John Mugge 

            What is going on with the economy?  The banks have been bailed out, but the foreclosures continue.  Many blame derivatives for the financial crisis, but there is great resistance for undoing the deregulation of the financial sector we have seen in recent decades.  Corporations like BP, Enron, and Massey Energy show callous disregard for their employees’ safety, the environment, and the good of society.  Businesses move their operations overseas where labor is cheaper and environmental laws are even more lax than they are here.  Unemployment is soaring far above the troubling official statistics.  Meanwhile, neoliberal and libertarian free-market ideologues continue to believe in a greed-is-good, every man for himself economic philosophy that promotes the idea of benign self-interest.  A business culture pervades this country, and much of the rest of the world, that says that anything a person or corporation can do to increase profits is ok, that as if by a law of nature it must promote the general good, and that any measure designed to impede the march towards riches, be it taxation, environmental regulation, labor rights legislation, or capital controls must be the real reason why the economy has tanked.  During this period of multiple crises it is time to seriously question the underlying assumptions upon which rest today’s economic and financial practices. 

In the literature on the Threefold Social Organism, Rudolf Steiner tells us that we must beware of what happens to capital – money capital that accumulates in the course of the economic process.  The economic process begins with labor being applied to nature.  In agriculture the land is cultivated by the farmers and crops are produced.  In industry the means of production, the plants and factories, are elaborated by human effort from nature to produce manufactured goods made from nature’s raw materials.  Managers utilize the division of labor, innovative organizational techniques, and technological advancements to make the production process ever more efficient and less and less labor intensive.  Left alone from the influence of excess money capital, the evolution of the economic process would make manufactured goods ever cheaper.  Meanwhile, with current concepts of ownership, and with ownership of the productive and profitable enterprises residing in the hands of the few, profits accumulate for them.

            In today’s capitalistic system much of this profit that accumulates – money capital – gets reinvested into productive enterprises for the purpose of expansion.  Some also goes to pay back loans to banks who can then re-lend to other productive enterprises, at least in theory.  Much of the rest goes to exorbitant executive salaries (though in modern accounting practices these are expensed against the bottom line and so is technically not considered profit) and dividends to investors (though dividends don’t play the role they used to.)  Capital that is retained by corporations is often reinvested as corporations buy stock in other companies, even to the point of acquiring a controlling interest in, or purchasing outright, another company.[i]  Sometimes there are synergies between the acquiring and acquired companies, but often it is simply investment in an unrelated business purely for profit with no thought of how to stimulate real production for the good of society.

            Company profits are not the only source of money capital designated for investment.  Employees, small business owners, and self-employed persons may earn more than is needed for their day to day living expenses and save what they can.  Pensions, 401(k)s, IRAs, and other savings are deposited with pension funds, brokerage houses, and investment banks which pool these savings and control billions.  Managers of pension funds, mutual funds, and hedge funds are constantly looking for the most profitable vehicles and methods for growing the world’s savings.  They invest in corporate stocks, corporate bonds, government bonds, commodity futures, real estate, derivatives, and foreign currencies.  Savings are thus concentrated into the hands of money managers who scour the globe looking for the best returns. 

            Money capital from company profits and individual savers has been accumulating for generations.  Some argue that the long-term rise in stock prices has as much to do with the increase of investment capital as it does with the increased productive capacity of corporations.  In other words, with more dollars chasing a comparatively limited number of productive corporations, the bidding up of stock prices says more about investments and savings than it does about productivity.  To that extent there is a Ponzi scheme element to investments; stock prices inflate due to increased investment rather than actual economic development.  These investments do more to increase the valuation of existing corporations than it does to spur new productive enterprises.  This increase in the value of land and corporations is considered by Steiner to be false or fictitious since it is based on competing bids for ownership rather than their value to society as producers of consumer goods.

            Modern industry, founded on the efficiencies inherent in the division of labor and technological advancement, has the capacity to ramp up production for the good of all.  The resulting profits and savings are then available for reinvestment, but when there is an amount of money capital not needed for the expansion of productivity we have excess capital.  The owners of this excess money capital go hunting for investment opportunities for they would like to increase their holdings.

            It is here that Steiner talks about congestion in the economic process.  One place the excess capital is likely to go is into land.  Land is a common object of investment as investors seek to benefit from land price appreciation as well as rent payments.  The problem with this is that land values go up artificially.  Land, says Steiner, should not be bought and sold like a commodity.[ii]  As the cost of land goes up due to multiple buyers potentially bidding on the various pieces of property, the rents go up including the rents on the land where productive enterprises and farms reside, and so the prices of goods go up.  At a time when the efficiencies of modern economic practices are supposed to make commodities cheaper, the reinvestment of excess money capital makes them more expensive.  Whether that land is cultivated for agricultural production, contains mineral reserves, or is the land upon which industrial enterprises are located, the dynamic is the same.  Nature, society’s economic base, increases in economic valuation raising the cost of commodities produced as well as residential costs. 

            This tendency towards congesting the economic process is exacerbated by modern banking practices.  Actual productive enterprises must now compete for loans with non-productive investment vehicles.  Land by itself is not productive; fields of wheat will not grow on their own without being tended by farmers.  Yet loans for investment in real estate to those who would do no more than hold the title are readily available.  Unless it’s an IPO, money invested in the stock market does not go to the productive company but to the investor who sold his shares, yet loans are readily available for those who want to use leverage to buy stocks or other securities.  These investment loans increase the total amount of investment capital available, and therefore exacerbate what is already a savings glut.  And as we have learned recently, huge amounts of money have been borrowed to trade in highly complex and highly risky derivatives.  Many believe that the role of commercial banks is to make loans to job-producing productive enterprises like farms and manufacturing companies, but especially since the repeal of Glass-Steagall and other banking regulations, banks can now use their reserves and power to invest in securities rather than making loans.  This is called proprietary trading.[iii]  When commercial borrowers must compete for loans with investors, they must pay a higher interest rate if they can actually get a loan.  The additional cost involved puts additional upward pressure on commodity prices.

            We also see the influence of excess capital on the international stage.  A nation worries about its currency’s value which is subject to exchange rate fluctuations.  The rates of currency exchange have a great impact on a nation’s imports and exports.  Currency speculators look for currencies that may be undervalued in order to invest, and for vulnerable currencies to short.  A nation’s economic policy must account for these speculators and do what they can to appease these (usually foreign) investors.  If they don’t, and investors sell or even short their currency, its value will drop and inflation will ensue.  In order to make their currency more attractive to investment a nation must often take on so-called austerity measures – slashing entitlement programs for the poor and middle class, slashing wages for workers, and deregulating industry.[iv]

            The way excess money capital is handled today reflects the values of modern-day, free market neoliberal economic ideology.  In this way of thinking it is good for money to accumulate so that productive enterprises can be funded which in turn create jobs.  With their greed-is-good mentality, the free-marketers believe that the most efficient economy is one where every participant is pursuing his or her own self-interest.  That is the theory which promotes tax cuts for the wealthy and for corporations, deregulation of the economy, and property rights – rights to do with one’s property whatever one will.  But in practice investments have an eye to maximizing returns rather than promoting production essential to society.  If the efficiencies of modern economic technologies continue as they have since the inception of the industrial revolution, the choice within the framework of modern free-market capitalism is between overproduction and high unemployment.  Neither skyrocketing unemployment nor the increasing disparity between the haves and have-nots has shaken the faith most of these ideologues have in a system that promotes the accumulation of excess capital into the hands of an exclusive elite.

            There are several measures Steiner would take to alleviate the problems caused by excess capital.  The first would be to prohibit the sale of land and the means of production.  These should not be bought and sold like commodities on the open market.  Prohibiting such sales would eliminate the ability of investors to buy low and sell high for a capital gain.  Land and factories would not take on the so-called fictitious values we see today that contribute to the raising valuations of commodities.  If we take what Steiner says literally then tradable stocks, along with their exchanges and markets, will become a thing of the past.

            Along with the prohibition on the buying and selling of land and the means of production, there would be a ban on absentee ownership.  No longer would an individual or group interested only in making a profit on financial and investment transactions be allowed to call the shots as to how a factory is run or whether to develop a piece of property for whatever purpose.  Rather, under the oversight of the economic associations, only those with expertise in productive enterprises would have the right to own and operate the economic entities they are entrusted with.  There would be no tenant farmers answering to an agricultural overlord.  Factories would not be subject to the whims of shareholders and boards of directors interested only in profitability rather than service to the community.  Owner-operators would be limited by labor, safety, and environmental laws on the one side, just as they will be limited by the realities of nature on the other.  They would not be free to sell their enterprise when their time to retire approaches, but instead would have to pass it on as a gift to someone, perhaps his own progeny, who has demonstrated competence in his or her ability to take on the task of managing the productive enterprise in question.

            But the problem of excess capital is very keen.  The efficiencies of modern day methods and technologies are capable of producing tremendous amounts of wealth.  That this wealth forms itself into excess money capital can be a blight on the economic landscape.  More must be done to ensure that excess capital does not accumulate to add congestion to the economic process.  All the profit that is needs to be retained for a particular enterprise to retain is the amount needed to fund expansion.  When further expansion is no longer needed, then the excess capital should be gifted to the cultural sphere for the purpose of maintaining hospitals, schools, the arts, and to care for those too old, too young, or too disabled to be productive.  And to be sure that all of the excess money capital is done away with, money should be stamped with an expiration date.  Not only are many social goods affected thereby, but many of the social evils affected by the modern-day misuse of excess money capital can be avoided. 

            In the Threefold Social Organism there are three kinds of money.  Purchase money is used for trading with at the local store.  Loan money is used to get productive enterprises off the ground.  Gift money is used to siphon off excess capital and fund cultural, non-commodity producing but essential enterprises.  Nowhere is there a place for investment money.  The savings of individuals can be used by banks to make loans to productive enterprises, and this is all the funding such enterprises require for the most part.  Neither farms nor factories require or benefit from absentee owners.[v]  And when excess money capital is handled in this way then saving by individuals becomes a lot less necessary.

            To get from here to there will require a momentous paradigm shift away from greed, the myth of self-reliance, and a belief in a virtuous free market.  Ever since the economy has taken on the division of labor, people have in reality ceased to work for themselves and now produce only for others.  This is the fact of the matter and flies in the face of the assumption that a person works only for himself or herself.  Whether viewed as a leap of faith or a wakening to social realities, recognizing the extent to which we are all dependent on each other, and responsible to each other, will change our way of doing business should we succeed in becoming conscious of the realities that underlie a truly properly functioning society.  Should this come about, society could be structured so that we will no longer need to save for education, retirement, or against some unforeseen illness.  Rather, schools, retirement communities, and health care providers will all be funded by means of gift money from the economic sphere.  Saving/hoarding/investing will no longer be seen as a positive but rather the distortion of the economic process that it is.  Rather than a means for manipulating society, money will return to what it was meant to be – an improvement over bartering.

[i] Joseph Wiezenbaum, Foreword in Renewal of the Social Organism by Rudolf Steiner, Anthroposophic Press, 1985.  On p. xiii-xiv he discusses American companies diversifying into unrelated businesses. 

[ii] The word commodity is used here to mean any tangible product including manufactured goods.  It is not used in the sense of commodities traded on the commodities market which are limited to raw materials.

[iii] Ellen Brown, Web of Debt, Third Millennium Press, 2008.  On p. 177-180 she discusses proprietary trading.

[iv] See Paul Krugman’s article, Myth of Austerity, New York Times, July 1, 2010.  http://www.nytimes.com/2010/07/02/opinion/02krugman.html?_r=2&ref=opinion

[v] Marty Goodman, Union Busters Close Stella D’Oro Bakery, Socialist Action News, October 31, 2009.  http://socialistaction.blogspot.com/2009/10/union-busters-close-stella-doro-bakery.html

For an example of anti-social behavior by absentee owners, this is a case of a hedge fund owning a bakery in Brooklyn.