Good Morning Friends,

Many, many, many posts ago, we started to look at different ways that finance - as an organism - could be viewed. I said that finance seems to stimulate the anorexia/bulimic cycle.

Bulimia: Capitalism tends to "binge and purge." The "next big thing" (also known as the latest bubble) comes along and capitalism goes crazy. But understand what is involved. The goal of capitalists, here, is always to expand as massively, as quickly as possible so that they can actually grow out of the system. Remember, they view capitalism as an inferior state of existence. The New Money/Old Money dynamic is involved here, and all that goes with it.

Individuals afflicted with the condition of bulimia, binge and purge. They over eat and then throw up. I think I heard, somewhere, that this process brings up stomach acid that eats away at the lining of the throat, and so forth. Capitalism, I suggested, behaves precisely this way.

What is happening, psychologically, with someone afflicted with bulimia? Let me hasten to say that I do not have firsthand knowledge. I don't think I have ever consciously known a person with this condition. I hope I do not give offense, but clearly what is involved is that a bulimic desires to have the benefit of eating large quantitities of rich foods he enjoys. But on one level he is motivated by an irrational fear of gaining weight, so he throws up.

With capitalism the "binge" (or bubble) can be anything: railroads, automobiles, planes, the electric light bulb, computers and the Internet, housing.... anything. Everybody gets hysterical and enormous industrial capacity is built up to take advantage of the opportunity presented. For a while, things are relatively good for a relatively broad sector of society. But then capitalism hits the wall of overproduction - not from a perspective of social need, of course, but from the perspective that the capitalists eventually run out of paying customers.

Then the deindustrialization (the purge) goes into effect. Productive capacity is sent abroad in search of cheaper, or more "flexible" labor markets, and so forth. The capitalist class also put downward pressure on workers wages and benefits. The capitalist class always claims this is necessary to remain competitive with foreign industry and so forth. But remember, the finance and investment sector have benefitted enormously and come through the "purging" process, almost invariably, unscathed.

All of this is true enough, but I speculated that there is something else involved. Here, we should remember that finance is a process as well as a thing. Industrial firms, as well as financial institutions, engage in finance.

Why did "[m]aking things [become] unfashionable, as Wall Street Journal reported in a November 1999 front page article[?] For example, "Enron, the Houston-based energy firm, financialized itself into a company that traded energy like stock options, becoming '"more akin to Goldman Sachs than to Consolidated Edison"' (Phillips, Kevin. Wealth and Democracy. 2002. pp. 143-144).

Why did this happen?

I suggested that there were limits to what "immediately available rationality" (1) can tell us. As I mentioned, it seems to me that capitalism only ever wants just enough real production - just enough - upon which they can build their complexes of speculation. We said that financialization was a process by which New Money attempts to become Old Money. It is not entirely about increasing their wealth in absolute terms, but in putting their wealth on a seemingly self-sustaining, God-like basis. They want just enough real production for this, and the rest is fat to be shed.

What about the collapsed automotive industry of America?

Many commentators have made the observation that the auto plants could be remade into building something else for social need, namely high-speed rail and so forth. Why is it that the American ruling class have no enthusiasm for this? Why was the Secretary of Transportation, Ray Lahood, going abroad to give out contracts to do this (2)?

Two things. I suggested that bourgeoisie class solidarity, in domestic terms, was indeed operative with the stance both the Bush and Obama administrations took with respect to the ailing financial sector and the ailing automotive sector. They rushed in to rescue the former and basically said of the latter: Let them eat cake!

But remember, finance is a process as well as a thing. And industrial corporations have (perhaps always have) engaged in finance - that is, the executive layer of these corporations, of course.

Take Ford Motor Corporation. Suppose it had gone permanently bust, liquidated and so forth. Ford had (I would imagine still has) the "Ford Credit Corporation, heavily involved in global hedging" (Phillips, Kevin. Wealth and Democracy. 2002. p.143).

I suggested that the finance arm of the Ford organization represented an escape hatch for the executive layer, while workers are left bewildered, on the unemployment line, and sometimes left desperately grasping at panaceas like "retraining," and the like.

So, when the bubble pops, there comes the anorexia cycle. The system looks at itself in the mirror and says "I'm too fat," and places the society on an austerity regimen, namely, draconian cuts in social spending. As with the anorexic individual intake (or production itself) is severely restricted, as punishing "fat" trimming measures proceed.

In this way working people are pauperized, and have to resort to increased borrowing to keep the consumption going. It is upon this increased borrowing that the capitalists can and do build their complexes of speculation. And here we have a core ingredient of the sub-prime housing debacle.

1) Even from the point of view of capitalism itself, doesn't this realization underpin the whole field of what is called "behavioral economics?"

2) I cited an article about the Transportation Secretary going abroad looking to hand out contracts to foreign firms to build a high-speed rail in America. China particularly interested me. Remember, there comes a point in global capitalist competition in which a reverse competition occurs: Which bourgeoisie society can benefit the most from the least involvement with production?

I went on to counterintuitively infer that this solicitation is an attack on the vanity of the Chinese bourgeoisie by the American bourgeoisie, in two ways. First is the reverse competition dynamic I already alluded to.

The second. As I said, the Chinese were one of the exploited groups who helped build the railroads in America in the nineteenth century. I suggested that for actually racist elements of the American bourgeoisie, this would represent a marvelous symmetry, a completion of the circle. They would not view this as China "pulling ahead" of the United States in terms of transportation technology and so forth; because leading world economic powers who globalize (largely renounce manufacturing in favoring of getting these needed and desired goods from other countries) tend to reduce the world or large parts of the world to a servant status.

I said that the Chinese bourgeoisie must know this. This is why I said that if Chinese firms were to get the contracts to build the high-speed rail in the United States, we should look for massive subcontracting. Indeed, they would want to put an "American face" on the enterprise, in effect, to kind of partially deflect the insult back at the American bourgeoisie. We would not look for these firms to attempt to bring over large numbers of Chinese workers. But note this, Chinese firms would subcontract out the jobs while profiting from them.

Quite the opposite happened in Iraq. After the American invasion in 2003, U.S. firms went in to do reconstruction work. But very few Iraqis were hired, if you remember. American firms imported large numbers of foreign workers.

Why?

I would suggest this is because the American ruling class was not in "competition" with the Iraqi bourgeoisie, elements of which had advocated for the invasion. The Iraqi bourgeoisie was also largely scattered by Paul Bremmer's implementation of the "de-Baathification" process.

When American firms with American personnel went over to Iraq, what happened?

There was a barrage of succesive scandals of war profiteering. Leaving aside the "no-bid" contracts and all the rest of it, those firms basically just did not do the work they contracted to do, while profitting enormously anyway.

Take a look at two documentaries that are available to be viewed in full, online: "The New American Century" and "Iraq for Sale." Apparently, the U.S. government had a policy of "cost-plus" with regard to these firms. This was a financial formula which guareented a profit for these firms.

These firms, in Iraq, spent millions of American taxpayer dollars on luxury consumption. Cost-plus also encouraged. For example, if you receive an eighty thousand dollar truck without an oil filter, you don't try to get an oil filter. No, you blow up the truck and order another truck.

Is this corruption? Yes and no. But it just shows that capitalism itself tends away from production. All it wants is enough upon which to build their speculation upon speculation on.

wingedcentaur