[Marxism] Some thoughts on currency markets

Jurriaan Bendien andromeda246 at hetnet.nl
Mon May 3 06:07:41 MDT 2004

Ahmet's query about the trade volume of the money markets prompted me to
check some more data. Various authors, presumably working from Bank of
International Settlements data, suggest the value of the global stock of
financial assets since 1980 has increased more than twice as fast as GDP, in
rich countries. The average daily trading volume in the currency markets is
now supposed to be between $1.1 and $1.5 trillion or so, suggesting in
approximate figures an annual turnover of $280-$390 trillion or so per year.

Suppose, for the sake of argument, an average net profit rate to investors
of 1% on this total flow volume (you can of course make much more in the
money markets, e.g. 5% or more). In that case, the profit income from trade
in currencies alone would be $2.8 to $3.9 trillion. Assume now that world
GDP at ppp value is around US$36 trillion (of course, if the exchange-rate
of the US$ has fallen significantly this has a large effect on the valuation
of world output; but this would only strengthen the argument I would think).
Then this suggests, that speculative profits in the world economy from
currency speculation alone must now be somewhere around10% of world GDP.
However, a large portion of this net income would not actually be included
in GDP, because it falls outside the institutional definition of
"production", or, it is regarded as a transfer income (it might captured in
tax data concerning gross personal income, in some capital accounts or other
financial data).

Is that bad or good ? It could be argued, that the operation of the money
market facilitates the rationalisation and standardisation of global
production conditions in some senses by making the transfer of resources
more efficient, quicker etc. But really what we are talking about is that
trade in (financial) assets creates and concentrates new claims to wealth
which in large part do not directly correspond to any increase in real
output; i.e. a redistribution of wealth, without an increase in wealth
proportionate to the capital values involved. This is a situation described
with the term "excess capital", a plethora of capital which does not result
in a cumulative pattern of real economic growth that is sufficient to reduce
world unemployment. Even if real world GDP grows at e.g. 6% this isn't very
meaningful, because we need to know exactly what that real growth is
attributable to; a lot of it is due to enterprises in richer countries which
trade in assets, or which provide services to those who have the money to
pay for those services.

The overall result of the money market activity must be basically an
increase in income inequalities, plus a braking effect on the growth of real
production, hence also a braking effect on employment opportunities. The
argument however is that while indeed the rich get richer, at the same time
the poor are raised out of poverty, be it not at the same rate. But if in
addition the structure of the world population is such that the rate of
increase in the number of jobseekers is accelerating, then the result must
be an increase in world unemployment. It's fewer people making more money in
less time through financial transactions, a disincentive to growth in
employment-generating production of tangible goods and services, both
because of profitability relativities, and the slower growth rate of
ordinary consumer demand. This also importantly affects the imperial
division of labor in the world and world differentials in the valuation of
labor-power (though few authors seem to have analysed this).

Karl Marx defined capitalist production as the "unity of production and
circulation" and so, if we just looked at GDP data as many fashionable
economists like to do, we only get at best one-half of the story. Once we
look at the sphere of circulation, then we realise that a very large portion
of net income is obtained from trading in money capital of all types,
commodity capital and existing assets, of a type which simply fails to be
captured in GDP aggregates. Therefore it would, as I have mentioned before,
be a mistake to think of GDP as a measure of true national income, because
it isn't.

GDP refers only to new incomes generated in the sphere of production,
broadly defined. The assumption is that the value of the new social product
equals the sum of new incomes generated by production. But if a very
substantial portion of net income is obtained outside of the sphere of
production, we understand very little about the reproduction of total social
capital just by looking at GDP and gross fixed capital formation. Estimates
of the value of the surplus product based on GDP data do not include a
component of surplus-values which happens not to be realised in transactions
included in GDP, but outside its aegis. And in considering fixed investment,
we must distinguish between the production, trade and investment in new
fixed assets versus trade in already existing fixed assets.  Necessarily, in
"netting" gross output to arrive at GDP, the distribution of incomes between
social classes is obscured, but in addition, total real national income
actually received is underestimated. That becomes perfectly obvious if you
compare GDP figures with taxation data.

Some English translations of Marx's Capital translated the German
"Kapitalvertwertung" (valorisation of capital) as "the self-expansion of
capital" and Martin Nicolaus translated this word in his version of Marx's
Grundrisse (Penguin edition)
as "the realisation of capital". And indeed in an epoch of spectacular
growth of "fictitious capital" (capitalisation on property ownership), the
self-expansion of capital does seem to occur, even through just one
transaction. But as far as Marx's theory is concerned, this is a distorted
formulation, because:

(1) Leaving aside fictitious capital, a capital asset never "expands itself"
in value automatically without employing real, living workers who both
conserve capital value, and increase it; to talk about capital's
"self-expansion" obscures the capital-relation through which capital
employs, and has command over a workforce.

(2) Unless you believe Say's Law is true, capital does not automatically
"realise" itself through market sales; given market uncertainty, there are
no such guarantees. All there is, is the expectation that with the help of
credit facilities, a stable currency, sufficient effective demand, and
relevant market expectations, the new output produced will be sold at the
price. Say's Law that supply will find its own demand is of course rather
meaningless anyway, since what matters is the actual price level at which
supply will find its own demand, and how long it actually takes for supply
to find its own demand. See, in regard to this topic, the large literature
on so-called "dumping" practices, where goods are sold below cost-price.

(3) The capitalist market does not expand automatically by itself either,
because this expansion depends on a distribution of buying power in a
pattern which permits that expansion to occur, and this isn't automatic
either, but dependent on the bargaining strength and the magnitudes of
specific groups and classes of buyers and sellers active in the market.

(4) for Marx, a given quantity of value is conserved and produced as means
of production and consumer items by a given
quantity of work-time by the direct producers, and this value itself does
not change in magnitude through the (re-)distribution of output value, in
numerous transactions, to recipients of products and incomes; likewise, a
capital value may also be valorised in production (i.e. increased or
augmented in value), but that expanded value may not be realised, or not
fully realised, because some or all of the output cannot be sold, or cannot
be sold at the required price. Consequently, Marx suggests that in valuing
output and income distribution, capital must be understood in its process of
motion, i.e. the complete circuit involving investment, valorisation,
realisation, reinvestment, and unequal exchange.

(5) The realisation of output values through market sales and the resultant
appropriation of net incomes in the sphere of circulation renders the
valorisation process which has preceded it opaque, because the growth of
capital seems to be created by market changes rather than by surplus-labor.
Moreover, as assets are revalued and devalued in exchange transactions, and
as unequal exchanges occur, new value really does appear to be generated in
exchange. Specifically, with the aid of credit money, the realisation of
capital can precede the valorisation of capital, i.e. current financial
claims can be realised in one place on the basis of an income to be
generated in the future somewhere else. This creates some important
theoretical challenges, because how exactly can a theory of economic value
as lodged in tangible products and services (excluding financial
transactions which transfer value, ownership entitlements, property rights
and so forth) be reconciled with a theory of economic value in terms of
financial claims ?

See further: http://www.pl.net/6business/gamblers.html

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