Stocks, shares, bonds etc

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working class
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Aug 26 2011 05:50
Stocks, shares, bonds etc

From wikipedia: "The capital stock (or just stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and the assets of a business which may fluctuate in quantity and value."

"The stock of a business is divided into multiple shares, the total of which must be stated at the time of business formation."

"In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals."

What would be good materialist definitions of these and related terms?

Secondly, the stock market indices seems to work based a lot on the subjective impulses of the moment of the stock traders, irrespective of the amount of profits and revenues it is generating. Does this mean there is not much of a real basis to the stock market?

Also, any recommendations on good works on this subject are welcome.

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Noa Rodman
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Aug 26 2011 14:05

Finance Capital by Hilferding (1910), probably most relevant to your query is chapter 8

Spikymike
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Sep 2 2011 10:40

It's not related to 'a business entity' but there is a short and simple explanation of the relationship of bonds issued by national and local state bodies and the sovereign debt crisis in a 'Socialist Standard' article here:

http://www.worldsocialism.org/spgb/sep11/cooking_books.html

I am heavily critical of the spgb as many here will know, but they do produce some good material on basic issues which come up regularly on this site such as: the relevance of human nature, the function of money, free access in communism, role of charites etc.

This latest sept' issue of the 'socialist standard' is one of their better efforts, perhaps because it mostly avoids too much reference to their other social democratic weaknesses.

working class
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Oct 8 2011 03:03
Noa Rodman wrote:
Finance Capital by Hilferding (1910), probably most relevant to your query is chapter 8

This is what I came up with the first time I looked for this topic. However, I think Hilferding's account is not too reliable since it bases itself on a false equivocation of finance capital and domination of lesser imperialist countries by bigger imperialist countries, leading to Lenin's false theory of imperialism. Is there a critique of Hilferding which actually delves into finance capital?

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Oct 8 2011 10:18

As an explanation of stocks, shares, etc. chapter 8 is alright, trivial you may think, but basically alright. The issue of Hilferding's focus on finance capital in the foreign policy of strong countries is another matter. If he's showing how finance capital has an interest for it's state to be strong against other states, that argues against the typical reactionary idea that finance capital is somehow a threat to the sovereignty of the nation. I haven't read the book entirely, but I think it deserves some more credit (PUN NOT INTENDED).

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Oct 8 2011 21:15

Rudolf Hilferding, for all his bad politics, is still one of my heroes. Finance Capital is one reason, his reply to Böhm-Bawerk (which he wrote when he was 27 IIRC!) is another.

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Oct 28 2011 15:20

I've just started reading Hilferding's Finance Capital, and I'm not encouraged by how he closes his second chapter arguing at length how national currencies could never leave a gold/metal standard (which they obviously did, first through Bretton-Woods, and completely with Nixon). Are there any other of his contentions that have been falsified since publication?

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Oct 28 2011 15:51

Tojiah, there's actually a big debate around this issue and it ultimately leads to the core presuppositions of Marx's theory of money. According to some, it is a theory that presupposes the existence of a money-commodity like gold – and I think that a close reading of Marx's third chapter in Capital vol. 1 actually confirms this. The question (for those who accept this), then, is whether Marx was wrong about this (and Hilferding with him).

There are thinkers who say that the abolition of the gold standard will necessarily be just a short-term anomaly. Such views often hold the dissolution of Bretton-Woods responsible for the instabilities and crises of the last 40 years, and use it as one factor in explaining financialization and the current crisis. Others say that the dissolution of Bretton-Woods did not actually abolish the gold standard, as the money-commodity can not be abolished "by decree". These people will argue that gold still plays an important role in the policies of central banks, and hence still exerts influence on the international currency values. This is obviously controversial, but it seems backed-up quite well.

Still others say that Marx was wrong in saying that an underlying money commodity is necessary (with a sub-position saying that it was in fact necessary at the particular stage of capitalist development in Marx's time, but is not anymore). This results in some major problems with Capital but it seems they can be overcome somehow.

There is also another position which argues against the notion that Marx's theory of money is based on the money-commodity, and that the end of Bretton-Woods poses no problems for it (which would make Marx correct and Hilferding wrong). I don't find this too persuasive, however.

I don't know too much about the subject and have no unambigous position, but I can provide some pointers to texts if you're interested in exploring this.

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Oct 28 2011 16:38

I'm sure there a huge variety of other positions on this question, beyond the concise and useful summary given by jura.

One I found interesting was that put forward by Dick Bryan and Michael Rafferty in "Capitalism with Derivatives". Which is that financial assets like derivatives can be seen as commodities in themselves, and that Marx's analysis of commodity money can then be creatively applied to get a much more developed understanding of money in a globalised, post-Bretton woods capitalism. Pretty heterodox in a number of different areas, of course, but still interesting.

Quote:
Appendix 6.1: a Marxian interpretation of financial derivatives as commodity money
[...]
Our own object, however, is precisely to understand the role played by derivatives in capital accumulation. Our path into this issue is not advanced by an entry through the productive/unproductive debate, but via Marx’s own analysis of the contradictions that lie within a distinctly commodity money.

This is certainly not a fashionable path. Marx’s own writing on commodity money, and the role of a distinct commodity (or set of commodities) in assuming the role of ‘money’, is generally dismissed as anachronistic and trapped in the nineteenth-century practices of the Gold Standard. The Gold Standard, with its implicitly fixed exchange rates that came from all trade being transacted in the same money commodity, meant that Marx never had to pose the currently pressing question of variable exchange rates.

Here we develop an alternative explanation of money in the era of globally integrated financial markets, where currencies circulate freely outside the nation of their designated account and comprise money issued both by states and by private organisations such as in the form of bonds and other debt instruments. Our argument, contrary to the dominant view, is that Marxian analysis is not impeded by a reliance on a commodity theory of money. On the contrary, it was Marx’s particular designated commodity money, restricting the money commod- ity to gold, which obstructs a more creative understanding of the nature of capi- talist money in the twenty-first century. Derivatives, as traded commodities, hold the foundations of a more general theory of capitalist money as commodity money.[21][...]

If anybody fancies a read of that appendix (or the book for that matter), PM me and I can send the pdf.

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Oct 28 2011 19:16
Tojah wrote:
arguing at length how national currencies could never leave a gold/metal standard

hmm, could you quote the relevant passage? The dispute anyway should not be about the possibility of the absence/existence of a gold standard (such empirical trifles). The dispute is about money being a commodity, the equivalent one.

Kautsky wrote:
There is only one point where I cannot follow Hilferding: that is his conception as though the money commodity (gold or silver) could be replaced by paper not only as a means of circulation, but also as measures of value. The real measure of value is not metal money, but the total value of the wares to be circulated (the time of circulation remaining the same) of the “socially necessary circulation value” as he calls it.

Hilferding is probably not of opinion that irredeemable paper-money as such could be the measure of value. He rightly ridicules Professor Lexis, who asserts this in the Hand-Dictionary of the State Sciences. But he does not improve matters by twisting the relationship between money and commodities, and making of the mass of commodities a measure of value, and also the creator of value in paper-money. In order, then, to make this paper-money, thus provided with a certain value, the measure of the value of the commodities, he declares:–

“Of course, all commodities are still (in pure paper currency), as before, expressed, ‘measured,’ in money. (Not gold! – K.) Money appears still, as hitherto, as the measure of value. But the greatness of the value of this “measure of value” is no longer determined by the value of the commodity which creates it, the value of the gold, the silver, or of the paper. On the contrary, this value is in reality determined by the total value of the commodities to be circulated (the date circulation remaining the same). The real measure of value is not money, but the bank-rate is determined by that which I should like to call the socially necessary value of circulation.” (Page 29.)

This, evidently, can mean nothing else than that the real measure of the value of commodities is not the money, but the real measure of the value of the money is the commodity.

If the value of the money could be determined in this way by the “socially necessary value of circulation,” that would mean the negation of the law of value for the money-commodity; it would be saying that for the latter the value is not determined by the socially necessary labour time needed for its own production. The universal applicability of the law of value would be broken through, and that would be all the more in this case, in that this would happen just in the case of the money-commodity, “the commodity the natural form of which is at the same time the immediate social social form of realisation of human labour in abstracto.” (Capital, I., page 124)

There is no necessity for any such Marxist suicide. The phenomena, which appeared after the cessation of the free coining of silver in different countries during the last decades, and on which Hilferding bases this idea, can be easily explained in other ways.

In Kautsky's notes on the transition economy for Germany after the war (written before the revolution), chapter 7 is entirely about money and with a specific section on policy concerning a gold standard:

http://www.archive.org/details/sozialdemokratis00kautuoft

I think the outcome of Hilferding's policy as finance minster proved that Kautsky (and with him Marx) was right.

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Oct 28 2011 20:27

jura, thank you for your concise yet illuminating response. I may want to take advantage of your offer at a later date, but I am reading Hilferding in order to understand the stock market and the financial sector. I only raised the question of money because it seems to me that his view has been empirically refuted. To me 40 years is not an anomaly, and capitalism was not stable before Nixon, so I do not see that as good evidence for this problem. Would you say that Finance Capital is worth reading, otherwise?

Noa, I may be misunderstanding him, but for example, as I said, from the end of Chapter 2

Finance Capital wrote:
But this type of currency can never succeed in practice for the simple reason that there is no possible guarantee that the state will not increase the issue of paper money. Finally, money with an intrinsic value – such as gold – is always needed as a means of storing wealth in a form in which it is always available for use.

For this reason money and precious bullion, such as gold, can never be replaced completely by mere money tokens without introducing disturbances into the process of circulation. Hence, in practice, even under a system of exclusive paper currency, full value money is always available in circulation, if only for the purpose of making payments abroad. The paper currency can replace only the minimum quantity below which experience has shown that circulation does not fall. This is proof afresh, however, that the value of both money and commodities, far from being imaginary, is an objective magnitude. The impossibility of an absolute paper currency is a rigorous experimental confirmation of the objective theory of value, and only this theory can explain the peculiar features of pure paper currencies, and more particularly, of currencies with suspended coinage.

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Oct 28 2011 22:13

Ocelot, thank you for pointing that out and reminding me about that book! I had a quick look at some of the chapters in Bryan & Rafferty's book some time ago, when I was looking into marxist accounts of securitization after the subprime sector collapsed. Then I completely forgot about it. It is an interesting work indeed. I think I got a copy off gigapedia, so it should be available on www.library.nu. (Actually, Tojiah, if you're interested in an up to date look at finance from a marxist point of view, you should give it a try!)

Tojiah, please bear in mind I was oversimplifying and I just don't have the knowledge to do justice to the arguments involved. I don't think any of the positions can be dismissed right away based on what I wrote. Intuitively I find the "gold still exerts influence on monetary policy" position, which I encountered in German texts1 (one of which actually demonstrates it on the policies of the German central bank), quite attractive, but I'm on the fence on this subject really. I guess what I'm trying to say is one probably shouldn't throw Hilferding's book away simply because it appears that there is no money-commodity today – the issue is still a matter of controversy.

And I think it's a very important debate (and it seems to me that it's, sadly, quite underestimated). The bit you quoted from Hilferding is basically a summmary of Marx's views on the necessity of a commodity-based "measure of value". If Hilferding is in trouble, Marx is in trouble too, and this would have serious repercussions throughout the theory of value. For example, Marx's harsh critique of "nominalism" and "conventionalism" of political economists would have to go. More importantly, the whole basis of Marx's explanation of money (not to be confused with currency) – namely, that it is a special commodity which also has value, and only therefore can it serve a measure of value – would be undermined (but as I said, not all marxists think that; there are positions which try to interpret Marx as not having a money-commodity theory, but these face other mostly textual problems).

  • 1. If anyone's interested, the names are Ansgar Knolle-Grothusen and Stephan Krüger. John Weeks, a Marxian economist in the UK, also seems to hold a version of this position. See his "The theoretical and empirical credibility of commodity money", available online (just google it).
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Oct 29 2011 02:58

Ocelot, my sincere apologies. I somehow missed your response in my haste. Thank you very much, that sounds like an excellent text to dive into at some point.

Jura, I'm really not scared of Marx being in trouble. He did write in the mid- to late 1800's, much has happened since then. In any event, I will give Hilferding a few more chapters of a chance.

Angelus Novus
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Oct 29 2011 17:25

This book is more up to date than Hilfdering, and IMHO also more useful.

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Oct 29 2011 17:31

Will certainly check it out, thanks!

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Oct 30 2011 12:38

Toj, I think Hilferding in that passage is making policy, not theory. Am I wrong to think that you can have a non-commodity theory of money (like Hilferding and the Austrian school) and still argue for a gold-standard?

DH wrote:
Hilferding’s curse

One of the reasons for the sorry state of Marxian theories of finance —
with the honorable, though recent exception of writers like Crotty, Gerald
Epstein, Robert Fitch, Duncan Foley, David Harvey, Robert Pollin, and the
editors of Monthly Review — is the shadow cast by Rudolf Hilferding and
his Finance Capital. The book contains something obsolete, misleading,
or wrong on almost every page, from minor offenses to major.

Catchy title, but I believed writers for the Monthly Review like Baran were direct pupils of Hilferding. For soviet economic manuals it was an obligation to include a denouncement of Hilferding (about his opportunist organized capitalism, etc.). Lenin (following Kautsky) had noted "the mistake the author makes on the theory of money", elsewhere Lenin noted:
(According to Hilferding, money enters into exchange without value.) incorrect ||

So Hilferding's theory of money is accepted by almost all modern marxists, and probably DH as well (I didn't see any comment on its function as measure of value in his book). In Marx after Marx or, Do we need a credit theory of exploitation? Bellofiore gives one of the clearest expositions on Marx's theory of commodity-money and why he rejects it. I think it's related to the single temporal system debate. He also points to a good defender of Marx's theory of money, namely Claus Germer.
Here he's speaking on the Paris Commune:

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Oct 30 2011 12:59
Noa Rodman wrote:
Toj, I think Hilferding in that passage is making policy, not theory. Am I wrong to think that you can have a non-commodity theory of money (like Hilferding and the Austrian school) and still argue for a gold-standard?

The book hasn't read like policy so far. And I don't understand how Hilferding can be said to have a non-commodity theory of money when he constantly refers to money as simply a specific commodity that acts as a medium of exchange.

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Oct 30 2011 15:18

It's in the footnote, at the start of your quote, that Hilferding writes: The value of paper money must be deducible without reference to metallic money.

Kautsky wrote:
Here the contradiction between Marx and Hilferding becomes clear. Hilferding thinks that the value of paper currency must be derived from the value of the commodities, with no connection to gold. “Must” is a hard nut to crack, but in science there is no “sic volo, sic jubeo” [‘this I will, this I command’]. [16] There only ratio decides. And there Hilferding’s attempt to get rid of gold is not very convincing. He wants to disconnect gold from the determination of the value of paper money, and determine the latter directly through the value of commodities.

True, "Hilferding himself becomes uneasy about his theory". Kautsky at one point may help us understand what drove Hilferding to commit "Marxist suicide" (and the gold-obsession of the Austrian school):

Kautsky wrote:
Those phenomena are close to Hilferding because the experiences which his fatherland had with the gold standard played a prominent role among them. A theory of the determination of the value of money by the socially necessary circulation value, the complete independence of the value of money from the value of gold, is a genuinely Austrian theory. Since the 1870s the value of silver has fallen very rapidly. That created severe disturbances in the currencies of all the states that had not adopted the gold currency.

There are several paper by Claus Germer online. 'The concept of the ‘gold standard’ and the misunderstandings of political economy' shows how the very concept of gold standard is non-marxist (or very misleading at least).

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Oct 30 2011 20:55

"The concept of the ‘gold standard'" is here. Interesting read, though he doesn't really go into the post 1973 issue, which seems like it would be harder to tackle.

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Nov 3 2011 17:14

In the book (What is money?) there's a more exegetical article by Steve Fleetwood. Since we're on the issue of commodity money, the perspective not mentioned yet is one oriented on the decline of capitalism (starting in 1914), which is dealt with in the same book by Peter Kennedy in his A Marxist account of the relationship between commodity money and symbolic money in the context of contemporary capitalist development.

Also http://critiqueofcrisistheory.wordpress.com/ is one of the few marxist blogs defending commodity-money analysis.

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Nov 4 2011 01:42

I really appreciate the book recommendations. I'll try and remember to thank you, months from now, when I'm done with them. smile

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Dec 17 2011 22:59
jura wrote:
Intuitively I find the "gold still exerts influence on monetary policy" position, which I encountered in German texts1 (one of which actually demonstrates it on the policies of the German central bank), quite attractive, but I'm on the fence on this subject really.

Many of the defenders of the commodity theory of money think that this is the point of controversy, but from reading the earlier mentioned text by Kautsky, I claim that it's not.

It's strange though that all of a sudden Kautsky there gives almost the same definition of Hilferding of money. I guess that this avoidance of renewed polemic meant that Kauz saw no theoretical problem for (his interpretation of) Marxism with the end of the gold standard in 1914.

W.E. Motylev's article in Pod znamenem marksizma, 1922, no. 11-12, 164-170 p, called The standard of value under paper-money currency (Мерило стоимости при бумажно-денежном обращении) follows on Kautsky's article Gold, Paper Currency and Commodity.

Another article is called Hilferding or Marx? (towards a critique of Hilferding's theory of money) by V. Poznjakov in PZM, 1926, no. 1-2, 245-267 p. All of the articles by V. Poz(d)nyakov in PZM look very interesting. There is no information about him.

This debate was actually a very divisive issue (with shouting matches) in the SPD. Pannekoek sided with Kautsky, against Hilferding, who was closer to the position of Varga and Karski(-Marchlewski), while the latter two again had differences with each other.