*****

Following is the summary of a lecture entitled "Credit
and the Economy" presented by Robert Guttmann at The
Brecht Forum in New York City on Wednesday, February 15,
1995.

Robert Guttmann teaches economics at Hofstra University
and the Universite Paris Nord. His most recent book, _How
Credit-Money Shapes the Economy: The United States in a
Global System_, is the winner of _Choice_ magazine's
"Outstanding Academic Book of 1994" award.

This summary may be reproduced in either print or
electronic form provided that paragraph one, above,
crediting The Brecht Forum, be retained on all
reproductions. Further, NY Transfer News Collective must
be credited as the distributor on all reproductions,
whether print or electronic, and its signature logo,
where it appears in any electronic posting or
reproduction, must be retained. The text and/or content
of this summary may not be altered in any way, except for
incidental formatting necessary to conform to
specifications of a particular publication or electronic
system.

*****

Credit and the Economy
a talk by Robert Guttmann
at The Brecht Forum/New York Marxist School
February 15, 1995

1) In today's "new world economy" there are some _key
questions_ that have come to the fore in the 1990s, and
these questions all point to profound contradictions in
the relationship between industrial capital and financial
capital.

a) Why has policy-making in the United States and
elsewhere become so dominated by the imperatives of the
bond market?

b) What are the forces behind the unprecedented
confluence of industrial stagnation and financial
explosion?

c) How has the world economy been affected by global
speculation in the currency markets, which today amounts
to more than $1000 billion per day?


2) These questions can only be properly analyzed if we
understand _money as social institution_ which is subject
to historic evolution (instead of just another good or as
something "natural," thus immutable). From that
alternative perspective as social institution, money
appears at the center of economic activities, as well as
social relations underlying those activities (between
buyers and sellers, among producers through different
forms of competition, between workers and managers,
between creditors and debtors) both of which it helps to
shape in spatial and temporal dimensions. Money
structures social _time_ (e.g., investment) as well as
social _space_ (e.g., markets, relations between cities
and rural areas, inter-generational transfer); that is
why money is the quintessential form of _capital_.


3) The money-as-social-institution perspective I have
developed stresses three things about money:

a) The prevailing _form(s) of money_, defined by the
institutional regulation of its creation and circulation,
plays a crucial role in shaping long-term growth patterns
and distribution channels in an economic system. In this
context, I have analyzed in great detail the transition
from commodity-money to credit money in the interwar
period and how that fundamental change in money-form has
transformed the capitalist economy into an _overdraft
economy_ based on continuous debt financing of excess
spending and its partial monetization.

b) Money has a conflictual _dual existence_ of being both
a private commodity that can be traded (against other
currencies in the foreign exchange market, or with other
financial assets in the securities markets) and a public
good that must be accessible to anyone in a non-
discriminatory fashion and circulate smoothly. This is an
inherently contradictory duality, since much of our money
is private bank money whose creation is subject to the
private profit motive (tied to acts of bank lending) and
thus subject to a procyclical bias as banks typically
manage their tradeoff between profitability and safety in
recurrent cycles of overextension and panic-ridden
cutbacks.

c) This contradictory existence of money must be managed
by the _state_, which sets up a special institution for
that purpose, a central bank operating the nation's
payments system. Management of money has been a central
aspect of state power since the first nation-states
emerged in antiquity (after private agricultural money
was replaced by precious metals that had to be mined,
thereby leading to centralized control of mines). The
central bank's _monetary policy_ has two fundamentally
political functions: externally, vis a vis other
countries, as a buffer between the domestic sphere and
the international sphere of the nation's economy; and
internally, to regulate social conflicts and spread
adjustment burdens between different groups.


4) These points have an interrelated relevance today.
What we have faced over the last couple of decades is a
_transformation of our monetary regime_. That
transformation has involved the step-by-step
disintegration of the postwar monetary regime during the
stagflation crisis of the 1970s and early 1980s (a
process which I discussed extensively in my book): the
collapse of BW in 1971, the deregulation of money
(exchange rates in 1973 and interest rates in 1979-1980),
erosion of structure regulations keeping financial
institutions apart and financial markets controlled, and
the counterproductive extension of LOLR mechanisms,
making crises deeper and bailouts more expensive. It has
also been driven toward a qualitatively new kind of money
and banking system by a huge wave of innovation thriving
in the climate of the information revolution and
deregulation. So, we have the emergence of a new, highly
volatile monetary regime based on:

a) a new form of money--_electronic money_--that is
increasingly harder to distinguish from other financial
assets (e.g., money-market instruments), and is very
mobile and subject to a great deal of portfolio shifts,
and is largely outside the control of central banks;

b) a new IMS based on "managed float" and a
_multicurrency standard_ which comprises three currency
zones/trade blocs: EU, NAFTA, and APEC (centered on
Japan).


5) A change in money-form and monetary regime not only
transforms the way the economy works, but also redefines
the state and its policy-making intervention capacity.
Specifically, the combination of electronic money and the
multicurrency system has brought forth the following
major changes in this regard:

a) Deregulation of money has turned many Americans into
investors (see especially the role of pension plans and
mutual funds), and has allowed the middle class to join
the rentier class (the "money class"). This change in
class composition is reinforced by aging baby boomers
going from being debtors in the 1970s (favoring
inflation) to becoming savers (favoring low inflation and
high "real" interest rates). This gives the Federal
Reserve a political constituency for the "hard money"
course of the last fifteen years, which favors financial
investors.

b) Deregulation of money has also led to much more
volatile interest rates and exchange rates, which in turn
have dramatically accelerated the use of hedging and
speculative investments for capital gains as the new
profit-center of MNCs and TNBs, and with a concomitant
wave of innovations to facilitate this activity (e.g.,
financial futures and other derivatives). The trend
toward the dominance of a new kind of financial capital,
which I characterize as _fictitious capital_, has also
been profoundly deepened by the rapid _securitization_ of
credit (as a now more attractive form of financial
capital for both sides, as opposed to the traditional
loan capital mediated by commercial banks), which has
helped to promote securities trading as a profitable,
high-risk activity. This leads to an unprecedented
combination of financial explosion and industrial
stagnation, with ST-oriented shareholder capital
combining with international competition battles and the
labor-saving information revolution to enforce global
"downsizing."

c) Electronic money is entirely global in nature,
composed of an unregulated worldwide Eurobanking network,
global investment portfolios, and interconnected
financial markets. This means that a huge amount of "hot
money" flows constantly between countries and currencies,
up to an average of $1400 billion per day. The dollar is
in long-term decline, first, because of the relative
catching-up of Europe and Japan, and second, because of
the United States' "talking the dollar down" as a form of
monetary protectionism, and, third, the emergence of the
DM/ECU and Yen as new currencies competing with the
dollar.


6) This combination of speculation and enterprise, this
bifurcation between industrial capital and financial
capital, creates a situation of high unemployment and
wage stagnation, but global financial capital has made
"Keynesianism in one country" impossible. The need for an
international policy regime and supra-national credit-
money has been created.

*****

The above talk is available on audiotape for $7. To order
a copy, make checks or money orders payable to *The
Brecht Forum* and send to The Brecht Forum, 122 West 27
Street, 10 floor, New York, New York 10001. Please add $1
to cover the cost of postage. For orders outside the
U.S., send an international money order or bank check
payable in U.S. funds and enclose an additional US$5 to
cover the cost of air postage.

*****

Robert Guttmann's book, _How Credit-Money Shapes the
Economy: The United States in a Global System_ is
available from the publisher: M. E. Sharpe, Inc., 80
Business Park Drive, Armonk, New York 10504. Hardcover
(ISBN: 1-56324-100-5) $68.00; paperback (1-56324-101-3)
$27.95. (Postage $3.50 in U.S. and Canada; $5 elsewhere).

//end