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The Financial System as a Parasite of the Economic System

by Jorg Raewel Wednesday, Jan. 18, 2012 at 7:37 AM
mbatko@yahoo.com

In the global tax competition over tax revenues collapsing worldwide, states are run by a global financial and banking system and made into debtors. The factors taxes and labor are effectively marginalized as mere costs to be shifted. Taxes and labor (straw) are transformed into gold.

THE FINANCIAL SYSTEM AS A PARASITE OF THER ECONOMIC SYSTEM

By Jorg Raewel

In the global tax competition for tax revenue collapsing worldwide, states are run by a global financial and banking system and made into debtors

[This article published 12/12/2011 in the German-English cyber journal Telepolis is translated from the German on the Internet, http://www.heise.de/tp/druck/mb/artikel/35/35933/1.html.]

The function of the financial system seems unsuspicious. It coordinates the flow of money between profit-oriented creditors and debtors needing funds… Nevertheless the global financial system today has the alarming potential to drive states into bankruptcy. How this came about should be explained.

According to the sociologist Niklas Luhmann, payments should be understood as the elementary operation of the economic system [1] that helps in the future satisfaction of needs in scarce goods. With every payment, solvency is restored irrespective of the receiver of specific payments.

Finance is a complex operation with many presuppositions… Mutual dependence is immediately obvious. Profitability as the coordinating criterion of the cycles is presupposed. The production and consumption circles and reproducing solvency and insolvency are in an inalienable complementary dependence.

However according to conventional “neoliberal” economic theory, the tendency to marginalize the refinancing circle through taxes and labor into compensating insolvency exists as long as costs are kept as low as possible.

“Profitability can be described as that factor that marks a calculation as economic. The spending dispositions of the state3 and local communities like consumption in private households are regarded as not economically motivated. Therefore they are only considered economically in the form of costs. […] Primacy is given to the official cycle (reproducing solvency) in economic theory. Where money flows is crucial.

The counter-phenomenon are not denied but treated as vices that only appear isolated and must be kept as small as possible as in ancient ethics. That insolvency is always produced through payments and has to be shifted was in no way denied. However this complementary problem was marginalized by being assigned to another system (for example, the state) or the capitalist economy was enjoined with a certain helplessness to create jobs within its rationality calculus (!) so consumers can refinance their spending.”

Niklas Luhmann [2]

PAYMENT OBLIGATIONS ARE REVERSED OR TURNED UPSIDE DOWN WITH GLOBALIZATION

The tendency to marginalize the refinancing circle of taxes and labor was unproblematic as long as economic activity occurred mainly in nation states. World trade started with Columbus. The financial system had the task of organizing the profitable exploitation of the heavy debts of businesses and ensuring their financing and refinancing. In an economy organized primarily in the nation state, both the state and unions still had sufficient power or possibilities of influence to provide an adequate taxati9on. These were the golden ages of the so-called “social market economy.”

In the course of globalization and the establishment of a world economic system, the factors taxes and labor were effectively marginalized in neoliberal economic theory – as mere costs to be shifted for increasing profitability. Competition between nation-state economic locations as to tax conditions and wage rates could lead to effective international cost-minimization pressure. Thus the corporation tax fell on average 8.7% and the income tax 7.6% (!) across the EU in the last 10 years. Germany’s corporation tax rate fell 21.8% in that time period! The profit taxes of businesses were also continuously lowered as is clear in the comparison of European countries. [2]

In the global tax competition of tax revenues collapsing worldwide, a global financial and banking system was organized through a debt service and refinancing of states that grow in significance and extent. The capital need of states in the international tax competition compensating tax shortfalls consistently increased. A capital glut induced by tax funds and resu9lting in many investment bubbles ultimately arose (“US real estate bubble,” “Internet bubble” etc).

A perversion of economic claims occurs, a reversal or turning upside down of payment obligations. Because of globalization, states experience an economic-political loss of power leading to a reduction of their tax revenues. Indebted to the international financial markets, they have to compensate for these breakdowns. Payment obligations – as costs to be avoided – are not only shifted but profitably exploited by the financial system in the debt service of nation states! A self-strengthening dynamic of a debt spiral arises that destabilizes the society and the economy. The spending dispositions of the state and local communities like consumption in private households are regarded as non-economically motivated. Therefore they are only considered economically in the form of costs (profitably exploitable in a perverse way by the modern globalized financial system!).

HOW STRAW BECOMES GOLD

With view to Germany, taxes and the cost-factor labor are effectively marginalized. A low wage sector [3] no longer supporting the minimum life preservation costs of workers becomes necessary to subsidize labor (“combined wage”). Thus state indebtedness erupts. Costs, payment obligations of the production cycle, are not only shifted but profitably exploited by the financial system in arranging the state debt service.

The modern financial system realizes an ancient fairy tale. Taxes and labor as payment obligations (straw) of the production- and payment cycle are transformed by the financial system into a debt service supporting nation states and thus profitably exploited (gold). The precarious task of the financial system as a parasite [4], as a “Rumpelstilzen” making invisible and as the only authority of the economy is producing solvency (credits) through profitable exploitation of insolvency (debts) and hiding the elementary paradox of payment that succeeds in nation-state economies and breaks down more and more in the actual world economic system.

The modern financial system is dysfunctional since it succeeds in partly short-circuiting the circle of reproducing insolvency to be compensated through labor and taxes with the production-cycle of reproducing solvency. Since payment obligations regarding taxes and labor are partially transformed into a profitably exploitable (privatim) state debt service producing solvency, making the elementary paradox of payment invisible breaks down.

Thus payment promises constructed as “bailout umbrellas” are untenable. Promised solvency is produced in the (new) indebtedness of states in a paradoxical way through increasing insolvency. However Rumpelstilzen, the financial system as a financially necessary parasite, needed invisibilization so payments co9uld function despite their elementary paradox. Otherwise the production of solvency and insolvency immediately bound to payments (or payment promises) is clear, as now happens in the crisis. Payments become blocked; payment transactions threaten to freeze. [4] The financial system can collapse.

It is clear why the present bailout policy must fail. The economic policy that first made possible the present financial- and economic crisis is followed in the construction of ever new “bailout umbrellas” by state-guaranteed payment promises. States assume payment obligations of the economic system that are profitably exploited by the financial system and heavy state debts are forced up to ever new heights. Payment obligations include the partial takeover of the cost factors taxes and labor and even the debts of the banking sector in the current crisis. The perverse dynamic of this connection is only inadequately grasped in the statement that profits are privatized and losses are soci8alized. Astonishingly the demands for more state “budget discipline” and for implementation of “austerity measures” reversing payment obligations still enjoy plausibility. They are realized by most states in their “bailout policy” as a policy of marginalizing the “cost factors” taxes and labor that caused the present financial- and economic crisis.

To prevent a collapse of the financial- and economic system, the fairy tale growth of assets [5] (“straw to gold”) of the private sector at the expense of an exorbitant debt growth [6] of the public sector must be taxed massively in the short-term and coordinated internationally. [7] Conventional economic theory has to recognize that generosity in taxes and labor is profitable and not unprofitable and is presupposed in the simple functioning of the economic system. “Masters of the universe” should be unmasked as naked Rumpelstilzens, as functionally necessary parasites. Thus the crisis has a reassuring element. The exploitation of workers with view to their wages and the exploitation of states regarding taxes are not rewarding but are unprofitable in the long term.

FOOTNOTES

1)

Luhmann, Niklas (1994), Die Wirtschaft der Gesellschaft, Frankfurt/M.

2)

Luhmann, a.a.O., S 142-143

3)

Luhmann, a.a.O., S.142

4)

Vgl. Serres, Michel (1981), Der Parasit, Frankfurt/M.

LINKS

[1]

http://europa.eu/rapid/pressReleasesAction.do?reference=STAT/11/100&format=HTML&aged=0&language=de&guiLanguage=de

[2]

http://www.treuhaender.ch/getAttachment.axd?attaName=1654a06_0937.pdf

[3]

http://www.heise.de/tp/artikel/35/35912/1.html

[4]

http://www.spiegel.de/wirtschaft/unternehmen/0,1518,799308,00.html

[5]

http://www.bpb.de/files/XYRWYI.pdf

[6]

http://www.steuerzahler.de/files/19765/Verschuldung_per_28.09.2011.pdf

[7]

http://www.bcg.com/documents/file87307.pdf

www.buzzflash.com

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