This chapter turns to questions of profit, interest and interest rates. The first section focuses on why the classics and Marx see profits in the wider economy as providing the basis for any adequate theory of interest. The financial sector can ultimately only appropriate a share of value created elsewhere. It is, however, necessary to go beyond this simple fact, and a critical engagement with Keynes can add valuable nuance. The second section therefore revisits Keynes’s critique of orthodoxy and his alternative depiction of interest rate determination through the interaction of liquidity preference and the money supply. It will be argued that starting within, and directing his critique towards, the will-o’-the-wisp that is conventional theory provides an insufficient basis for an effective alternative. Keynes can demonstrate the fallacies of his opponents’ priorities but cannot secure his own. The classics’ view can provide an anchor while at the same time, Keynes’s insights should provoke a constructive reform of the classics, as analysis moves from an abstract generality to concrete investigations of profit and interest and their relation. The third section argues that Keynes’s insights into liquidity preference and state power can be better reinterpreted as second-order effects, grounded in a classical/Marxist view of profits as the basis of interest but acknowledging questions of institutional power within finance, in the state and inter-state relations, from which both Marx and Keynes abstract. So reinterpreted, Keynes’s insight allows progress beyond the classics’ generalisations particularly in terms of understanding interest rate variability.
This chapter argues that a more adequate understanding of unemployment can be developed by building on Marx and Keynes. Both Marx and Keynes already theorise unemployment, but a better theory can be developed through a critical, Marxist appropriation of Keynesian insights. The first section identifies Marxist arguments around so-called ‘primitive accumulation’ and how the establishment of a ‘reserve army’ of labour is functional for capitalism. Suggesting that such functional arguments are useful but insufficient, the chapter accordingly continues by identify important arguments in Marx and Keynes by which agents’ motivations can be understood to reproduce unemployment. The second section identifies Marx’s depiction of imperatives to accumulate, which create alternative processes of labour recruitment and displacement, and the third section identifies how Keynes’s model of unemployment equilibrium points to situations in which entrepreneurs rationally fail to increase employment. Keynes’s model provides a potentially important ‘snap-shot’ of what need to be reconceived as dynamic and changing processes. The fourth section accordingly develops claims made by both Marx and Keynes that capital’s adjustments are uneven and hence conducive to reproducing unemployment. There are multidimensional, sectoral, temporal and spatial processes of uneven development which mean there are at most only a series of moving equilibria. The fifth section turns to states and economic policy, reiterating that states can and do act, pursuing more or less effective employment policies, and that unemployment remains a contested political achievement.
Citizenship is shown to be central to the reconstruction of the foundational economy on morally defensible grounds. This is because the foundational economy is, at heart, a system of social citizenship. Reversing the degradation of this system has to begin by linking the reform of the foundational to our present understanding of what is socially required to function as a fulfilled human person. It must also challenge the elision of citizenship with the entitlements of the current inhabitants within the jurisdictional boundaries of the nation state. Rebuilding the foundational economy has to do more, however, than concentrate on human persons. It has to recognise that the business institutions central to the foundational economy are juridical persons, and as such should operate under a developed system of both entitlements and duties.
The well-being of Europe’s citizens depends less on individual consumption and more on their social consumption of essential goods and services – from water and retail banking to schools and care homes – in what we call the foundational economy. Individual consumption depends on market income, while foundational consumption depends on social infrastructure and delivery systems of networks and branches, which are neither created nor renewed automatically, even as incomes increase. This historically created foundational economy has been wrecked in the last generation by privatisation, outsourcing, franchising and the widespread penetration of opportunistic and predatory business models. The distinctive, primary role of public policy should therefore be to secure the supply of basic services for all citizens (not a quantum of economic growth and jobs). Reconstructing the foundational has to start with a vision of citizenship that identifies foundational entitlements as the conditions for dignified human development, and likewise has to depend on treating the business enterprises central to the foundational economy as juridical persons with claims to entitlements but also with responsibilities and duties. If the aim is citizen well-being and flourishing for the many not the few, then European politics at regional, national and EU level needs to be refocused on foundational consumption and securing universal minimum access and quality. If/when government is unresponsive, the impetus for change has to come from engaging citizens locally and regionally in actions which break with the top down politics of ‘vote for us and we will do this for you’.
An overview of the book’s argument is provided, followed by summaries of the argument of the succeeding chapters. The post-1945 national practice of economic policy has been about making ‘the economy’ work to deliver jobs and growth of market income. In consequence, policymakers have neglected the social infrastructure underpinning everyday activities and practices which are vital to civilised existence and human well-being. This book is about two key advances: the creation of a networked infrastructure of pipes and cables, and the development of the modern welfare state. Together, they have effectively extended the entitlements of citizenship and added more than 25 years to urban life expectancy.
The foundational economy is a matter of everyday routines which depend on a social infrastructure of providential services like health, social care and education and the material networks of pipes and cables that connect every household. This cannot be understood on the assumption that there is a clear divide between a productive private sector and a resource-consuming public sector. The economy is not a system of wealth creation led by the private sector but a system of revenue circulation which is failing to deliver foundational welfare. This is because of underinvestment in systems and over-reliance on distribution of market incomes through employment. There are relatively few good jobs in the high-tech and knowledge intensive sectors; and too many badly paid, precarious jobs in mundane activities.
The book’s argument is for raising the quality and availability of universal basic services (not market income). This renewal depends on four key shifts in the practice of policy which would disrupt established policy agendas: ask citizens about their foundational priorities; extend social influence over business by a kind of licensing of corporate business; while encouraging small and medium enterprise; reinvent taxation to secure foundational revenue and capital investment; and, finally, create hybrid political alliances to drive change because government is not always benign or capable. Radical change does not wait upon alignment of these conditions. It can start tomorrow fin the world as it is with local foundational experiments through which can come learning and political mobilisation
The period since 1979 is identified as the period when the historically created foundational economy was comprehensively wrecked by a mixture of public policy and changes in business practices. The UK and Italy are used as two case studies of a process which has proceeded by different routes but arrived at the same destructive destination. The histories of privatisation, of franchising, and of outsourcing in sectors as different as rail transport and personal care are examined for illustrative purposes. The chapter shows how shareholder value priorities and the practices of financial engineering have opened the door to a wide range of opportunistic business practices by private firms that now dominate the foundational economy.
Banks are the most important category of financial institution, which provide intermediation services to the economy. This chapter focuses on the nature of banking and the operations carried out by banks. It examines the different categories of banking operations. For expository purposes, the chapter divides discussion of banking into six categories: retail banking, wholesale/investment banking, international banking, universal banking, Islamic banking and narrow banking. The process of financial intermediation can be deconstructed into four constituent parts: loan origination, loan funding, loan servicing, and loan warehousing. The process of securitisation separates loan origination to loan servicing from function loan warehousing so that after the loan is arranged, it is transferred to a third party. The chapter examines the risks faced by banks and how they are managed. The risks include: liquidity risk, market risk, payments risk/settlement risk, operational risk, credit risk, sovereign risk and legal risk.