncertain future, and in the “developing” world, where the sudden passage from brawn to fingertip power is socially traumatic. And the conservative reaction is at its most violent paroxysm in those parts of the world where the transformation gap is the widest. Being on a par, not with members of a hereditary or cooptative group but with everyone, puts a traditional mind-set upside down. Meanwhile, industry, trade and finance only have a very hazy vision of things to come, as New Age processes continually threaten the status quo, and with the looming ordeals of energy transitions, of climatic disturbances and of a bloated debt bubble. The latter being the most imminent emergency.

Technological transitions are never easy, as they always leave people behind, mainly the old and the poor. But they also open doors for enterprise and youth. The age of steel and fossil fuels is coming to an end, pushing the world into the unknown, to a place so strange that today’s familiar surroundings will be largely redundant. The changes concern what is produced and how it is produced, which in turn is modifying the institutions that govern societies. Driven by technology humanity is changing course, but the momentum of habit hinders the manoeuvre and increases the risk of keeling over. The industrial nations see all they have to lose, and the pre-industrial nations feel they are being denied their rightful expectations. The first must forgo their extravagant unsustainable life style. The second must resign themselves to never attaining it. Neither obligation is welcome, but the isonomy of the Electronic Age might just make a levelling up and down possible, with the universal empathy of me and you replacing the exclusive empathy of us and them. However, a change as fundamental as this does not happen overnight, even with instantaneous communications, whereas the spread of war and the growing numbers of refugees, the imminence of a world debt crisis and rising temperatures all have much shorter time-tables. These are regressive forces inherited from the past and they might be powerful enough to pull everything backwards. The New Age may be interrupted by a Dark Age of chaos and mayhem before its rebirth.