[lbo-talk] Leninist/Maoist Finance?

boddi satva lbo.boddi at gmail.com
Thu Jan 5 15:38:41 PST 2006


C. Wojtek,

We exchange:


> > Right except that he conceived an economy where there was no
> > risk of labor being wasted. Labor created its own value, by
> > definition, and this is clearly not so. Suppose we all
> > decided to go back to subsistence farming. The economy would
> > be destroyed. People have clearly have the ability to make
> > wrong decisions about production. So how do they make right
> > ones? By gathering objective data to judge the benefits - and
> > - by considering the risks and pricing them in. The money
> > system provides a simultaneous means of transmitting data and
> > pricing in risk. The problem, I think, is not money itself
> > but who has it.
>
>
> I think I fundamentally agree with your drift, it is just a few details that
> I find moot.
>
> 1. The Soviet development - I am pretty sure that the Western
> characterization of it as building a workers' and peasants' utopia (or
> nightmare, depending on one's political preference) is pretty much a bunch
> of fairly tales. The goal was accelerated economic development and th emeans
> to that en were quite ingenious - to use one's weakness - economic
> backwardness that retarded the growth of economic institutions and vested
> interests with them - as their strength. That strength was twofold: first
> they were relatively free from "path dependency" that is the weight of
> existing economic institutions that would restrict their policy choices, and
> second and more imporatntly - becaouse of them being behind other countries,
> they had a choice of economic models tried in those countries. They chose
> the cartel corporatism tried earlier in France, Germany and Japan over more
> free market orineted British model, and they adotpet that solution to the
> resources they had (i.e. state assuming the role of banks). This was the
> best they could under the circumstances and it served them well.
>
> Now, a bunch of US pundits armed with the 20/20 hindsight is speculating
> that at the end, central planning had limitations. Duh. Of course it did,
> but this was like a wheelchair for a handicapped person racing a physically
> fit person on a bicycle. The latter wins, and the hindsight pundits say
> that that the former lost because of his wheelchair and he should have been
> riding a bicycle instead. These hindsight pundits forget that at th
> ebeginning of therace th ehandicapped guy was in such a bad shape that under
> no circumstances he could ride a bicycle, and if it were not for the
> wheelchair he would not even be in the race. Such hindsight sepculations
> are usually nothing more but mythmaking instead of a serious historical
> analysis.

First, I think I wrote (I may have underemphasized) that the Soviet system greatly expanded the wealth of Russia. And I think you put it well to describe the Soviets as taking on corporatism. But let's remember that Nazi germany used essentially the same corporatism (from a financial viewpoint) to equally brilliant effect (from a financial viewpoint). At the time, the theory that a state could issue pure fiat money with inflation its only limit was the most modern in the world.

Remember what I'm talking about is what we need now.


> 2. The concept of risk can be applied to many different situations. My main
> objection was to the reasoning that capitalists are rewarded for their
> "risk" - which I find to be an exception form of self-serving bullshit. All
> they are risking is their own possession of wealth rather than wealth itself
> (which can be transferred to someone else). That is a real risk, form their
> point of view, no doubt - but why should others reward them for managing to
> stay rich. If I had a $1,000 and saved it in my bank account instead of
> loosing it in gambling, and then demanded that you pay me an extra premium
> because I successfully avoided the risk of loosing my money.

I think that in the interest of denigrating capitalists you are ignoring the facts. As a class, capitalists are rewarded because they control the direction of the economy through ownership of money/capital. But capitalists are indeed rewarded for taking risk *relative to other capitalists*. Right? If they stick their money in bonds they make a little more than inflation. If they put their money in something more risky they can do better (or worse). And remember that capitalists often "risk" their money unintentionally. There is nothing preventing, say Pfizer, from simply taking all its profit and sending it to the owners as dividends. Except that Pfizer would fairly quickly cease to exist. So the managers of Pfizer have persuaded the owners to allow them to "risk" the profits on keeping the company going. And this is a risk. All you have to do is go a little North in New Jersey and you'll find Merck, where the owners would have been better off getting all that money spent developing and marketing Vioxx as dividends, surely.

It's such a norm for capitalists to be asked to re-invest in the economy that we don't think of it as risk, but it is.


> But of course, the concept of risk applies to many other situations such as
> wasteful uses of resources. Clealry in such situations risk management
> involve many approaches, and price signals and financial management in
> general is one of them, and important one I may add. But there other
> possible mechanims as well, such as regulatory mechanisms, informal
> controls, cultural norms and expectations. A good policy would involve a
> wise choice of these mechanims to fit a particular situation. But what we
> have instead is a bunch of pundits chanting monetize monetize monetize like
> a broken record. What monetization often does is enabling pifering by the
> elite who the claim to be "rewarded" by the "risk" they took, whereas th
> eonoy "reward" they deserve is 9mm right between the eyes.
>
> So the bottom line is that I agree with you that financial controls can be a
> very powerful and useful resource management tool, albeit one of many
> possible tools - but you have to also admit that the current financial
> management practices amount to hardly anything more than graft and pilfering
> by the elite whose only "contribution" is being well connected.

I would say that the system of financial management we have is inherently perverted but sound in most other respects - like a pedophile who has a regular job and gets along with people but uses his money to buy child pornography. And it's not nothing for capitalists to decide that peace and econoomic security are more important than acting on their amoral impulses. Leaving aside the present American regime, let's look at France and Germany - or better yet, Poland and Germany. Clearly there is something to modern finance capitalism if it makes former enemies who slaughtered each other in their millions within recent memory to decide that such behavior is unthinkable. It may seem a simple triumph of the most elemental rationality, but elemental rationality has not had a good record in Europe until recently. Why else would Poles, with every right and provocation to hate Germans, decide that it is more satisfying to trade with them than to murder them (however satisfying that might be)?

So yes, the entire mechanism of capitalism is built to make the idle rich richer and more idle but it does so by a complex and often positive mechanism. I think the key is that the broadening of financial markets has brought more and more "externalities" inside the system, so capitalists have a better sense of the dangers of their misbehavior and behave better (thus the "greening of Goldman Sachs", e.g.).

Eventually, as in America, that system must begin to fail. It simply serves too small a group whose interests diverge too greatly from the interests of the whole population. But it has worked because the mechanisms are rational and capitalists have been sensible enough to broaden the base of the capitalist class to be more representative.

I say the mechanism is sensible because ultimately it is always right for any economic unit to produce more benefit than it takes in. In that way "profit" - much more broadly defined - is a good thing. And I think it is not possible to decide whether an economic unit is profitable to a society without putting a hard number on it which compares that economic decision objectively with other possible economic decisions. You've got to mark to market.

boddi



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