An upside-down world

Payments are made with cash or credit. Cash represents past incomes, and credit represents future incomes. The value of past incomes is material, while that of future incomes has yet to materialise and has a part of uncertainty, which is used to justify interest as a risk premium.

Cash and credit are used to pay for investments and consumption. Investments return their value with a fractional surplus, whereas consumption is consumed. Investing future incomes (credit) insures their materialisation in the form of a return on investment. Consuming future incomes does not make them less contingent, and it reduces future consumption.

Invested credit pays itself back. Consumed credit is paid back with less spending. Logically, cash should be consumed and credit invested, but reality is the other way round. Credit is mostly consumed, and a lot of cash is invested. The reason for this is the disparity in incomes. Some have more than they need, and many need more than they have.

Invested credit presents a problem of ownership. Is it the investor or the creditor who actually owns the investment? There is no such confusion when cash is invested. So the path of logic is inverted and the irrational does function… when growth is strong and shared, or when inflation is high. Consumed credit can compensate invested cash, when tomorrow’s incomes are always larger than today’s.

If future incomes are spent in advance, they cannot be spent again. More credit consumption today means less income consumption tomorrow, unless incomes increase enough to compensate paying back the credit. When that is not the case, new credit merely pays back past credit. And, to increase consumption, new credit has to multiply ever faster to stay ahead of the growing mass of repayments. At some stage the process stalls and the house of cards falls.

Credit for consumption is a programmed disaster, but it is the only way to compensate invested cash. The coming collapse could be The Big One, and once the dust has cleared, if the same disparity of incomes persists it will all have been for nothing. And it will persist, if the granting of credit and the property of investments are not seriously reviewed.

Decennial disturbances

Supposing that growth in borrowing and growth in GDP are intimately linked, it follows that a slowdown in borrowing results in slow GDP growth. Borrowing increases GDP when more debts are contracted than are paid back. This means that the length of a growth cycle is determined by the terms of the incurred debts. The commonest long term debt has a ten year duration, which should predict a decennial event. 1987, 1997, 2007, 2017, will the programmed slump follow its usual timetable? These things traditionally occur at the beginning of the last quarter, when everyone is chasing cash to tie up the year’s budget. But the Asian lunar calendar could start the ball rolling a month or so earlier.

A tribal future

Back in 1962, the Canadian historian Marshall McLuhan published “The Gutenberg Galaxy”. In it he described the impact of movable-type printing on human consciousness and social interaction. He also covered the prior effects of the phonetic alphabet, and deciphered those of the new electronic media. The world before writing is made up of sounds. With phonetic writing, and even more with the printed page, the world is perceived as visual space. Whereas radio and sound systems are a return to acoustic prehensions. This is all fairly straight forward, but McLuhan links these perceptions to the way societies function. Pre-literate societies are tribal because individuals cannot distinguish themselves from the group, their oral surroundings envelop them. The phonetic alphabet turns sounds into abstract images, and acoustic tumult becomes a silent personal outlook.

Illiteracy persists in some regions, as does its tribal mind-set. A century ago they seemed condemned by the dominion of the printed word. But the electronic media of sound and image have revived them, just as they have re-awoken archaic reactions in literate societies. However, the pre-literate and post-literate tribal attitudes may have the same causes in verbal transmissions, but their cultural and technological backgrounds are so different that they can neither converge nor coincide. What can be hoped is a better comprehension for a less conflictive transition. And what seems certain is that the pre-eminence of print and its effects are over. The cold objective eye has to come to terms with the ear’s warm empathy.

In tribal societies, land is the property of the tribe not of individuals. The problem this presents for literate capitalism is described in Rosa Luxemburg’s account of the French colonisation of Algeria.

Marxists Internet Archives

https://www.marxists.org/archive/luxemburg/1913/accumulation-capital/ch27.htm

The second half of the chapter, the first half is about the British in India where common land property existed in many rural areas.