Material World: Has capitalism become financialised? (2025)

The Material World column from the May 2025 issue of the Socialist Standard

The financial crisis of 2007-2008 triggered by the large-scale collapse of mortgage-backed securities in the United States was an important catalyst in promoting the view that capitalism has become ‘financialised’. Financial speculation has come to be seen not only as something increasingly autonomous with respect to the real economy (based on the production of commodities), but also as increasingly dominant in determining what happens in the latter.

The crisis was looked upon as being essentially a product of the short-sighted and irresponsible shenanigans of the financial community, aided by the New Financial Architecture (NFA) instituted in previous years and the radical financial deregulation this all entailed. In short, it was said to be the outcome of a steadily intensifying process of ‘financialisation’.

Fictitious capital

Financial speculation grew out of the traditional credit system centred on banking and became more prominent with the rise of the joint stock company. Financial securities initially took the form of stocks and bonds but in the last few decades have proliferated into a bewildering array of financial products. They are all examples of what Marx called ‘fictitious capital’, a future income stream converted into a notional lump sum. A share certificate, for instance, exists largely as a paper claim on future profits to be paid out in the form of dividends.

There is a difference between fictitious capital and an interest-bearing loan provided by a bank to an industrial capitalist to purchase means of production. In the latter case this money capital is incorporated or utilised within the process of the expanded reproduction of capital. The bank takes a cut in the form of interest payments from the increased value – or surplus value – generated at the point of production.

This is not the case with fictitious capital for the simple reason that this does not actually function as capital. That indeed is the reason why it is called fictitious capital. It is not implicated in the expanded reproduction of capital.

Because the stock market comprises a separate market for the circulation of fictitious capital this encourages the illusion that such capital is somehow independent of the real economy – or even that it constitutes ‘real capital besides the capital or claim to which they may give title’ (Marx, Capital, Vol. 3, ch.29. Penguin translation). Obviously, if fictitious capital was qualitatively identical to real capital and able to interact with the latter on equal terms, so to speak, it would then be able to generate real wealth – real profits – all by itself and would cease to be dependent on the real economy for any income it lays claim to.

But, of course, this cannot be the case for the reason so succinctly spelt out by Marx, namely that a capital cannot exist twice ‘once as the capital value of titles of ownership, the shares, and then again as the capital actually invested or to be invested in the enterprises in question’. The problem is that this is precisely what much recent commentary on the subject of crises would seem to imply.

If these ‘financialisation theorists’ are correct in what they say then this would suggest, as Stavros Mavroudeas has pointed out, that ‘financial profits are not a subdivision of surplus-value’ (and) ‘the theory of surplus-value is, at least, marginalised’ (and that) ‘consequently, profitability (…) loses its centrality and interest is autonomised from it’ (quoted in tinyurl.com/2rafv87w ).

Needless to say, if true this would have certain practical implications.

Are we debt peons?

It would seem to suggest, for instance, that more importance ought to be attached to the problem of so-called ‘secondary exploitation’ rather than the primary exploitation that occurs in the workplace (and manifests itself in the production of surplus value). In other words, according to this way of thinking, workers are to be looked upon more as debt peons than wage slaves and, consequently, more attention should be paid to measures such as keeping interest rates down, rent controls, improved trading standards and so on as a way of alleviating their situation.

It is quite true that many workers do indeed qualify as ‘debt peons’, burdened with a variety of debts such as student loans, personal loans, and mortgages. However, their status as debt peons is essentially a derivative one stemming from the economic precariousness they experience as wage workers. It is because of this that they fall into debt. They don’t become wage slaves in order to pay off their debts as debt peons. If anything, it is often the other way round.

In any event, the basic premise of the financialisation theorists is questionable. The illusion that financial gains can somehow become autonomous with respect to the real economy can only be sustained if you focus on the micro-level – the individual investor of fictitious capital.

If an investor sold their shares on the stock market then, of course, they might very well realise a capital gain and be able to purchase tangible goods – real wealth – with the money they received. Their fictitious capital would not have been implicated in the production of real wealth and yet would have resulted in an augmentation of the investor’s own real wealth.

However, if every other shareholder followed suit and simultaneously sought to dispose of their shares as well then the price of these shares would plummet to zero thereby demonstrating their essentially fictitious character. Of course, this hypothetical scenario is inherently absurd – after all, to sell your shares you need someone to buy them – but it does bring out the point that fictitious capital is not about value creation at all. It’s at least partly about speculation and this was spectacularly demonstrated in the case of the 2007-8 financial crisis when the fictitious value of certain financial securities simply evaporated.

Robin Cox

What to do about the Property Speculators (1974)

From the February 1974 issue of the Socialist Standard

Whichever party wins the coming General Election will have had to promise to curb the property speculators. In the arguments over the three-day week, fuel shortages, and the belt-tightening enforced to try to deal with British capitalism’s troubles, they have become the universal bêtes noires. Why, it is said, should the miners be denied a modest wage-increase when the speculators roll in unearned riches ? Who is going to be impressed by the Government’s call for sacrifices while Harry Hyams swells his fortune by keeping a mammoth office-building vacant for years ?

These are the voices of common-sense and fair play — and the sad truth is that they are irrelevant. If the appeals to run speculators out of town were responded-to, no difference would be made to the situation. That is why the present Government or its successor will not mind responding to them, if it has to. The Left, with its unvarying stupidity, has been demanding that “something be done” for years; in the agitation over housing and homelessness Hyams’ Centre Point remains an obligatory gathering-place and his name daubed on protest banners galore. A recent newspaper report showed the ultimate cure for profiteering in the Land of the Left:

Two directors of a Soviet drinks factory have been shot for leaving the fruit out of the fruit juice they were producing. The newspaper Babinski Rabochi says the two from the Southern Republic of Azerbaydzhan, sold a mixture of water, citric acid and sugar, pocketing more than £400,000. Their appeal was rejected and they were shot.

(Guardian, 3rd Jan. 1974)

No doubt this sounded, to some, like the way to treat them. But will it stop privileged sections raking-in in Russia ? Not likely. Will it make a single worker better off? Of course not.

Profits Galore

Property developers have indeed had a bonanza in Britain since the war. Joe Levy’s profit from the development of the Euston Centre in 1967 was estimated at £22 million (Oliver Marriott, The Property Boom). In September 1972 it was said that sales of land in the Tolmers Square Development Area of London had “been taking place at the rate of £800,000 to £1,000,000 per acre’’ (Town Clerk’s report to Camden Council, 28th Sep. 1972). Of Hyams, The Observer on 23rd December said that his personal fortune

has increased by £300 million in the past six years — at a time when he has hardly been engaged in active development at all, but simply sitting on his steadily appreciating portfolio of office blocks.

Astronomical as figures like these may seem, it is absurd to imagine they are unique to property development and dealing. The same page of the Observer business section on 23rd December reported that the British Leyland motor company’s profits for the year had risen to £51.3 millions, and a race-horse owner was offering to give Cambridge University £10 million. A “Guide to Property’’ recently distributed by the First National Finance Corporation contains graphs of Financial Times Share Indices that put this in perspective. The all-share index includes property. It will be seen that while property in its recent boom period has been the best investment, other shares rise proportionately; and at other times have compared favourably. Incidentally, Counter Information Services have just issued (16th Jan.) a report on the enormous profits of insurance companies and pension funds, of which £4,000 million is estimated to have gone to back property developers—including substantial support for Hyams by the Co-operative Insurance Society.

Someone to Hiss

Supporters and revisionists alike of the capitalist system love a scapegoat. There is nothing admirable about the speculators. The illustrations to Marriott’s book are mostly portrait photographs of well-known property tycoons, and it would be hard to find another collection of faces of such ugliness and vulgarity. Nevertheless, they are only the latest in a succession of ogres but for whom, it is conveyed, the capitalist system would make us all as happy as kings. Their place in the nineteen-twenties was held by “the hard-faced men’’ who had done well out of the 1914-18 war. In the ’thirties it was the arms manufacturers. Malcolm Muggeridge says in his autobiography:

Armament manufacturers — commonly known among us as merchants of death — were a godsend in the way of providing us with an identifiable villain; one of the great needs of the political left being to be able to point an accusing finger at someone, or some corporate body, as being responsible for public and private wrongs and misfortunes.

It is part of the same tradition that the property speculators’ diabolic reputation rests largely on their immunity, so far, to legislation. Laws aimed at quelling them have helped them boom again. The post-war Town and Country Planning Acts, intended to snuff out speculative building, created favourable new conditions for it. The taxation laws in force till 1965, by assuming the developer who did not sell to be making no profit, gave him a magnificent advantage. Most uproarious of all was George Brown’s 1964 prohibition of office-building in London, which pushed up rents and profits and earned Brown the title of “the developers’ best friend”.

The most recent piece of legislation was Antony Barber’s taxation measures in his budget of 17th December 1973. The chief provision was to tax first lettings of new buildings as equivalent to outright sales. Financial writers like Bennie Gray and Christopher Booker in The Observer (as well as Labour critics) were quick to point out that applied to established examples this was anything but crippling, and concluded:

In other words, the situation whereby property profits have generally come to be regarded as the most conspicuous example of economic injustice in pur society is likely to remain.

It is interesting that Oliver Marriott, when his book appeared in 1967, thought the property boom had been demolished. He wrote at the end:

The era of the property tycoon as the arch-symbol of capitalism is over. Forces of competition and taxation have ended the days when an individual could rapidly amass a fortune with a few well-chosen deals and developments.

A Simple Answer

The rise of the office-building tycoons has been a direct outcome of the workings of capitalism. Its main sources have been wartime destruction; obsolescence; amalgamations of companies and the growth of fresh forms of commerce; the spread of administrative machinery; and the compulsion to rebuild town centres on account of road traffic. Given that proliferation of causes, there is no difficulty in seeing why fortunes have been made and why legislation has failed. Indeed, the motives of such legislation are always contradictory ones — acquiescing in the need for more development while hoping not to be shown the “unacceptable face” it inevitably wears.

It is worth remarking also on the belief that little or nothing is done about the speculators because Conservatives in government will not harm their capitalist friends. This could apply to Labour also. But the capitalist class is not united in its commercial interests; at any time, a section will be sent to the wall to suit the more vital needs of other sections. An example is the Act of 1915 which smothered landlords in the interests of industrial capitalists and the war. If the need were strong enough, any government would come down on property speculators. What must always be borne in mind, however, is that legislation is enacted for severely practical purposes and hardly ever for moral ones.

The contrast between poverty and plenty is an inevitable feature of capitalism: a class-divided society cannot help but display it. Likewise, in a society built round production for profit, it is no use lamenting that excessive profits are made. One can imagine fat capitalists tittering behind their hands at the naiveté of “radical” sentiments like Michael Duane’s in a letter to The Guardian on 7th January:

In the national emergency of war it was found impossible to create the unity necessary for survival until, by rationing food, clothing and fuel, we had demonstrated the good faith of our democratic protestations.

That is the kind of assurance rulers want. Given it, they know a few sops and humbug-gestures of “good faith” will quieten the murmurs — and the system will go on as before.

Rather than talking of injustice as if there were an alternative to be had, working men and women should ask why the benefits of their labour are unfailingly taken by somebody else. When the working class decides that this state of affairs can continue no longer and capitalism must go, the end of speculation in property, shares and lives will have come at last. The sight of vast wealth being accumulated by parasites who simply happened to be in the right place at the right time, understandably makes people sick; but none of us will feel better until we have established Socialism.

Robert Barltrop

Cooking the Books: Buying to leave empty (2007)

The Cooking the Books column from the December 2007 issue of the Socialist Standard

In the 1970s Centre Point, a 32-storey office block in the centre of London at the junction between Oxford Street and Tottenham Court Road, was the centre of a scandal. It had been built with money put up by a notorious property tycoon of the time, Harry Hyams. Once built Hyams kept it empty for many years because, with a boom in the property market, its value rose constantly – but only as long as it remained empty; if it had been let the rent, and so its value, would have been fixed for 10-15 years. A classic case of property speculation.

At the same time homelessness was becoming a problem and people, quite rightly, asked why was a building with the amount of space that Centre Point had being kept empty when more and more people had to sleep on the streets or in hostels. It became a symbol of what Edward Heath, the Prime Minister of the time, called in another context “the unacceptable face of capitalism”. There is still a housing charity pointedly called “Centrepoint”.

Today the same problem has arisen again, though not in such a spectacular fashion. According to an article in the Bricks and Mortar section of the Times (19 October) there are over a “million vacant homes” in the UK, made up, according to the Empty Homes Agency, of 840,000 actual homes (houses and flats) and 420,000 homes that could be provided in disused commercial property.

One reason is that some owners can’t afford to repair them. But there’s another reason:

“Another factor is speculation, where a buyer has bought a property for its investment potential but does not wish to find tenants. David Ireland, chief executive of the Empty Homes Agency, says that this is a growing problem, especially in the new-build market, which has attracted ‘buy-to-leave’ investors who take the view that keeping the property empty will extend its new-build premium. House prices in recent years have made this worse, as generous capital appreciation has reduced the need of some buyers to secure rental income.”

So, once again, there is homelessness alongside empty homes because market conditions make it more beneficial for the owners to keep them empty rather than let them.

This is par for the course under capitalism where houses are not built primarily for people to live in, but are commodities produced for sale with a view to profit. This is why people have to buy or rent their homes, so realising a profit for the building firms or the landlord – and the middlemen such as banks, building societies and estate agencies.

Houses are different from other commodities in one important respect: they last a long time and are fixed on land. It was in fact the price of the land on which Centre Point was built that went up, not that of the building itself. It’s the same with the buy-to-leave-empty houses. And it is this that allows owners, big and small, to speculate on rising land values.

The price of land is “irrational” in the sense that, land, not being the product of labour, has no value in the Marxian sense. Its price depends purely on supply and demand, a pure monopoly price which an owner is able to extract from the rest of society simply because they happen to have a legal right to a piece of the Earth’s surface. But then, as a system geared to making profits instead of satisfying needs, the whole capitalist system is irrational from the human point of view.

Tobin tax – what a joke (2001)

From the December 2001 issue of the Socialist Standard

The call for a Tobin tax – a tax on financial transactions – is not “anti-capitalist”, as some in the “anti-globalisation movement” seem to think

It is all very well being against something but if this is to be anything more than permanently protesting against some never-ending problem you’ve got to be for something too. Most of those who organise the “anti-capitalist” and “anti-globalisation” protest demonstrations don’t seem to have thought it through this far, and those that have show themselves not to be against capitalism. What they are against is what some of them call “neo-liberalism” – by which they mean the return of laissez-faire economic policies. What they are for is to go back to a more regulated capitalism. They merely want states to intervene to try to control capitalism, to make it more human, to suppress what they see as its worst excesses.

A case in point is the French-based organisation, with branches in many other countries, ATTAC whose vice-president is Susan George, author of such readable and informative books as How The Other Half Dies and A Fate Worse Than Debt. Their hobby horse is a call for the so-called “Tobin Tax”, as is reflected in their full name: “Association for a Tax on financial Transactions and for Aid to Citizens”.

James Tobin was (actually, he’s still alive) an American Keynesian economist who, after the 1944 Bretton Woods agreement on exchange rates collapsed in 1971 when America floated the dollar, proposed a tax on currency transactions as a way of reducing speculation. Here’s how he has recently described his proposal:

“This tax aimed to limit exchange rate fluctuations. The idea is simple: on each operation a minimum levy is made equivalent to, say, 0.5 percent of the transaction. Enough to put off speculators. For many investors place their money for very short periods in currencies. If this money is suddenly withdrawn from the market, countries have to raise their interest rates considerably so that their currencies remain attractive. But high interest rates are often catastrophic for the internal economy, as the crises which hit Mexico, South East Asia and Russia in the 1990s show. The Tobin tax would give back some margin for manoeuvre to the central banks of small countries to fight against the tyranny of financial markets” (interview with Der Spiegel, reproduced in Le Monde, 11 September 2001).

Tobin got the idea from Keynes who had suggested a national tax on internal financial speculation as one of his reforms to get out of the Great Depression of the 1930s. The idea was to encourage money-capital to be invested productively instead of being used for unproductive speculation. Tobin was given a Nobel Prize for Economics in 1981 (not that this is worth much in academic terms; it’s little more than a monetary prize), but no government took up his proposal. In fact, for it to work, all governments would have to take it up. That was why he suggested it should be paid to the World Bank or the IMF.

The Bretton Woods agreement had laid down fixed rates of exchange between currencies, in particular with the dollar which in turn was tied to a fixed amount of gold ($35 an ounce). Devaluations and revaluations were allowed; in fact that is what a “devaluation” was: a formal downward change in a currency’s fixed rate of exchange with other currencies. This system collapsed at the beginning of the 1970s when the Nixon administration announced that the US was no longer prepared to exchange gold at $35 an ounce. So began the present period of floating exchange rates.

Today, the rate of exchange of a state’s currency is determined by market forces: the demand for it in relation to the desire to sell it, which in turn depends essentially on a state’s balance of trade. The more it exports the higher will be the demand from foreigners to buy it (to pay for the exports) while the higher its imports the more will be the supply for sale as importers sell it for foreign currencies (to pay for the imports). This is not to say that states don’t try to maintain a more or less stable rate of exchange. They do, but their only weapons now are short-term interest rates or getting their central bank (and/or some other central bank or banks) to buy and sell their own currency. But these are not always that effective as was demonstrated by Britain’s ignominious exit from the European Exchange Rate Mechanism in 1992 under pressure from speculators led by George Soros.

The collapse of Bretton Woods coincided with the last years of the long post-war boom, and was in fact a sign that it was coming to an end. When the boom did end, or rather, fizzled out corporations found themselves with large “cash mountains” made up of money they would normally have re-invested but which they didn’t because it was no longer profitable to do so. This money thus became available for currency and other forms of financial speculation.

Essentially, speculation is the use of money-capital, not to invest in the production of new wealth and new surplus value, but unproductively to try and swindle other capitalists’ out of their past profits. It’s a zero-sum game in which the total amount of profits remains the same but merely gets redistributed differently amongst capitalists depending on their speculative skills.

The statistics show that most international monetary transactions are now of this nature. Production of course continues and has even been increasing slowly if in fits and starts, so some international transactions are linked to productive activity – transfer of capital to be invested in productive activity in some other country, payments for exports or imports, etc. But these are only a fraction of the total, estimated at less than 10 percent.

Just like Keynes in the 1930s on a national scale, some members of ATTAC today look at this internationally and conclude naively that, if somehow you could discourage speculation, the money tied up in it would then be reinvested in production instead, so reducing unemployment. But this is to get things the wrong way round; there is so much money available for speculation because there are not enough profitable investment outlets. Even if speculation was made less profitable by, for instance, the imposition of a Tobin Tax this would not increase productive investment. To do that you would have to increase the rate of profit or expand markets, but that’s not something that can be done by any tax.

The horse wouldn’t drink

What would happen would be the same as happened in Japan over interest rates. The government there thought that what has been discouraging investment was not low profit prospects but too high interest rates. So they reduced short-term interest rates to zero – but nothing happened. They learned the hard way that you can take a horse to water but you can’t make it drink. Japanese capitalists hadn’t been not investing because of high interest rates but because of low profit prospects. Similarly, capitalists have been speculating rather than investing productively, not because the gains to be had from speculation are too high but because the gains to be had from productive investment are too low.

Actually, ATTAC are not agreed on why they want to impose an international tax on currency transactions. Some want to do this to encourage productive investment and so employment (on the mistaken arguments above). Others want to use the revenue to help the so-called Third World; which, of course, assumes that speculation should continue as the cow to be milked for this purpose. Susan George has explained the arguments here:

“One of the aspects of this tax is to slow down speculation, i.e. making money with money without passing via an exchange of commodities. It could build up a mass of money to help essentially the citizens of the South since it is there that the needs are. At the moment, there is a debate within ATTAC about whether we want a high tax to stop speculation or, on the contrary, a less high one to restrain speculation while building up this financial aid to the citizen. Personally, I prefer the second option” (Le Soir, 24 September).

It is for this reason that you find different rates being mentioned in ATTAC literature from 0.01 percent to 0.1 percent to the 0.5 percent that Tobin himself suggested (but he wanted to stop speculation and was not particularly concerned how the money raised was used).

George’s preference for a low rate, to raise money to spend in the Third World, is in accordance with ATTAC’s main declared aim, but it involves calling people on to the streets not to denounce capitalist exploitation, but to demand a minimal tax on the financial transactions in which capitalists try to swindle each other out of the proceeds of their past exploitation of the working class. It really is one of the most pathetic reform proposals for which people have ever been called upon to demonstrate for. Of course, people are right to protest against the deal capitalism is meting out to the poor in the capitalistically-underdeveloped parts of the world, but the Tobin tax is not going to help them in the least, even if the political will and technical means to implement it could be found.

Tobin was – and still is – an unrepentant Keynesian. Despite the fact that the main result of implementing Keynesian policies was a 30-40 year period of permanent inflation, Susan George and ATTAC are essentially “global Keynesians”, people who want to apply on a global scale Keynes’s ideas on how to make capitalism work better. George in fact has openly called for the adoption of Keynesian policies. As she put it in the Le Soir interview we have already quoted:

“Our leaders must be more serious and move towards Keynesian solutions, as was the case after the Second World War. We need a Marshall Plan for the environment, for reducing inequalities in the world and particularly in the South”.

And

“We don’t expect le grand soir [a derogatory French term meaning “the Revolution”], but a more democratic type of economy. The market will have its place, but not all the place”.

What ATTAC, and their equivalents in this country, the campaigning non-governmental organisations (NGOs) such as Oxfam, the World Development Movement, Christian Aid, etc (not that some of them are all that “non-governmental”, given the grants they get from the state), want is to retain the world market economy but to try to control it for the benefit of humanity, to humanise it. Their hearts may be in the right place but this is to display an incredible lack of vision as well as an appalling ignorance of the way capitalism works, and has to work.

Capitalism operates according to the rules of “no profit, no production” and “can’t pay, can’t have” and, as the world market system, is what is responsible for the desperate plight of most of the world’s population. Before anything lasting and constructive can be done about this, capitalism has to go. The productive resources of the Earth have to become the common heritage of all humanity, so that production can be directed to meeting people’s needs – all people’s needs – instead of to making profits.

Adam Buick

Material World: Insurance: a branch of the betting industry (2023)

The Material World Column from the November 2023 issue of the Socialist Standard

It may seem oddly Monty Python-esque, but insurance agents have become significant players in the Russo/Ukrainian war. In August it was reported that: ‘Insurance companies have notified charterers of ships operating in Russia’s Black Sea ports of an increase in additional payments known as “war risk premiums”’ (tinyurl.com/4p5rwap9). According to the same report, this could take the cost of an insurance premium for one oil tanker to over $1 million. At the same time, Ukraine was negotiating with insurers to cover its grain shipments through the Black Sea: ‘Insurers and a local state-owned bank would share the risk, the Financial Times reported, with the public portion of the risk backed by Ukraine’s state road fund’ (tinyurl.com/muy64jp8).

Insurance is essential for doing business, especially in a war zone, as the capitalists seek to share the risk of doing business there (and other capitalists try to profit from that risk, taking a share of the surplus value generated through the business in exchange for covering it). In fact, the insurance industry is a branch of the gambling industry. You go up to the insurance broker, and say you want to place a bet that your house will burn down this week, and they bet it won’t.

Of course, they’re not insane, so part of the terms of the bet includes the precise circumstances in which they will pay out, and the steps they expect you to take to avoid a fire starting. Unlike a bet on the horses, though, there is a focus on trying to ensure that the bet would cover the entire cost of replacing the house: that is, the focus is on the property as a value expressed in money.

All societies need a surplus in case of emergency or accident, but capitalism is unique in using a universal equivalent in the form of money. Unlike, say, a granary full of grain, an insurance fund can be infinitely subdivided, so the risk of accident can be spread very far, with insurance firms able to sell slivers of their bets to multiple cash holders, so that no one individual or firm is entirely exposed to all of the risk. They make their profits as a cut of surplus value, matching the perceived risk of having to pay out to how much they can demand as a premium (stake) from the person they are insuring. Their business model is for their customers to compare the cost of borrowing to recover losses, or having enough savings on hand to pay for the losses themselves, with the cost of paying for a premium.

As such, insurance functions as an expression of collective capital. The decisions about whether activities can or cannot be insured (and the terms on which they can be insured), structures economic activity in very great detail. It limits the rights of individual property holders to behave entirely as they wish with their wealth. Firms wishing to offer contracts for goods and services routinely ask for insurance cover as part of their terms and conditions, so it becomes very difficult for any substantial capital to operate in business without accepting the terms on which insurance may be purchased.

This is worth bearing in mind for the fantasies of so-called anarcho-capitalists, for whom insurance and charity could free everyone from ‘the state’: they’d soon find themselves confronting the same costs and regulations as the state imposes because they are a part of industrial society and capitalism itself, not mere creations of the state.

An example of this is the key role insurance played in enabling the slave trade. Investors required insurance before they would undertake the highly profitable, but risky, business of capturing and enslaving human beings. They could even get insurance against slave revolt (the analogy was that revolts – and their suppression – was like when animals aboard ship stampede in a storm). One of the most notorious incidents of the slave trade, The Zong Massacre, in which the captain of the slave ship Zong tried to enact an insurance fiddle by murdering his human cargo (on which, running low on water, he was facing a loss) in order to claim that insurance value. The insurers objected, and this led to a series of court cases: which affirmed that it was legal to murder enslaved human cargo, but in this particular instance, the captain of the Zong was at fault for navigational errors.

This is, it’s worth mentioning in passing, a useful example of the notion of base and superstructure which Marx and Engels introduced in their book The German Ideology. The insurance industry is part of the superstructure built on the base of material practices of capitalism, but it remains essential and instrumental in enabling those activities to continue. That insurers would provide the means to enable a despicable trade is no surprise, because they were in the business of taking bets to try and make a profit for their investors, but at the same time, their activity influenced the shape of how that horrific trade was carried out.

The influence of insurers will come to be seen in the coming years in discussions about global warming and the climate emergency. The devastating wildfires on Maui have caused an astronomical cost, as the New York Times reports (tinyurl.com/4p22tsz3), as much as $4-$6 billion in potential claims for destroyed residences. So much that ‘private insurers, already grappling with the costs of climate-related disasters in California and Florida, are also reassessing a home insurance market they had long considered both predictable and profitable, and whether they should charge residents of Hawaii higher rates.’

Aside from raising premiums (or just leaving the market altogether), insurance firms will begin to press politicians to take steps to limit their risks, and just as they demand terms from those they insure to protect their bets, so too will they demand the state step in collectively to protect their interests. This may well manifest as a dispute between insurers (as representatives of finance capital generally) against industrial capitalists who will bridle at their restrictions.

Pik Smeet

The rise of fictitious capital (2023)

From the October 2023 issue of the Socialist Standard 

By ‘real capital’ Marx meant money capital invested in physical means of production and the workforce itself with a view to producing commodities to be sold on a market in the expectation of realising a profit – or financial return – from selling them. However, what has become increasingly salient in recent decades is another form of capital that Marx dubbed ‘fictitious capital’.

Fictitious capital does not involve the transformation of money into commodities. It is not about investing in means of production to produce commodities for sale on a market. In this respect it is distinguishable from interest-bearing capital in the form of bank loans to businesses that produce commodities. The latter do not constitute fictitious capital as such.

Bank loans become fictitious capital when they are used for some other purpose than financing the production of commodities. For instance, you might borrow money from a bank to purchase a new car or, indeed, pay off another debt. The bank advances the loan on the understanding that it will be repaid, plus interest, over a certain period; it expects to make a ‘financial return’ no less that a factory producing widgets expects to make a financial return. Marx represented this formulaically as M-M’ where M represents the sum loaned out – the principal – and M’ represents the principal returned to the lender plus interest paid by the borrower out of her wages or savings.

In this scenario no new or additional value has been created – unlike in the case of the M-C-M’ circuit where C is capital invested in physical means of production. There has simply been a net transfer of money from the borrower to the lender. The lender has gained money at the expense of the borrower. While, for Marx, the M-C-M’ circuit quintessentially defines the capitalist mode of production, it is the M-M’ circuit, which starts and finishes with money, that most directly, or overtly, expresses what motivates capitalist production – namely, to make money. In this instance:

‘The production process appears simply as an unavoidable middle term, a necessary evil for the purpose of money-making. This explains why all nations characterised by the capitalist mode of production are periodically seized by fits of giddiness in which they try to accomplish the money making without the mediation of the production process’ (Capital, Vol. 2, Ch.1).

The desire to make money by bypassing the production process, as it were, has become increasing apparent with the growing ‘financialisation’ of the economy. What financialisation does is to drive investors to seek out and promote every conceivable kind of revenue flow – from student debt to mortgage repayments and much more besides – that can be turned into financial assets and bundled up in ways that make then appear more reliable and attractive as a source of future income.

Fictitious capital can be characterised as an outgrowth of the credit system. Traditional bank capital did indeed aid industrial production through the provision of credit to industrial enterprises as Marx noted, even if the banks themselves took a cut from the resulting increase in industrial output. With fictitious capital there is a difference. The tendency is to make money, not out of increased physical output but out of money itself in the form of various revenue streams. The financial instruments available to do this are diverse and evolving and include not just collateralised debt obligations or loans but also bonds, equity stocks and various kinds of derivatives.

If one were to identify a convenient starting point when financialisation began to seriously take off as an economic trend this would probably be the collapse of the Bretton Woods monetary system in the 1970s that had formally linked international currencies to the US dollar (itself convertible into gold up until 1971 when President Nixon abruptly abandoned convertibility). The new system of floating exchange rates paved the way to a sharp rise in currency speculation. In money value terms, the ratio of foreign exchange transactions to the global trade in commodities was 2:1 in 1973. By 2004 it had soared to 90:1 and has since grown even more, making the speculative trading of currencies the world´s biggest market (Firat Demir, ‘The Rise of Rentier Capitalism and the Financialization of Real Sectors in Developing Countries’, Review of Radical Political Economy, September 2007).

Subsequently, financialisation was boosted further by the Big Bang reforms of the late 1980s that deregulated financial markets and made London the leading financial centre in the world. In the wake of these reforms came various technological innovations which have also contributed to the astonishing growth in financial capital. The introduction of computers has given rise to the phenomenon of high frequency trading (HFT) employing digital algorithms to buy and sell financial assets by predicting short-term price movements in shares and identifying potentially lucrative arbitrage opportunities.

Since then, financialisation has, as it were, spilled over and penetrated even what is loosely called the ‘real economy’. Everyone is seemingly getting in on the act — from large retail establishments to manufacturing giants. Financial speculation and the provision of in-house credit are just more arrows to put in their quiver, so to speak — an additional means of making more money in an increasingly competitive world. That has made for a huge expansion in the role that financial intermediaries play within the economy and a notable diversification of the kinds of financial instruments at their disposal. Indeed, this has advanced to such an extent that, according to Ravi Bhandari, there is ‘no longer a purely financial sector (banks, insurance companies, etc.) on the one hand, and a ‘productive’ sector on the other’ (tinyurl.com/3d254kmy).

The stock market has been dubbed a market par excellence for fictitious capital, representing the capitalisation of property rights (as opposed to the capitalisation of production itself in the case of real capital) and, as such, constitutes a market for the circulation of these property rights. These rights, suggested Marx, represent ‘accumulated claims, legal titles, to future production’ and any income resulting from that production:

‘Gains and loss through fluctuations in the price of these titles of ownership… become, by their very nature, more and more a matter of gamble, which appears to take the place of labour as the original method of acquiring capital wealth’ (Capital, Vol.3, Ch.30).

A corporation might well raise funds for investment (real capital) by issuing shares on the stock exchange. By purchasing a share, one then has a claim on the future earnings of this corporation. However, this share does not function as real capital. As Marx explained, the money advanced by investors for the purpose of being used as real capital does not exist twice, ‘once as the capital-value of titles of ownership (stocks) on the one hand and on the other hand as the actual capital invested, or to be invested, in those enterprises’. Real capital ‘exists only in the latter form’ and a share represents merely a ‘title of ownership to a corresponding portion of the surplus-value to be realised by it’ (Capital, Vol 3, Ch 29).

The shareholders will hope that, in addition to receiving dividends, the value of their shares will appreciate over time, enabling them to realise a capital gain if and when the shares are sold on the stock market (in the case of a ‘public’ company). The rise or fall in the value of this fictitious asset — the shareholder certificate — representing the capitalisation of anticipated income streams can sometimes bear little apparent relation to current movements in the real economy. The secondary market in the buying and selling of these financial assets is essentially driven by market expectations of future profitability, and this can have a speculative element.

That helps to explain the rather puzzling coincidence of a buoyant stock market with share prices sometimes reaching record highs alongside a real economy that shows every sign of being in the doldrums. A different kind of logic applies in each case. ‘Autonomisation’ is the buzzword to describe the tendency for fictitious capital to strive to transcend or unshackle itself from real capital in the business of money making.

Though ultimately fictitious capital cannot sever itself from developments impacting on real capital, there does, at times, appear to be a certain disconnection between them. Speculative activity that grew out of the very system of credit that financed industrial development can, at times, become frenzied and take the form of speculative bubbles – from the Dutch tulipmania bubble (1634-38) through to the internet-based Dot-Com bubble of the late 1990s, and many more besides. Inevitably these burst at some point when, as Marx noted, the magic of compound interest breaks down as, indeed, it eventually must.

In the meanwhile, as far as these paper claims to future income that constitute fictitious capital are concerned:

‘To the extent that the depreciation or increase in value of this paper is independent of the movement of value of the actual capital that it represents, the wealth of the nation is just as great before as after its depreciation or increase in value’ (Capital, Vol. 3, Ch. 29).

The belief that wealth can be created merely by making money from money is akin to the medieval belief in alchemy – that you can transform base metals into gold.

It is the investment of this ‘real capital’ that generates the surplus value the system fundamentally depends on. This presupposes the employment of wage labour to create the surplus value out of which such capital originates in the first place.

Fictitious capital, on the other hand, does not and cannot create surplus value at all but at best merely redistributes it amongst fractions of the capitalist class.

Robin Cox

Invasion or Starvation? (1905)

From the July 1905 issue of the Socialist Standard

The man in the street is comforted. If ever he had any doubts concerning “his” country’s preparedness for and protection against any possible invasion of this tight little isle, these have been entirely dispelled by Mr. Balfour’s recent speech in the House of Commons. Not only have “we” sufficient battleships, not only are they up-to-date, but in the moment of danger they could be so quickly mobilized at any given spot that there exists no necessity for uneasiness. And so our friend of the short sight, who discerns nothing beyond the tip of his nose, is reassured, and proceeds to his daily avocation briskly, humming—

“We don’t want to fight,

But by Jingo if we do !

We’ve got the ships,

We’ve got the men,

We’ve got the money, too !”

It is true that some of our largest battleships have a nasty habit of ramming each other now and again, that our torpedo boat destroyers sometimes buckle, that in about twelve months three of our expensive submarines have come to grief with much loss of life to our own men, and that our guns sometimes burst, hurling our handy-men into the great unknown. These are mere incidents, or such accidents as will happen in the best regulated navies. Balfour says “all’s well.” Campbell Bannerman congratulates him upon his statement, and the pleased patriot perigrinates, at peace with all the world.

Someone has remarked that the Britisher cannot concentrate upon more than one thing at a time, a failing of which the “statesman,” of both the capitalist and “labour” order, has not been slow to take advantage. Hence it happens that the great “B.P.” rarely concerns itself with the substance, so intent is it in grasping the shadow. In the present connection, John Bull, entirely failing to note the economic development of recent years, still imagines that the enemy against whom it is necessary to guard is a foreign navy or a combination of foreign navies, ever on the watch to swoop down upon these shores. This may have been the position many years ago, when we produced our own foodstuffs, and “every rood maintained its man.” But with the development of manufactures, to the detriment of agriculture, a new foe has arisen. It is not the foreigner with his ships of war that we have to fear and to fight, but that product of capitalism, the financier, of no nation and of every nation, whose operations could at any time not only inflict severe hardships upon the people of this and every other country, but could bring Britain to its knees by withholding its food supplies.

Fifty years ago, during the financial year 1854-5, 20,546,000 quarters (of 480 lbs.) of wheat and wheat flour were consumed here, of which 17,563,000 quarters were home grown and only 2,983,000 were imported. At the time of writing, I am unable to obtain the exact year when we ceased to be self-supporting as far as foodstuffs are concerned, but it certainly must have been long after the commencement of the 19th century. An article which appeared in Blackwood’a Magazine for February, 1903, contained a Declaration signed by 26 of the leading corn merchants of the United Kingdom, in which it was stated that “as late as the Crimean War we were almost self-supporting but we now import four-fifths of our wheat.”

As this article showed, there are some among the capitalist-class who view with alarm our present dependent position, but the proposals they put forward are, as might be expected, totally inadequate. They do not desire the emancipation of the wage-earning class and therefore advocate nothing that would tend in that direction.

In 1898 a Committee was appointed “to inquire and report how far, and in what way, the proposed establishment of national stores of wheat would affect the interests of British Fanners.” It consisted of M.P’s and others, all supposed to possess a practical knowledge of agricultural matters, and the most important of their conclusions was, “It may be concluded, therefore, that for six months after the end of March in any year, the quantity of wheat and flour in the country seldom exceeds six weeks’ supply.” To-day we are more dependent than ever upon other countries, because our population has increased, whilst the home area under cultivation has considerably decreased.

With the recollection of the recent Leiter-Armour manipulation of the world’s wheat supply let us look the facts squarely in the face. Is it possible invasion or probable starvation that we free-born Britishers have to prepare for?

Some of those who gave evidence before the Agricultural Committee seemed to get very near to the truth, but just failed to grip, or to admit, the exact situation. Mr. James Birch thought that “in the event of war we should be practically in the hands of the plunging speculator,” but is war a necessary condition ? Mr. T. B. Home spoke of “the perilous position this country would be placed in for its food supply, should a combination of nations against Great Britain arise,” but substitute determined financiers or plunging speculators for “nations” and the peril is as great and probably the action would be more rapid, the effects more immediate and disastrous. Some of the witnesses admitted that “apart from a forcible interruption of supplies by enemies’ cruisers, there is a possibility that a nation—or a coalition of nations— intending to make war on this country might forestall the supply of wheat by the purchase of futures.” Mr. Proctor could quite imagine that “if Russia to-day were to be at war with us, our own supplies (from Russia) would be stopped, and, through German and other sources, she might buy, in America, practically all the American wheat.” And Mr. Seth Taylor, in reply to a question respecting the engine of offence which be used by those countries unable to compete with us on the seas, answered “they have nothing to do but sit on their stocks.”

Let us put it in another way. Apart from a forcible interruption of supplies by enemies’ cruisers, there is a possibility that a millionaire—or a coalition of millionaires—intending to bring this country to submission, might forestall the supply of wheat by the purchase of “futures.” Not in any way a remote or improbable contingency. According to the article in Blackwood’s, “the chief source of our supply is the United States, but the price of wheat on the American corn market can be raised artificially, and in the event of a European war, in which Great Britain was involved, it is quite possible, indeed probable, that it would be so raised.” And it could also be so raised, as has already been done, without a European war, as the working-class have good cause to remember.

When Mr. Joe Leiter, Lord Curzon’s brother-in-law, attempted the cornering of the world’s wheat supply, the capitalist Press said that he failed, but viewed as a failure, the effect upon the working-class was so disastrous that one can imagine what would have been the result had he succeeded. Not only did the price of wheat, flour and bread rise all over the world, but the inability of the workers in some parts of Southern Europe to obtain bread led to riots, and in Hungary the people, demanding bread, were given the usual capitalist answer—bullets. If, then, the operations of one man in Chicago, or, counting Armour, two men, could produce such world-wide results when those operations were supposed to have failed, it is easy to see that a combination of financiers could dictate their own terms, particularly to a country so dependent upon outside sources for its food supply as is Great Britain.

The proposals usually put forward are useless, because they all depend upon the continuance of the competitive system.

There is the tariff reformer, who, by a readjustment of fiscal conditions, would induce the growing of the Empire’s food supply within the Empire, but who can never show (I myself have challenged several) how that will prevent the financiers operating. Love laughs at locksmiths and Leiter, Armour, Rockefeller & Co. would laugh at tariff walls if they determined to get control of the food supply of this Empire or of any other part of the world.

The establishment of national granaries would not only not affect them but by creating an extra demand for the twelve month’s supply of wheat which it is proposed to store, would give the “plunging speculator” his opportunity.

Then there is the reformer, sometimes claiming to be a ”Socialist" who advocates small holdings or peasant proprietorship, either because he thinks, with the late Lord Salisbury, that “to increase the number of small holders of the soil is to secure the strongest bulwark against revolutionary change,” or because he honestly believes that to be the best proposal, But apart from the fact that the day of small things is past, that production on a small scale is wasteful, it is well known that the transformation from a tenant to a small proprietor, whilst freeing the cultivator from the domination of the farmer or landlord, drives him into the clutches of the ursurer. What has the tenant farmer of Ireland gained ? Is it better to be the victim of the gombeen man than of the landlord ? And none of the other proposals would be effective. What is wanted and what alone will suffice is a complete revolution. The class-proprietorship of the means of life must be abolished : they must be taken over and controlled by the people, all of whom shall be workers. With the substitution of common for private ownership of land, factories, railways, etc., the power of the capitalist, great and small, of gambling with the people’s food, of appropriating the product of the labourer, whether of the field, the mine or the workshop, will be destroyed and the people freed from their subjection to a class. The matter affects both town and country worker, of every land, of every creed. The men of capital are stronger than the men-of-war and their strength can only be taken from them by the organisation of the working-class into a separate and distinct revolutionary Socialist party, such as The Socialist Party of Great Britain.

Jack Kent

The role of the financier. (1927)

From the November 1927 issue of the Socialist Standard

Finance, we are told, is the sinew of modern industry, the base upon which commercial operations rest, and the controller, in high finance, is one of the worshipful company of captains of industry. Now and again there is a storm in financial circles, one of its star performers comes to ruin, the veil is torn aside, and we get a glimpse of the nature of financial operations.

Such an instance has occurred lately with the ruin and suicide of the financier, James White. A fellow financier, Sir Edward Mackay Edgar, made a statement to the Daily News (2/7/27) from which we extract the following :—

 “Thousands of people will be ruined as the result of the wild speculations of the late Mr. James White. Already two of his closest friends have gone ‘broke,’ and God alone knows what will happen within the next fortnight. It will be the sensation of the 20th century in the matter of finance.

“The British Controlled Oilfields is my baby. I organised it and got it into a fine position. It was the aim of Jimmy White to obtain as many shares as possible and force up the price. Then he hoped to sell and realise a fortune. That was as far back as three years ago. I would not consent because of the advice of technical experts on the spot.

“On the Thursday before Good Friday, Mr. White came to me and asked me to join a pool to force up the price of B.C.O. shares. For five hours I was on my hands and knees in my flat imploring him not to engage in such a mad venture, knowing that disaster could be the only result. He left me that night, and I have only seen him once since.

“He entered upon a bitter campaign to reduce me to financial ruin. He failed in his efforts. He bought shares right and left. He relied upon by group of friends selling short. We never unloaded a single share, but kept them, and we knew that White on June 30th would have to meet his enormous commitments or go ‘broke.’ This last effort of his was a gambler’s last throw of the dice. I knew the crash was coming. All my friends were aware of it.”

The interesting side to us in the above statements is the fact that the foundations of modern industry are so frail that men like White can play ducks and drakes with it and bring chaos where order should reign, by indulging in lawful financial operations. Instances such as this bring to the front the question, “What is the object of industry?” Is it to provide people of a peculiar nature with an outlet for a glorious gamble, or is it to provide society with means to meet the mental and physical needs of the people composing society. Evidently our “great”captains of industry hold the view that the earth and the fulness thereof was made for their sport and enjoyment—and we are merely items too cheap to be worthy of consideration.

Gilmac.

How to end property speculation (1973)

From the June 1973 issue of the Socialist Standard

Since the war over a hundred people have become millionaires out of property speculation. This is a measure of the failure of town planning. Indeed it has partly been its effect within the context of the private ownership of land.

The private landowner is a social parasite extracting an income from society simply because he monopolizes a limited natural resource. A large part of London is still owned by the traditional landowning class — the dukes, the earls, the Church and the Crown — but in recent years these aristocrats have been joined by a commoner breed: the property speculator.

The property speculator operates by exploiting the shortage of land for office building in central London. Land prices depend entirely on market demand and reflect the prospective income a piece of land can be expected to bring its owner. For many years now the demand for land in London for office building has exceeded the supply. Hence rising land values.

What most of these new millionaires did was to buy up land in a particular area, secretly and in small parcels, until they had acquired an area large enough for a big “development”. As soon as they had done this their land became worth many times more than they had paid for it. Some became millionaires quite literally overnight and, with office rents rising faster than inflation generally, they go on getting richer every day simply by holding their land idle. This basically is what Harry Hyams has done with Centre Point, that monument to the anti-social nature of private property at the end of Tottenham Court Road. It pays him more, through the increasing value of his land, to keep this office building empty rather than to let it at a fixed rent for a fixed period.

So obviously absurd is this that even supporters of capitalism have had to complain. The Tories have traditionally been the property owner’s friend so they have not done much. The Labour Party has tried harder, but its efforts to control speculative office building backfired by aggravating the shortage of office space, so further pushing up land prices. Labour apparently has not learned the lesson of this as its GLC manifesto promised “to halt the building of additional offices”. Some Labour-controlled councils have even been forced into partnership with speculative office builders in order to salvage some space near central London for housing.

Both Labour and Liberal critics of the property speculator have shied away from what, even under capitalism, is the only way to stop people making fortunes out of rising land values: the abolition of private property in land by the expropriation without compensation of all private landowners. This radical solution was advocated by their bolder predecessors in the 19th century and has been recognized by many architects to be the minimum requirement before there can be effective town planning.

The Socialist Party of Great Britain however does not advocate the abolition merely of landed property and does not favour this as an isolated measure. We stand for the abolition of all private property rights, over industry as well as land. The abolition of the private ownership of land under capitalism would eliminate the landed aristocrat and the property speculator but not the industrial capitalist. It might relieve the housing shortage a little by allowing more lower-rent accommodation to be built for sale to lower-paid workers, but the working class would remain wage and salary earners exploited for profit by their employers. Under these circumstances town planning, even with the abolition of private landownership, could still not be geared to furthering human welfare.

Only Socialism, based on the common ownership and democratic control by all the people of all land and industry, will provide the framework for doing this. There would then be no vested interests or market forces working to negate plans to create an enjoyable urban environment for people to live and work in. People would be able to exercise effective democratic control over town planning instead of the farce of “consultation” and "participation” practised by the GLC and local councils today.

Capitalism and Speculation. (1935)

From the March 1935 issue of the Socialist Standard

An attempt by a group of speculators to enrich themselves by cornering two commodities has recently failed. The two commodities are shellac and white pepper; both, it might be mentioned in passing, of importance in connection with the production of war materials. About a year ago the group, through its agents, began to buy up all supplies of these commodities as they came on the market, the object being to force the price up and then to sell at a substantial profit. Shellac and pepper were, presumably, chosen by the speculators for their market manipulations because they thought that the amount of money required to create a comer in these commodities was relatively small, and that supplies could not be rapidly increased. They were mistaken in both respects. As the operations of the group lifted the price of pepper from 8¾d. per lb. to 1s. 6d. per lb., and that of shellac from around 70s. per cwt. to 120s. per cwt., larger and larger supplies came on to the market and buyers went round the back of the speculators and obtained their requirements in the native markets. Imports into this country increased enormously, as the following figures show: —

By the end of January stocks of pepper in London amounted to 21,000 tons (four years' supply) as compared with 3,000 tons a year earlier. About 7,000 tons was due to be paid for on February 8th. At the last minute the speculators found themselves not able to command the financial resources they had relied upon. The gamble had failed.

The storm has centred around a Mr. Bishirgian and a firm of metal brokers, James & Shakespeare, of which he is a director. This business was established in 1842 and was converted into a private company in 1917. In September of last year, after the buying of shellac and pepper had begun, the company made a public issue of £300,000 of preference shares and 300,000 ordinary shares of 5s. each. Part of the proceeds of this issue was utilised to acquire the metal and produce departments of G. Bishirgian & Co., and a majority interest in another firm, Williams, Henry & Co. Among the shareholders of James & Shakespeare are Mr. Reginald McKenna, chairman of the Midland Bank, Ltd., who, however, disclaims knowledge of the pepper gamble. Another is Sir Hugo Cunliffe Owen, chairman of the British-American Tobacco Co., Ltd., and the Dean Finance Co., a company of which we shall have more to say later. Purchases of shellac were made by Williams, Henry & Co., while pepper was bought by James & Shakespeare, both firms acting in the market through brokers. Their dealings, however, were not for their own account, but were on behalf of the group of speculators whose identities are not positively known. It was only because the market confidently believed that there was a powerful group behind the ostensible buyers that dealings were permitted to reach their final unwieldy size. There is now a demand for investigation, but we think it is a safe prophecy that there will be no real inquiry into the gamble and its initiators.

When the bubble burst, all the shellac bought by Williams, Henry & Co., was taken up. Arrangements were made by which the Dean Finance Co., Ltd., took over from James & Shakespeare their holding of shares in Williams, Henry & Co. The Dean Finance Co., Ltd. (director, Sir Hugo Cunliffe Owen) is a subsidiary of Tobacco Investments, Ltd. (directors, Mr. McKenna and Sir Hugo Cunliffe Owen), which in turn is owned by Tobacco Securities Trust (chairman, Mr. McKenna, vice-chairman. Sir Hugo Cunliffe Owen), a subsidiary of British-American Tobacco Co., Ltd. (chairman, Sir Hugo Cunliffe Owen). The managing director of Williams, Henry & Co., Mr. Louis Hardy, resigned. He is on the board of a number of tin companies, which have been connected with the tin restriction scheme, which has the blessing of the Government.

The pepper position, however, could not be propped up, as the shellac was. A winding-up order was applied for against James & Shakespeare. With that company unable to carry out its obligations, the brokers. Rolls & Sons, and J. T. Adair & Co., Ltd., who had acted for it, were also forced to default. Pepper and shellac are now back to their former level of prices. Three firms have smashed. Their employees are out of jobs. The City, in a fit of righteous indignation, is demanding the heads of the real culprits.

This indignation is farcical. There have been many cornering gambles in the past, and there will be more in the future. Capitalism provides scope for gambling of this kind. It offers fortunes to the successful speculator. Its apologists prate of the useful functions performed by the speculator in helping to make a market. When the gamble goes wrong those who get hurt in their pockets always set up howls of indignation. While a system based on the legalised robbery of the workers persists, there will always be struggles over the swag. That is what speculation is, and that is why talk of “cleaning up” capitalism is bluff and pretence. To end speculation it would be necessary to end capitalism.

The fate of the innocent victims, the clerks now out of jobs, provides a pretty commentary on those who say that profits are payment for risk. The speculators, if they had won, would have made huge profits. The clerks have lost their jobs. What reward did they, or could they, have got for running the risk of unemployment? They suffer when the gamble goes wrong, they would not have gained if it had gone right.

One final point worthy of notice is that we see here a banker, Mr. McKenna, investing money outside banking. Perhaps the illusionists who believe that bankers possess in the banking system a means of creating wealth without limit for themselves will explain why Mr. McKenna should have sought profit in another field.

B. S.