Post-Capitalism

Stock markets are going up in the UK and US. But we are in a recession. Yanis Varoufakis says that this means that the value of companies is no longer correlated with profits and that this is unprecedented.

The price of shares is now being driven by speculators more than by results. We used to think of stocks as an investment. You put your money into a company to help capitalise it and that company pays you an annual dividend based on profits. This is how capitalism works (in this view labour is simply an overhead and does not have anything to do with making a profit).

Speculators are not investors. They are gamblers. They think in the short term. Aided by computers, the short-term can mean milliseconds as algorithms buy and sell shares 1000 times a second accumulating thousands of tiny short term gains to make huge profits over the long term.

This is not investment because the profit is not in the dividends, it is in the second to second fluctuations in price. Speculators can bet that the price with go up, which is a straight profit, but they can also bet that the price will go down (called "shorting") and still make a profit when the price of shares falls.

This speculation is now the dominant force in our stock markets and most of the money involved is, in fact, not doing any work at all in our economy. Rather it sits outside the economy not contributing anything except when the super-rich buy yachts and such.

And the speculators are mainly banks. Banks using the money that governments have been giving them ostensibly to invest in commerce. Here's how it works:

Every time the Fed or the European Central Bank or the Bank of England pumped more money into the commercial banks, in the hope that these monies would be lent to companies which would in turn create new jobs and product lines, the birth of the strange world we now live in came a little closer. How? As an example, consider the following chain reaction: The European Central Bank extended new liquidity to Deutsche Bank. Deutsche Bank could only profit from it if it found someone to borrow this money. Dedicated to the banker’s mantra “never lend to someone who needs the money”, Deutsche Bank would never lend it to the “little people”, whose circumstances were increasingly diminished (along with their ability to repay any substantial loans), it preferred to lend it to, say, Volkswagen. But, in turn, Volkswagen executives looked at the “little people” out there and thought to themselves: “Their circumstances are diminishing, they won’t be able to afford new, high quality electric cars.” And so Volkswagen postponed crucial investments in new technologies and in new high quality jobs. But, Volkswagen executives would have been remiss not to take the dirt-cheap loans offered by Deutsche Bank. So, they took it. And what did they do with the freshly minted ECB-monies? They used it to buy Volkswagen shares in the stock exchange. The more of those shares they bought the higher Volkswagen’s share value. And since the Volkswagen executives’ salary bonuses were linked to the company’s share value, they profited personally – while, at once, the ECB’s firepower was well and truly wasted from society’s, and indeed from industrial capitalism’s, point of view.

Thus post-capitalism is not a good thing.

"My difference with fellow lefties is that I do not believe there is any guarantee that what follows capitalism – let’s call it, for want of a better term, postcapitalism – will be better. It may well be utterly dystopic, judging by present phenomena." Yanis Varoufakis