RE: [OPE] Productive and unproductive labour in the financial sector

From: Paul Cockshott <>
Date: Fri Jul 17 2009 - 04:52:43 EDT

Another point is, that if it is assumed that part of current surplus value
generated by production is appropriated by banking institutions as net
interest, this does not mean that the "workers" get this net interest, or
even that they are necessarily paid out that net interest on current
account. Making transactions, communicating and desseminating information is
NOT gratis and free, it has an objective production-and-labour cost,
irrespective of who pays it. That is the rationale of the service charge to
which Philip refers. Banks can impose this service charge on customers
because the customers are dependent on the bank to make financial
transactions for them. This did not exist as such, or on such a scale, in
Marx's own time.


I agree that there is a real labour cost to activities like clearing cheques etc.
But this is one of the areas in which technology has advanced fastest in recent
decades. Computers can clear payments with a tiny fraction of the labour time
that was required by manual methods. If the fiancial services 'industry' was
a normal producctive activity like farming or textile production, this automation
would have greatly reduced the number of people required to be employed in it.
It would have shrunk to 1 or 2% of the economy like agriculture.

The fact that it has not, that it grows and grows consuming more and more
resources despite technical advances should indicate to us that it is not part
of the base, but part of the unproductive superstructure of society, growing in
proportion to the available surplus.

The financial system trades in a huge variety of other contracts
: shares, bonds, futures contracts etc. At first sight, trading
in such contracts would appear to be a zero sum game. The as
traders buy and sell shares between one another, one person's
loss will be another person's gain and vice versa. But this is no
longer the case in a bull market. If the general price of
financial assets rises over a period of years, then in paper
terms at least, all traders can show a monetary profit. What then
creates prolongued bull markets?

. In an ideal capitalist world the state would run a balanced budget, the nation would not
depend on foreign borrowing and the financial system to channel
savings from households to industry. But in reality the
industrial rate of profit is too low, the number of new shares
being issued to finance industrial investment is not sufficient
to absorb savings. This imbalance becomes even worse since the
industrial sector ceases to be a net investor and becomes a net
saver as shown in the uk national accounts. This
shortage of new issues causes the price of existing shares to be
bid up to absorb the funds.

But here is a paradox, a rise in the price of financial assets
can not of itself absorb net savings. If fund manager A uses
incomming funds to buy shares from fund manager B, then A can
balance its accounts : its new deposits are now matched by new
assets. But B now has the money for the shares. What does it do?

It tries to purchase other shares, bidding the price of all
shares up in the process. The money stays in the financial
system. This inflationary process would seem to go on
indefinitely unless there were some balancing outflow of funds.
It is here that the bonuses and profits of the banks play a role.
Because asset prices are appreciating all round, financial firms
show big trading profits which they distribute as dividends and
bonuses to their traders. As I write this Goldman Sachs has announced that it is paying out
$4billion in bonuses to its traders for the last quarter alone,
averageing about half a million dollars per individual.
This seems somewhat above the normal value creating power
of labour!

During the bull market the fiancial system as a whole acts as a
vast ponzi scheme. Any excess of deposits by savers over and
above the current needs of industry and the state are translated
into profits and bonuses. Savings are converted into current
consumption revenues of the banking community.

The bull market sustained the illusion that saving is possble
even though real capital accumulation was barely more than
replacement levels. As time passed the illusion grew more and
more unstable. The banks, having distributed so much dividends
and bonuses in the good days, became under capitalised. When the
crunch came they failed and the taxpayer had to take over their

From: [] On Behalf Of Jurriaan Bendien []
Sent: Thursday, July 16, 2009 4:38 PM
To: Outline on Political Economy mailing list
Subject: [OPE] Productive and unproductive labour in the financial sector

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Received on Fri Jul 17 04:54:36 2009

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