July 31, 2008 (the date of publication in Russian)
FINANCES AS THIEVERY. Part 1
Neglect of moral principles steers global economy into a catastrophe
THE MORAL COST OF THE "INVERTED PYRAMID"
During recent decades, all economic crises originated necessarily in the financial sphere, while their implications affected a far broader range of human activity. This fact can't be interpreted as a mere coincidence.
By the onset of the XXI century, the mankind has first encountered a situation in which financial assets, in the whole of their diversity, are exceeding the amount of real economy – including physical goods and related services Ц in hundreds of times. The structure of global economy has acquired abnormal disproportions of an "inverted pyramid", in which its virtual superstructure weighing upon the basic productive structure. This is not an effect of impersonal "objective processes" but a result of a conscious transformation of the global financial system in a way, benefiting the advantages of the reformists controlling the process.
The top management of the global monetary system, regulating emission of globally circulating currency and mechanisms of its turnover, is able to deliberately influence the value of currency, to open or close the "tap" of investments on its own accord, to steer financial flows, to cause bankruptcies of banks, corporations, industries and even national economies. These mechanisms enable to redistribute property in a global dimension. But how should "redistribution of property" be qualified from a common viewpoint, in case we tear off the peal of pseudo-scientific interpretation and political correctness? It is thievery, i.e. appropriation of the neighbor's wealth.
On the other hand, the control of the "printing machine", as well as the global "alchemical laboratory" producing unsecured assets from thin air, allows a narrow group of nations to enjoy excessive consumption, paid with state-issued and private bonds without any intention to return the real debt to other nations. What is borrowing with no intention to return the money? In a normal language, this is called theft. In a gangster fashion, a number of nations appropriate the result of labor of the rest of the world, in fact parasitizing on the majority of the world's population.
One more aspect of the excessive development of the financial sphere is reflected in a universal obsession on stock market games, on currency speculation, on extremely risky and doubtful financial operations, supposed to enrich the players without any contribution in creation of real value. In most cases, this is a zero-sum game, when someone's advantage turns another one's failure. In other words, this system does not create anything. This "global casino economy" is immoral by definition, as it precludes fair distribution in accordance with the applied effort of labor, with the useful result, with the contribution into public well-being. Instead, this system contradicts the principle of public justice.
The system of the "inverted pyramid" contains a most vicious stratum, comprised of institutions that gain profit irrespective of anyone's good or bad luck. These banks and financial companies capitalize only from providing access to the game of hazard. Their function is similar to that of a casino-operating authority. Advertising options of easy enrichment, they make fortunes from exploiting the human vice of covetousness, in fact beguiling money, earned by individuals, in order to redistribute a part of it among them. Other elements of the parasitizing superstructure are represented with the global network of pseudo-scientific support providing the theoretical substantiation of the "inverted pyramid" system, and a similarly powerful community of legal protection.
ECONOMICS AND CHREMATISTICS
Centuries ago, Aristotle proposed to differentiate the definitions of economics and chrematistics. The former term describes wealth as the total of useful products while the latter is applied to wealth in a sense of money-making. The Aristotelian definition of economy corresponds with the Russian term of khozyaistvo (Wirtschaft in German), i.e. the expediently accumulated multitude of various goods, produced by the human race for the purpose of supply of life, activity, and leisure. In this definition, economy is described not as a "thing in itself", being crucial as the vital condition of implementation of the supreme goals of the society, and the material essential for reaching those goals. This involves active reclamation of the "soil", the nature, given to the people by the Creator for the purpose of good, i.e. for guaranteeing the expanded reproduction of the human race ("multiply and replenish"). Meanwhile, chrematistics suggests only pursuit of income, regardless of the way of its accumulation. It exploits mean and malefic passions and vices of the human Ц the craving of lawless enrichment ("from decent labor, one doesn't gain a decent mansion"), the cult of lucre, the desire to demonstrate one's luxury and thus impose domination over others.
Both Eastern and Western Christianity, as well as Islam, have firmly negated the models of economic life resting upon the chrematistic principle. Both the Bible and the Quran contain admonition of acquisitiveness, of the spirit of lucre and unlawful enrichment, of manipulative redistribution of wealth for personal luxury, of transformation of money into an instrument of domination, power, enslaving and exploitation.
Today's financial capitalism is a derivate of usury percent, though not its copy. The epoch of the usury percent emerged in the era of the XVI-century European Reformation with inherent puritan ethics. The original capital accumulation, followed by legitimization and elevation of the public status of crediting and mediating activities already contained the core of the vice of today. At the same time, the system of puritan ethics served as a counterweight for the vice, requiring moral justification for substantiating usefulness of this activity.
The cardinal shift of values took place in the second half of the XX century, when both the puritan ethics of the Reformation and the traditional Christian ethics were rejected as an unnecessary "relic of the past", an anachronism and cultural rudiment. The economic theory was declared a positive science per se, liberated from any moral substantiation, while economic practice was interpreted as a "rationally egoistic" kind of activity requiring no special moral limitations. Cynical casuists invented even a corresponding motto: "What is economical is moral". Curiously, that was the very period of time when capitals and financial assets were eventually decoupled from any hard equivalents like the gold standard.
Consequently, the system has acquired a new essence. The epoch of financial capitalism was marked with a radical transition of global economy into a qualitatively new form, in which the virtual value subjugated and subordinated the real material value.
From the religious viewpoint, the money, acquiring a self-sufficient and dominating capacity, becomes the tool of the devil. They reshape the system of purposes and the hierarchy values of both the society and the individual, transform the motivation of life from the creative destination into an obsession of mere consumption, generate moral relativism and indifference ("money does not smell"), and consolidate the vices of coercion, thievery, fraud and swindle, thus substantiating injustice as the allegedly basic principle of the mundane world.
Plunging in schemes of "asset management", into pseudo-investment of speculation, the mankind is dragging itself into dependence from a precarious "occasion", "the play of fortune", rejecting reason in organization of life along with the heritage of implementation of high principles of Truth, Duty, Dignity and Justice.
In this way, rejecting the necessity of self-analysis, the human race is naturally steering itself into global catastrophe, particularly, to global financial disturbances, as the Devil, God's ape, is incapable of creation, instead luring to the abyss of destruction and death.
OLD WINESKINS AND NEW WINE
The traditional norms and designs of reasoned organization of economy, including the international financial relations, have come into a collision with the reality of today.
On the peak of the financial crisis in Asia (1997), many renowned specialists and popular politicians warned about necessity of revision of the "architecture" of global finances. In April 1998, the issue was raised even at the joint session of the International Monetary Fund and the World Bank. However, the international assembly failed to introduce any groundbreaking decisions of global significance. The idea of "consolidation" of global finances was reduced to the appeal to "elevate responsibility" of nations for untimely delivery of information of their current financial problems (I specially addressed this issue in my statement-of-principles article "There was no Keynes among the guests of the IMF session" in business weekly magazine Expert, No.16, 1998).
Meanwhile, a number of Third World nations, most painfully affected with the 1997 "financial tsunami", were then insisting on elaboration of mechanisms that could prevent massive capital flight provoking financial crises. They urged the IMF and WB to introduce a system suggesting solidary responsibility of international private banks and national governments for the crisis-related costs; some nations even proposed to convene a new Bretton Woods Conference.
These warnings and appeals were in vain: a year later, the proposals of revision of the system were forgotten, and the improvement of "financial architecture" remained since then in the realm of "good intentions". Liberal fundamentalism continued to reign in the dominating theoretical concepts as well as in global financial practice.
Liberal fundamentalists have since continued to insist Ц like two centuries before Ц that market is an ideal self-regulating system. In this way, the obvious fact of hyper-monopolization of leading markets by a flock of international financial groups was ignored. Meanwhile, the obsolete mythology of the benefits of non-regulate market has become a convenient instrument for manipulating economies and brainwashing peoples, expedient for most powerful global players deliberately and skillfully using this tool. The activities of these groups have meanwhile displayed precarious fluctuation of the amplitude, menacing the viability of the whole system. Without control from governments, these subjects were acting like selfish empires with absence of strategic view, rocking the global boat without worrying of possible wreckage.
In its turn, the community of liberal scholars continued to insist that in the system of freely floating currency rates, the market would determine the ratio of real value more efficiently than any human mind; that the market, in case nobody manipulates it in egoistic purposes, would immediately react to any disturbance, considering the whole variety of basic and current factors.
However, the growth of the market's virtual part, the whole agglomeration of derivative securities, has reached dimensions exceeding operations with real economic assets in hundreds of times. The daily amount of currency operations zoomed to an astronomic sum of $3.5 trillion per day. If multiplied to the number of working days in the year, the annual amount would exceed $700 trillion, more than ten times exceeding the gross international product.
In fact, not more than 2-3% of the amount of currency exchange is related to substantial (international trade) operations, while the rest lion’s share is related to mere speculation, a global-scale gamble involving millions of "seekers of luck". From instruments, designed to diminish local risks, derivatives have developed into one of the most powerful factors of systemic risks for all the global finances. The currency market has become a global pari-mutuel.
At the same time, the influence and market power of professional currency speculators dramatically increased. According to IMF's estimates, only half a dozen of hedge funds, using service of banks who always greet such clients, are able to accumulate up to $900 billion for a speculative attack on a particular currency. The speculative attack of George Soros' funds on the British pound in 1992 and the concerted assault on the Asian currencies in 1997 have demonstrated that the currency market has become a playground for manipulative games.
Another liberal principle Ц the free flow of capitals Ц suggested that free market is able to guarantee efficiency of the whole system of financial flows. Investors, in their search of a better place for placing their capitals, were supposed to foster more rational capital distribution and thus higher efficiency of the global economy. However, the functioning of this system was in fact undermined with emergence of "hot capital" rushing across the globe and ready to withdraw from any economy at a particular unfavorable moment.
Penetrating into relatively small markets of Third World nations, this "hot capital" overtakes key positions, determining the dynamic of quotations. Fund managers, operating this capital, skillfully heat foreign markets, in order to "reap the cream" by selling off assets. Thus, "hot capital" is interested in destabilizing the market, and this is exactly what it is occupied with internationally. The structure of the global stock market meanwhile acquires the form of an oligopoly, and major (mostly US-based) investment banks and funds acquire the possibility of manipulating markets. Not surprisingly that it was the United States that had been successively promoting the idea of complete liberalization of the global financial system, suspending restrictions from trans-border capital flows.
However, when new wine is poured in old wineskins, either the wine goes sour or the wineskins burst with a global crash. This means that the obsolete system is to be replaced: it requires new wineskins. However, while old mechanisms provide domination of the global finances by the oligarchic elites, it hardly makes sense to rely on a voluntary reform. In key nations, this necessity is going to be realized only when they are hit with the crisis themselves Ц the implications of this blow being catastrophic.
However, reality continues developing in the direction, opposite to the desirable change. The break-neck circus show continues. Instead of imposing reasoned control over global finances, the institutions promote a liberal method of "resolving problems", identified as deregulation.
(To be continued)
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