[OPE] Credit

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From: adsl675281@telfort.nl
To: gerald_a_levy@msn.com
Subject: Fw: Credit
Date: Fri, 29 Jan 2010 11:55:20 +0100

----- Original Message -----
From: "Jurriaan Bendien"
To: "Ian Wright"
Sent: Friday, January 29, 2010 11:50 AM
Subject: Credit

Ian,

I think one of the problems is that Marx never provided a fullfledged
theory of credit - as he says explicitly in Capital Vol. 3, he is only
going to examine the credit system insofar as it affects the capitalist
mode of production. See in particular his comment at the very beginning of
Cap. 3, chapter 25. Also, notice how he refers to interest-bearing capital
as the "superficial form" of the capital relation in the title of chapter
24.

A useful essay is also by Jan Toporowski, "Rosa Luxemburg and the Marxist
subordination of finance", in Toporowski, Theories of Financial
Disturbance (Elgar 2005).

Toporowski points out that from Marx's idea that the credit system
develops in response to usury, signifying the subordination of
interest-bearing capital to the requirements of the capitalist mode of
production, Marxists inferred that interest-bearing capital is
subordinated to industrial capital, whereas in reality, industrial capital
is increasing subordinated to the requirements of capital finance (to some
extent this was acknowledged by Rudolf Hilferding).

I would add, in view of my first sentence, that Marx's restricted
analytical purpose in Das Kapital is confused with an ontological claim
about the role of credit in the capitalist economy. It is a similar
fallacy to the one of Marxists who impute to Marx a commodity theory of
money. Marx had no commodity theory of money, it is just that he describes
how money originates out of commodity trade and he assumes, for the
purpose of analysis of capitalist relations of production, a gold
standard. He felt this was valid, since the essential structure of the
capitalist mode of production is not altered by monetary phenomena.

The "stock of credit" is a purely theoretical notion which does not exist
in reality, since the propensity to extend credit and on what terms is
highly flexible and conditional, i.e. there is a difference between the
potential credit available and the actual credit extended; and the terms
of actual credit extended may be partly conditional itself. So in reality
you never really know the total volume of credit, at best the statistics
state the volume of actual credit contracts issued by recognized financial
institutions. However, as I pointed out on OPE-L before, for many
credit-based financial instruments it is actually impossible to specify
accurately what they are worth, because what they are worth is conditional
on the potential income they could yield in the future, in other words,
the magnitude of the volume of credit becomes itself conditional on future
yields. Thus, the notion of a "stock of credit" is hypothetical.

For this reason also, as I have argued on OPE-L before in a criticism of
Trichet, it is in reality impossible to know that credit has been
"over-extended"... until markets crash. The "unknowables" in this sense
help explain the great financial panic in 2008, which caused a "freeze" in
international credit provision. The ideology of "inadequate risk pricing"
is merely a snowjob which inverts the real causation - the insurance of
capital against risks of loss of capital and earnings became so lucrative,
that it blew a hole in the credit system, causing more insecurity and risk
for everybody. Precisely because of the unknowables, the expansion of
credit was justified with only an "ideology", a dogma that the markets
would allocate capital efficiently.

Jurriaan _______________________________________________
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Received on Fri Jan 29 07:37:09 2010