Round and round we go …

The passages below were written by Carroll Quigley in a much-maligned and misinterpreted book published in 1966 about the period 1922-30, Tragedy and Hope. They could have easily been written in our post-Glass-Steagall era:

It [financial capitalism] invested capital not because it desired to increase the output of goods or services but because it desired to float issues (frequently excess issues) of securities on this productive basis. It built railroads in order to sell securities, not in order to transport goods; it constructed great steel corporations to sell securities, not in order to make steel, and so on. But, incidentally, it greatly increased the transport of goods, the output of steel, and the production of other goods. By the middle of the stage of financial capitalism, however, the organization of financial capitalism had evolved to a highly sophisticated level of security promotion and speculation which did not require any productive investment as a basis. Corporations were built upon corporations in the form of holding companies, so that securities were issued in huge quantities, bringing profitable fees and commissions to financial capitalists without any increase in economic production whatever. Indeed, these financial capitalists discovered that they could not only make killings out of the issuing of such securities, they could also make killings out of the bankruptcy of such corporations, through the fees and commissions of reorganization. A very pleasant cycle of flotation, bankruptcy, flotation, bankruptcy began to be practiced by these financial capitalists. The more excessive the flotation, the greater the profits, and the more imminent the bankruptcy. The more frequent the bankruptcy, the greater the profits of reorganization and the sooner the opportunity of another excessive flotation with its accompanying profits. This excessive stage reached its highest peak only in the United States. In Europe it was achieved only in isolated cases. (p336)

A few paragraphs later, he describes an obvious side-effect to corporate structure in an era where we need to raise huge amounts of concentrated capital to achieve large project:

The efforts of financiers to separate ownership from control were aided by the great capital demands of modern industry. Such demands for capital made necessary the corporation form of business organization. This inevitably brings together the capital owned by a large number of persons to create an enterprise controlled by a small number of persons. The financiers did all they could to make the former number as large as possible and the latter number as small as possible. The former was achieved by stock splitting, issuing securities of low par value, and by high-pressure security salesmanship. The latter was achieved by plural-voting stock, nonvoting stock, pyramiding of holding companies, election of directors by cooptation, and similar techniques. The result of this was that larger and larger aggregates of wealth fell into the control of smaller and smaller groups of men. (p337)

It stands to reason that such a structure should not be granted “personhood.” It’s an invitation to tyranny.

13 thoughts on “Round and round we go …

  1. …because it desired to float issues… highly sophisticated level of security promotion and speculation which did not require any productive investment as a basis.

    And yet the issues were bought; by someone; again and again. If they were such a bad deal, I would think that eventually that would have been realized, and money put to better use; maybe in a Mr. Tomato Guy approved investment, if indeed it is a real investment and not a wealth destroying adventure.

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    1. That would be a great experiment. My own perspective is that merit pay is virtually non-existent, and that most people are paid not based on productivity, but rather “market power,” which = insulation from the market. Executives have it, and so can write their own tickets. Labor doesn’t, and so must worry about food, health care and debt.

      Productivity is so advanced that we hardly need put in ten hours a week to keep things moving. But the direction of wealth is bottom-up. Switzerland might upend the model.

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  2. Switzerland might upend the model.

    Good luck to them. But hasn’t this been tried? I’m thinking of Cuba and North Korea, who handed out coupon books for the basics. Pretty soon the coupons bought very little.

    The Swiss can guarantee 2500 francs, but they can’t guarantee buying power. Incentives matter, even if some are gaming the system.

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    1. A convenient excuse. South Africa was under probably even more severe sanctions, and they built a modern economy.

      Such embargoes are pretty porous.

      Even with such screws applied, one would expect the coupon books to lose a percentage of their purchasing power, instead of drifting toward zero. Other things are at work here. Maybe the Swiss; with a high achieving, organized populace; can make the thing work. I’m not betting big money on such a plan in every polity.

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      1. Wish I had a nickle for every time someone says that the embargoes are not serious. We ahve ships patrolling the waters off Cuba enforcing it. We ahve State Department people whose only job is to see that embargo is enforced. They have perhaps more people for that purpose than anti-terrorism, which they know is not real.

        The South African embargo, on the other hand, was a joke. It was never more than window dressing.

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  3. The uber-rich are going to need to find a way to keep the pitchforks away from their castles when nation states fail to meet basic human needs. At least the Swiss seem to remember historical consequences of ignoring growing inequality, hunger, homelessness and declining public health. Here, we are taking away food for the poor, cutting health care and public pension benefits, while lowering taxes for corporations and billionaires. International bankers want “certainty,” not armed uprisings atacking their preferred clients. Sombody in Washington, D.C. didn’t get the memo.

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    1. I’ve got my pitchfork sharpened and shined, but when in history have so many had so much? Our “poor” seem to have a bigger problem with obesity and getting hit by cars while texting on their way to the welfare office.

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