Makers and Takers – A Review Makers and Takers: The Rise of Finance and the Fall of American Business, by Rana Foroohar, Crown Business, New York, 2016
There is a deep sense of financial insecurity that pervades the American consciousness. Money is the means to procure what we need to live. It takes money to buy food or shelter or any of the other necessities of life. There are those who possess tons of money, yet for a growing majority, money is scarce.
Rana Foroohar’s book, Makers and Takers, is a compelling read for anyone, who wants to understand how we got here, and what is at the bottom of the ongoing financial crisis in which we find ourselves.
According to Foroohar, “The business of America isn’t business anymore. It’s finance, from management consultants to asset managers, from high-frequency traders to insurance companies, today financiers dictate terms to American business … Wealth creation within the financial markets has become an end in itself.” This new speculative universe represents a shift from the creation of value in production, to the making of money by moving money around, a closed loop that bypasses production altogether.
After the end of World War II the American economy was booming. The rebuilding of Europe, along with the dismantling of the world colonial system, allowed U.S. capital to expand to every corner of the globe. It made possible the greatest and last expansion of capital, and set the stage for what we now know as globalization.
At about the same time this last expansion ended, we see that a new technology was introduced in order to increase productivity. That technology, however, was of a quality like no other ever seen before in human history – it replaced human labor, rather than enhancing it. The effect was to eliminate jobs even as productivity increased. The new electronic technology was and is the fundamental cause of the crisis that continues to this day.
This is where the problem with money comes in. Money is a necessary component of the circulation of capital. But when workers jobs are eliminated they are no longer earning money from their wages, and they have no money to purchase necessary commodities in the marketplace. Commodities can no longer be circulated.
The advancing rate of automated production, the decline of value and the consequent decline of the value of the workers themselves, inevitably leads to the rise and domination of speculative capital. If money is not to be made in production, then capital will seek to make money from money. Speculative capital does not create value, but makes money largely from amassing vast sums based in debt. The hegemony of speculative capital today has to be seen as a worldwide phenomenon. It is an integral dimension of globalization — capitalism in the age of electronics.
Origins of Modern Speculative Capital
Hardly anyone today can remember or even believe there was ever a time when there were not credit cards, but the first credit cards in the U.S. were issued in 1958. In 1971 the Federal Reserve floated the dollar, no longer pegging it to the value of gold. In 1972 currency futures were launched, equity futures in 1973, T-bill futures and futures on mortgage-backed bonds in 1975, all of which set the stage for a new hedging and speculative universe.
Accompanying all of this was the clamor for the deregulation of finance, chipping away at the Glass-Steagall Act. In 1980 Jimmy Carter deregulated interest rates. Reagan followed with a huge increase in debt spending, cutting taxes, while simultaneously increasing government spending. Japan and China rushed to become huge purchasers of U.S. Treasury bills. Then Bill Clinton repealed the Glass-Steagall Act in 1999.
At about the same time we saw Wall Street finance capital move to merge with government itself, in order to advance its own interests, as well as to be able to direct the economy from a position of State power. Following the stock market crash of 1987, a President’s Working Group on Financial Markets was formed. It included the Secretary of the Treasury and the Chairman of the Federal Reserve Board, in order to supply strategic direction, funding support and eventual bailouts.
The crash of 1987 was itself followed by the S&L crisis of 1989, the Mexican peso collapse of 1994, the Asian financial collapse of 1997 and the emerging market crisis of 1998, along with the dot.com boom and bust. Then came the crash of the greatest debt bubble of them all, the Great Recession of 2007-08.
A New Speculative Universe
Today, as Foroohar summarizes, a majority of Americans go into debt to obtain basic needs. Credit card debt is now at $779 billion. Student loan debt is $1.3 trillion. We are on the verge of a sub-prime, automobile loan melt-down. Investors now dominate the housing market. The solution to the housing bubble of 2007 was to encourage more debt – to the tune of $7.4 trillion today. Blackstone, the largest investor landlord in the country, has moved into the rental market, driving up prices beyond the reach of many. Private equity firms and hedge funds buy up distressed properties from Fannie Mae and Freddie Mac and securitize them as rental property portfolios.
Global debt has grown to $57 trillion today. “Today, more than four-fifths of all the stock of global financial assets is in debt deposits,” says Foroohar. A mere 15% of all financial flows, now go into the economy that makes things. The dominance of computer trading only adds more fuel to the fire… “Today, 70-80 percent of all trading is done by computers, much of it using flash programs designed to trade on fractional price changes over split-second time intervals.” The securitization of debt and complex debt instruments have become the new wealth machines, not making anything, just by moving money around. Money circulates, but it is a closed loop, never leaving the speculative universe.
What all of this tells us is that the massive expansion and development of speculative capital has come to permeate every nook and cranny of the economy and society. The domination of speculative capital leaves no one untouched.
The main point and focus of Makers and Takers is that speculative capital now dominates the makers, productive capital itself. In the 1980’s loans to industry and to commerce were at 80 percent. In the 1990’s that ratio had fallen to 52 percent, and by 2005 it was only 28 percent. S&P 500 corporations now spend $1 trillion a year on buybacks and dividends, representing 95 percent of their earnings, driving up stock prices, rather than investing in capital production. Apple, for example, has a record $4.5 trillion on its balance sheets, yet it takes on record amounts of debt to buy back its own stock. What is more, while Apple and the rest of America’s major corporations have plenty of cash on hand, they have created almost no new jobs.
We understand that the increasing polarization of wealth and poverty is a consequence of the domination of speculative capital. As the price of everything becomes unhinged from value, money becomes more and more worthless, and when the price of things is determined by speculation, it exacerbates the misery of those most impoverished by the failure of an economic system that can no longer meet the needs of its people.
Direct evidence of this is the speculation in commodities futures, what Foroohar has deemed “Financial Weapons of Mass Destruction.” 2008 was the first year on record that over a billion people worldwide went hungry, while at the same time half the world’s population was experiencing double-digit inflation on basic living staples. Despite a glut of oil, in 1985 the price increased 85 percent a barrel. By 2010 the gambling on commodities futures led to spikes in the price of rubber, wheat and corn, revealing the power of Wall Street over the price of a loaf of bread. The Arab Spring that followed was initiated with food riots.
“When the value of what’s being traded is more than four times the underlying asset that actually exists in the real world,” Foroohar writes, “it’s safe to say that a good chunk of what’s happening in the market is purely speculative.”
Speculative Capital and State Power
The impact of the domination of speculative capital is also expressed politically, as the State has moved to back up the demands of the speculators with force. Countries like Greece and other countries in Europe, have been forced to adopt extreme austerity measures that include the elimination of jobs, the slashing of wages and benefits and the selling off of public assets. Closer to home, the terms of the Puerto Rican default, also dictated by speculative capital, are along the same lines. One need only glance at the budget plan titled “America First” now before Congress, to see that more austerity and economic pain is in store for the American worker, especially those who have lost their jobs, or who must work low-wage jobs with no benefits on a part-time or contingent basis.
The people are right to have deep misgivings about their economic and financial situation. Foroohar’s book helps revolutionaries to see that speculative capital, which has arisen as capital’s solution to a crisis that cannot be fixed, is part of the problem. Every quantitative step it takes, only sets the stage for a collapse the likes of which we have not seen before. The workers, especially that section that has born the brunt of the crisis most directly, cannot rely on the ruling class to come up with a solution. They have demonstrated beyond a shadow of doubt that they are incapable of that.
Revolutionaries know that the only solution that makes any sense is that the workers are going to have to take matters into their own hands. They are going to have to become a political force that can take control and transform the economy and society in their own interests. Since the solution to the problem is the circulation of the abundance of society to all those in need, then it is going to have to be distribution without money. There is no speculation in that.
January/February 2017. Vol27.Ed1
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