Featured

The Ground of Existence – 1: Introduction

A few weeks ago I read a noteworthy article, noteworthy not because of what it said but because of how its author reacted to what he was describing.

He had been watching a ‘news analysis’ program where the guests were “discussing” the Iranian “nuclear bomb.” It was the usual obscene show of a pack of baying dogs delivering a pack of lies about the existential threat of Iran to this and that and the need for more sanctions and military options. Then one of the regulars, Patrick Buchanan, had pointed out that Iran had consistently denied developing nuclear weapons; the country’s supreme leader has declared more than once that building nuclear weapons is against Islam. Sixteen U.S. intelligence agencies concur: Iran is not developing nuclear weapons. The IAEA, too, which is closely monitoring Iranian nuclear facilities, found no evidence of nuclear weapon program. In short, there is no evidence that Iran is working on a nuclear weapon. Nothing. Nada. Zilch.

After Buchanan’s ‘input’, the author wrote, he was expecting a shift in the discussion or at least a change in the tone. After all, the premise of what was being said had been preempted. To his surprise, nothing happened. The guests totally ignored what they had heard and continued with their rants until the end. The writer was wondering what gives. What could explain such conduct?

Such “conduct” is more common than many think. In fact, it is de rigueur in high places these days. But precisely because it is so prevalent, people notice it only when it takes a particularly offensive in-your-face form.

This year’s Nobel Prize in economics, for example, went to two guys who are not economists and one of them is even aware of that fact. Lloyd Shipley, one of the two winners, told the Associated Press: “I consider myself a mathematician and the award is for economics. I never, never in my life took a course in economics.”

The new laureates’ area of research is “matching”: men and women (through speed dating), students to schools, and recipients to organs.

Why, you might ask, in the midst of a protracted economic/financial crisis in the West is the Nobel Prize in economics given to lighthearted folks investigating match making? Was there no research on the causes of the crisis and the way out of it?

The answer is that the official economics cannot explain the crisis, and those works that can, are outside the accepted theories, which the Nobel Committee cannot recognize. Hence, the only option left, which is looking the other way. That’s how it comes to pass that a glaring reality that has ravaged the lives of tens of millions is ignored.

Or take the Treasury secretary Tim Geithner. According to the Financial Times, he and Larry Fink, the head of BlackRock, spoke no less than 49 times in the past 6 months over the phone. How many times in person, no one knows.

Part of the conversation was no doubt job related. Geithner is leaving at the year end and he will need a multi-million dollar salary to support his family after the penurious Treasury years. It could also be that Larry Fink is auditioning for the Treasury job – or both. But the official story, that the secretary needs to be in touch with “market participants”, is also true, only you have to understand what that means.

In the same period, Geithner called Vikram Pandit, the recently ousted Citi CEO once and Bill Gross of Pimco zero times. Bill Gross is a trader and not particularly strong in matters of theory and abstract thinking; he recently likened the U.S. government’s borrowings money to an addict who “pleasures itself with budgetary crystal meth,” clearly not realizing that the analogy would make him a drug kingpin. Still, if you are the Treasury secretary and want to get the pulse of the market – which was ostensibly the reason for the calls – wouldn’t you want to talk to the manager of the largest debt fund in the country?

But that reasoning would be missing the point, which is that reasoning and logic have got nothing to do with it. Geithner does not want to learn about policy options and alternatives. He wants input and direction, and Larry Fink provides both because Larry and Co. are the ones who give guidance to the Treasury. Call them the “in” crowd. The likes of Gross and Pandit are outsiders. They could get rich and famous thanks to the Treasury policy but they will have no say in setting that policy which has facets beyond matters of money and finance. For that reason, it does not matter what they think. So they might as well be ignored, which they are.

Like gold, which Shakespeare said makes black, white, foul, fair and wrong, right, being “in” makes meek bold. Witness the meek Bernanke whom everyone hailed as bold after he announced his QE3 program. In this 3rd phase of the so-called quantitative easing, the Fed chairman is resolved to buy $40 billion worth of mortgages every month pretty much until his term is up in 2014. He says he is doing it to tackle joblessness. That no one can explain how buying mortgages creates jobs matters not. He just says so, the way James Baker, Bush Sr.’s Secretary of State, said that invading Iraq was about jobs.

Meanwhile the Chairman rejects the criticism that mortgage buying artificially lowers the dollar’s value against the rival currencies (because the dollars that pay for the mortgages he creates from the thin air). He said:

The Fed isn’t responsible for artificially boosting rival currencies — and that other nations should let market forces determine exchange rates anyway.

The man who interferes in the markets to the tune of half a trillion dollars a year advises others to let market forces determine exchange rates.

Finally, the Supreme Court and the way it has been upholding the law of the land of late. A single example should suffice. No, not the much maligned Citizens United but the seemingly progressive Boumediene.

In Boumediene v. Bush, the Court decided 5-4 that the Muslim prisoners held indefinitely in Guantanamo Bay military camp had the right to habeas corpus – essentially the right to have their cases heard in the US courts – and part of the Military Commission Act under which they were imprisoned and which denied them that right was unconstitutional.

Linda Greenhouse, who won a Pulitzer Prize “for her consistently illuminating coverage of the United States Supreme Court” takes it from there:

To a startling degree, the conservative judges on the D.C. Circuit have been openly at war with the Boumediene decision [of the Supreme Court]. Judge Brown referred in her opinion to the “airy suppositions” of the Supreme Court’s majority. Judge A. Raymond Randolph … in a 2010 speech to the Heritage Foundation, pointedly analogized the justices in the Boumediene majority to Tom and Daisy Buchanan in “The Great Gatsby”: “careless people, who smashed things up” and who “let other people clean up the mess they made.” … Judge Laurence H. Silberman, in a concurring opinion a year ago, described the Boumediene decision as “the Supreme Court’s defiant – if only theoretical – assertion of judicial supremacy.”

Only theoretical? I can’t remember such open and sustained rudeness toward the Supreme Court by a group of lower court judges … [A] court that had so much institutional pride just a few years ago ought to care enough now not to let itself be dissed by lower court judges who, in the system as I understand it, owe the Supreme Court obedience rather than on- and off-the-bench sniping.

The Supreme Court judges are appointed for life. They are practically untouchable. They have no reason to fear anyone. Their say is the last word in law. So why do they tolerate being openly dismissed and ridiculed by the lower court judges? Where, you might ask, is the loudmouth Antonin [broccoli] Scalia to put the errant circuit court judges in their place and remind them that in dissing the Court, they wreck the institutional judiciary for which the U.S was once renowned?

That question, too, would be missing the point. It would be akin to an uninitiated outsider wondering why the person being whipped in an S&M session accepts the pain and humiliation without complaint.

Scalia and Roberts like the contempt of lower courts towards Boumediene because they share that contempt, so strongly in fact, that they are willing to let it destroy the authority of the Supreme Court.

As Nasser observed, at the age of speculative capital, speculative capital is not the only self-destructive entity around.

And that is the commonality among all these cases; do not misread them as people in the position of power doing what they please. That sort of masters’ liberty about which Thucydides perhaps said the last word – the strong do what they can and the weak suffer what they must – has existed from time immemorial. But the strong of our examples are not imposing their will on the weak – not directly, anyway. They are, rather, pushing against the boundaries of a system that sustains them. In doing so, they are destroying their ground of existence.

It is a fascinating concept, this ground of existence. I must tell you about it.

I will return shortly to do so.

Uncategorized

The Origin of the [crisis in the] European Union – 2: Where is Europe?

Sometimes you can tell a book by its cover – or what’s written on it.

Early this year, I got the 2011 edition of Best European Fiction. The idea of the best European fiction is inherently idiotic, like the best city, the best university or the best food.

A few stories I read were sophomoric and just plain bad. So out went the book. But I remember the struggle of the editor to define Europe in the introductory chapter; I suppose you have to do it if you are editing a book of European fiction.

He got nowhere. Anyone setting out to define Europe through the commonality of themes in fiction is setting himself up for failure because there is no such commonality.

Europe, first and foremost, is an economic entity and must be understood as such. Even in the midst of an economic crisis which points to that fact – can you imagine a linguistic crisis in Europe, or a moral or cultural crisis? – that obvious fact is overlooked – or not understood at all.

Hegel showed that we think in names. “Given the name lion, we need neither the actual vision of the animal, nor its image even. The name alone, if we understand it, is the unimaged simple representation. We think in names“, he wrote in Philosophy of Mind.

What do we think of when we think Europe?

We think of Beethoven’s symphonies, Newton’s mechanics, Italian architecture, French cuisine, the Dutch masters. We think Mozart, Hegel, Faraday, French Revolution.

These names resonate with us because our lives in some way are impacted by them. The nature of that impact does not concern us here. But note that all the names are clustered in a region that is geographically Western Europe. That is no coincidence. The countries in Western Europe were the first to emerge from a feudal society into a capitalist state. It is that socio-economic transformation that defines Europe and its place in the world. Europe is the Capitalist Europe; note how the names are also clustered around a specific time – roughly the 18th century – which corresponds to the rise of Capitalism.

The degree of the Europeanness of the countries in the continent is measured with that yardstick. Unsurprisingly, that measure correlates with the geography and the physical proximity of the countries to the Western European center. Using the parlance of the current crisis, we can say that there are “core” and “periphery” countries in Europe.

Correlation, though, is not causation. It does not contain the element of necessity. We cannot always infer a country’s stage of economic development from its position on the map. Art and literature are better indicators. They more accurately reflect the economic and social relations in a country because they are born out of those relations.

Take Spain and Portugal which both began the road to Capitalism early but then fell behind their northern rivals.

To date, they are less Europe. If you do not live in Portugal, you would be hard pressed to think of a universally recognized European icon that is Portuguese.

As for Spain, the example of Picasso will suffice. His success is precisely due to the fact that he is Spanish, a lifetime spent in France notwithstanding. John Berger, in his masterly exposition of Picasso in The Success and Failure of Picasso hits on this very point: Picasso being a “vertical invader” of the European stage from the trapdoor that was Barcelona:
Poverty is not surprising to any Spaniard. But the poverty Picasso witnessed in Paris was of a different kind. In the Paris self-portrait of 1901 we see the face of a man who not only is cold and hasn’t eaten much, but who is also silent and to whom nobody talks.

Nor is this loneliness just a question of being a foreigner. It is fundamental to the poverty of outcasts in a modern city. It is the subjective feeling in the victim that corresponds exactly to the objective and absolute ruthlessness that surrounds him. This is not poverty as a result of primitive conditions. This is poverty as the result of man-made laws; poverty which, legally accepted, must be dismissed from the mind as unworthy of any consideration.

Many peasants in Andalusia must have been hungrier than the couple at the table in the etching of The Frugal Meal. But no couple would have been so demonized, no couple would have felt themselves to be so worthless.

Hungary is not Europe. As a part of the Austro-Hungarian Empire, it came in touch with the European core and was set on its way to Capitalism. It is all there in Musil’s masterpiece, The Man Without Qualities. He describes a country in which “there was some show of luxury, but by no means as in such overrefined ways as the French. People went in for sport, but not as fanatically as the English. Ruinous sums of money were spent on the army, but only just enough to secure its position as the second-weakest among the great powers.”

WWI aborted the transformation and later, under socialism, semi-feudal relations survived. Socialism did not destroy them with the vehemence that capitalism would have. You can see that in the beautiful novels of Sandor Marai, in Casanova in Bolzano or Embers.

In Embers, a man’s sense of honor prevents him from opening the diary of his long-dead wife, although it would answer a question which has been tormenting him for 40 years.

Imagine Rupert Murdoch – the hacker of dead schoolgirls’ cell phones – being restrained by a sense of honor. Or Tony ‘Yo’ Blair. Or David Cameron. Sarkozy. Berlusconi.

Berlusconi!

I am not talking about the leaders and outstanding citizens only. Western European writers in general could not think of the idea of leaving a dead wife’s diary unopened. Nor would their readers believe such a plot; it would make no sense to them. That is because sense of honor is not only internal, but also external: it springs from a concern and respect for the others. It is ultimately the recognition of others as one’s equals. A “rational” Western man who is conditioned to view maximizing one’s profit at the expense of others as the natural order of the universe would reject that equality even if his life depended on it.

It is in that sense that Hungary is not Europe: a strong sense of honor is still conceivable there.

And Greece is not Europe. Greece most definitely is not Europe.

Geographically, Greece is attached to Turkey. It was a part of Turkey for 400 years. But it is not geography alone; if Turkey could qualify as a North Atlantic country in NATO, then Greece could qualify as a European country. I am talking about economic and social relations.

In both respects, Greece is closer to Turkey and Iran than France and Germany. The commonality goes beyond baklava and stuffed grape leaves. It pertains to the balance of power between business and the government from which, ultimately, the country’s social relations and the tempo of its daily life originates. You can see that in the disorganization of the social institutions perfectly reflected in traffic. It is the hallmark of a society which has not internalized the discipline of the assembly line – or the call centers, as the case may be.

Because business – Capitalism – in Greece is relatively underdeveloped, the government has assumed the economic functions that in more developed economies are left to the businesses. That further accentuates the relaxed mood of the country and acts as a brake against the “entrepreneurial drive” that is so evident in the West and, especially, in the U.S.

Until the new reforms kicked in, for example, the Greek government paid the full pension of deceased pensioners to the surviving spouse. And if the couple had children under 18, they too, were paid until they turned 18. Turkey and Iran have similar laws.

To the advocates of family values in the West, that is a scandal, a paternalistic restraining of the free people’s spirit which had to change if Greece was going to join the ranks of civilized nations.

That is precisely what the EU and euro are all about. The issue is not the core countries. They are already European. The plan is make the periphery core. Why? Because in less developed periphery countries labor is cheap. Given a common currency, the core countries can exploit that advantage to raise the rate of return of capital.

For that to happen, the government in the periphery countries must get out of the way and make room for business – after making the conditions right for the business to come in.

That is what the racist professor whom I quoted in Part I was saying about Greece. Let us hear him one more time:

A European country without a land registry, without proper tax enforcement and without a responsible political process to control spending and borrowing needs all the outside pressure it can get to increase state capacity … Pressure to improve state capacity and become a grown-up country is what Germany and European Union are currently providing, free of charge.

Exactly. The Greek government must establish a land registry so that property rights could be unquestionably asserted. It must establish proper tax collection to enforce tax payment from small businesses and the middle class and, most important of all, reign in the spending. What a scandal, paying for the living expenses of a child just because his parents are dead.

This is what has been happening in all periphery countries.

As for the governments getting out of the way, they have no alternatives. Just listen to Jacob Funk Kierkegaard, at the Peterson Institute of International Economics in Washington. He was quoted in the Financial Times of July 22:

Absent a dramatic improvement in the business climate or Greece raising money by selling off its islands, I still think it is going to be a struggle to get investors to have confidence in Greece with such a high level of debt burden.

Greece raising money by selling its islands!

But I am getting ahead of myself.

Uncategorized

Nasser’s Latest Book

My latest book is mostly complete. It took well over a decade to write it. But the subject matter and the content, I trust, will explain and justify the time spent. Will be back with details.

Travel

A Note to Friends and Readers

That the posts on this blog have become spotty and less frequent goes without saying. That is because it has become impossible for Nasser to write, if you take “impossible” in its practical and not literal sense.

The fourth and final volume of Speculative Capital is just one impediment. Nasser is determined to complete the manuscript this year. But the manuscript keeps changing. Nasser says that is indicative of a dialectical process. That may be. But rewrites take time, leaving little room for much else.

I realized it was time to take the subject head on after three more translations of Hegel’s Logic arrived at our doorsteps. One was the 700+ page The Science of Logic from Cambridge University, translated by Prof. George di Giovanni of McGill. His opening sentence in the translator’s 70-page introduction says: “Writing an introduction to a translation of Hegel’s Logic is an even more formidable task than the translation itself”. You get the idea.

The other was Henry Stuart Marcan’s 1912 book with the friendly title Doctrine of Formal Logic, Being a Translation of the First Section of the Subjunctive Logic. More than a third of the book’s 300 pages is the translator’s introduction.

The third book was Hegel: Three Studies, translated by Shierry Nicholsen from Theodor Adorno’s 1963 book in German. Adorno writes:
The way in which Hegel’s great systematic works, especially the Science of Logic, resist understanding are qualitatively different from those of other infamous texts. With Hegel the task is not to simply ascertain, through intellectual effort and careful examination of the wording, a meaning of whose existence one has no doubt. Rather, at many points the meaning itself is uncertain, and no hermeneutic art has yet established it indisputably.No one who reads these books on the sideline and during breaks from his other responsibilities will have much free time. Adab– that Farsi word for politeness, concern and respect – demanded that the blog’s friends and readers were informed.

Why, you may ask, this bookish interest in Hegel from a student of economics/finance in the midst of an economic/financial crisis?

Hegel’s dialectics is the account of the movement of thought in search of Truth. Do not be alarmed by that word. It has a technical meaning that will become clear in Vol. 4. The point is that the compulsion of thought constantly drives the mind to higher phases in search of more satisfying answers. In practical terms, that means going to the root of the problems. And that is the aim of Vol. 4: to go to the root of the problems in economics and finance, beyond incidental tales of events and characters. Hence, the need for the author to master Hegel.

But I must warn you against drawing conclusions about the readability of Vol. 4 by “associating” it with Hegel’s “infamous” texts.

Hegel wrote that “self-consciousness achieves its satisfaction only in another self-consciousness”. The “other” of Hegel’s western philosophy is Jalaludin Rumi’s Eastern philosophy. Hegel’s Western scholars are deprived of the “other”, hence their confusion and difficulties in reading him. Nasser knows them both and thus, indisputably. That translates to a penetration of thought and clarity of writing that is unparalleled.

As proof of that assertion and as a prelude to the book’s release, I have decided to adopt ideas from the manuscript and present them in a new blog called Dialectics of Social Change. I do not have Nasser’s encyclopedic knowledge in economics, finance and politics. But I know his Theory of Speculative Capital and his writing style; I have edited his books. So my writing should offer some continuity of style and content – and keep the bench warm until the man himself returns.

The first entry is ‘No Country for Old Man’. Channel hopping one evening while waiting for Nasser to go to a dinner party, I paused on a movie that was in progress. Nasser came in and recognized the movie. A long conversation that followed on the way and continued during the dinner is the basis for the post.

See what I mean by the inability of the mind to rest on the untruth – its compulsion to seek progressively higher stages of truth.

Sarina Saber

Travel

A Case For Blogs Such as These

I am busy with the final volume of Speculative Capital. The book has been a long time coming; I lost track of the number of times entire chapters were rewritten because Nasser was not happy with them. But he is in the in home stretch now and an end-of-year publication date is a possibility. I think when you read it you will agree that it is different from anything that has come before.

The book has a chapter on theory of knowledge which made me think. How do we know what we know? I am not concerned with the epistemological/philosophical issues. I will leave them to Nasser to explain. My interest is in the more mundane aspects of knowledge. How do I know, for example, that the President of Ireland is precipitously close to violating his constitutional authority?

Why, I read it in the Financial Times. Here is the May 3 story under the heading Dublin defends president over call for ‘radical reform’

The Irish government has defended critical comments made by the country’s ceremonial president about EU leaders’ response to the economic crisis after questions were raised about whether he may have overstepped the mandate of his office.

President Michael D. Higgins called for a “radical rethink” of how the EU leaders tackled the crisis …

Davie Gwynn Morgan, a constitutional lawyer … told Irish radio the president may have exceeded the limits allowed under the Irish constitution. “It seems to be we are in unprecedented waters,” he said. “People feel that we are in a time of great stress and they should speak out even though it may be inappropriate for their office. It doesn’t seem to me like a good thing to do.”

The president of Ireland did not plan a coup. He did not interfere with the official function of the prime minister. Nor did he negotiate secret trade agreements. He merely criticized the EU for imposing austerity. The FT reported that as the Irish government being on the defensive about the president’s insolent comments.

Note that the story is generated by one, single, solitary, half-literate pissant who says ‘unprecedented’ when he means ‘unchartered’. Even he is not sure. He says it seems and may be what the president said was ‘inappropriate’.

No matter. A scandal is whipped up and the Irish government is forced to formally defend the president. The point is to keep him on his toes; next time he will be more careful when he has an urge to criticize austerity.

That is why blogs like Dialectics of Finance are necessary. They act as an antidote to lies. Without them, the good guys are at a disadvantage.

Lifestyle

An Update

Nasser is in the 4th rewrite of the draft of Vol. 4. Each time, he expands its scope. I think he’s finally got it, as not much is left which is not already included! But I am not talking about a mishmash of stuff thrown together like a heap of disorderly bones. It is precisely the book’s synthetic thread, its binding and “totalizing” driver, which sets it apart from the others. It will be quite a treat.

In 1999, Nasser wrote in Vol. 1:

Theory is to explain what is happening, i.e., what is changing. The theory can explain the change only if it can show the cause and direction of the change and the point to which it must lead. In that regard, theory delivers us from submissive acceptance of events just because they occur and allows us to interpret them within the body of a logically constructed system and, if need be, take action to influence them.

Has the theory of speculative capital lived to that expectation? Let us look at a few disparate cases.(1)

Nasser in the same volume:

Speculative capital is not bound to any one market or place. Rather, it is constantly on the lookout for profitable opportunities wherever it can find them. Upon finding such opportunities, it enters into these markets and, through arbitrage, “links” them together … The linkage knows no limits in terms of markets. It can target two similar or approximately similar markets in the same country, two separate markets within the same country, two similar markets in two different countries or different markets in different countries.

The most elementary form of arbitrage linkage of two similar markets within a country is the one we visited earlier: the price of a stock (such as IBM) being different in the New York and the Pacific Stock Exchanges. ..The linkage of equities, fixed income and currency markets is less simple [and comes later].

From the Financial Times of Feb 20, 2013, under the heading, In search of fast bucks:

The prospect of the speed traders expanding their presence across global markets, linking numerous asset classes ever tighter, poses new challenges to traditional investors, companies – and regulators…

High-frequency trading in assets such as futures and fixed income has picked up in the past four years just as its presence in the US equities has waned. The gains are most visible in foreign exchange, where the global market share of high-frequency trading has soared to 40 per cent up from just a quarter in three years.

The presence of high-frequency trading in the equities market is “waned” because that market is arbitraged away. Speculative capital, Nasser pointed out, is self-destructive. It eliminates opportunities that give rise to it.(2)

Nasser on his blog on January 22, 2012 about the goings on in Hungary under Viktor Orban:

If you are not Hungarian and ordinarily do not follow the affairs of the country, I say keep Viktor Orban’s name in the back of your mind. My guess is that you will see it again – and never in a positive light. In fact, that is how you will only hear of his name – until you hear of it no more.

From the Financial Times, this past Tuesday, under the heading Hungary accused of power grab

Hungary’s government is being accused of renewed attempts to monopolise power as it tries to reinstate measure from its new constitution last year that European authorities and its own top court had earlier forced it to drop.

In what critics say is a significant reversal, Hungary’s parliament is expected today to pass amendment that will restore many of the most contentious elements of the new basic law. “This [document] is a toxic waste dump of bad constitutional ideas,” said … an expert on Hungarian constitution at Princeton University.

So a country’s parliament passing a bill is considered a ‘power grab’ by the Financial Times and the Princeton critic whose language is decidedly neocon. The same paper reported the next day:

Mr Orabn has found blaming foreign banks and EU “interference” resonate politically. “In some elements it’s just popular [with voters],” says [the] director of … a Budapest think-tank.

(3)

Nasser on “jobless recovery” on October 8, 2009

In the phrase “jobless recovery”, the news pertaining to the people is grim; there are no jobs to be had. Yet it contains “recovery”. So, what is it that is being recovered? The answer is: the agreeable rate of return of capital. The “data” measures the pulse and performance of capital, which the university professors study and comment about without ever understanding the larger issue surrounding it.

From the New York Times, this past Monday, under the title Recovery in U.S. Lifting Profits, Not Adding Jobs

With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening…That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high….“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” [an economist] said.

(4)

Nasser on May 10, 2010, about how Europeans are prodded to forget about the ‘old Europe’ and get used to the new conditions:

How much money you are earning or will earn in the future does not depend on what you spend today. Yet, the president of the ECB links the two. Why? Because “fiscal soundness” he mentions is the code word for reducing labor costs by cutting their pay and pensions. That is what the fight is all about: to bring down the labor costs to at least temporarily boost the growth, i.e., increase the rate of return of capital, whose consistent decline in the past decade remains a matter of serious concern to the planners of the European Union.

A professor of history at Columbia University opining in the New York Times on March 1:

So, from today’s perspective, the 1950 and 1960s look like a golden age. Its achievement now looks in danger of being undone. For it is not written in stone that Europe will always be identified in the minds of its citizens with growth and democracy.

(5)

Nasser on democracy, Nov 20, 2011:

Democracy is the name of the form of the government created by capital.

Financial Times, Feb 26, 2013:

Mr Monti … reforms won the approval of the markets – but not of the voters.

Approval of the market but not of the voters.

The voters will soon find out who is the boss in a democracy.

Have a good week! Facebook

Lifestyle

The Ground of Existence – 3: The Shift in the Ground

I had written something different for this third part of Ground of Existence. It was about the Supreme Court and the evolution of the thinking of its justices. It followed where Part II had ended.

Then, two things happened. Firstly, several friends commented that the ground of existence was too heavy a topic for a blog. “Being comes into mediation with itself through the negation of itself”. Please, they said!

That was Nasser’s fault, I said. Bad influence.

Then, as if in response to an unuttered prayer, came the banks’ foreclosure practices settlement with the OCC. There was something in the story that could make the point I had in mind, only less abstractly. So I decided to use it. It fits less tightly with the previous parts; there is always a trade-off when you make compromises of this sort. But it made sense to go with it. The story is critically important in its own right. It is something that the readers of this blog must know.

In case you did not know, recently the Comptroller of the Currency settled the case of mortgage foreclosure “wrongdoings” against 14 banks by fining them a total of $8.5 billion. The story was the main business news in all media outlets and received extensive commentary. Let me quote some of what was said. I have underlined the cause of the OCC’s action.

The Financial Times reported the news of the impeding settlement on January 7:

The largest US banks are close to a $10bn settlement with regulators to resolve claims that they broke rules when seizing the homes of customers who defaulted on their mortgage

The “iconoclast” Huffington Post said this:

Under the deal … the mortgage companies will make $3.3 billion in direct payments to “eligible borrowers” whose foreclosures were handled improperly, and will make $5.2 billion available in other assistance to struggling borrowers, such as loan modifications.

Lost Angeles Times had the story on its front page:

Ten of the nation’s largest mortgage servicers have agreed to an $8.5-billion settlement with federal regulators to end a review of foreclosure abuses.

The settlement … involved some of the biggest names in the financial industry, including Bank of America Corp., Wells Fargo Co., JPMorgan Chase Co. and Citigroup Inc.

The Wall Street Journal called the settlement a “shakedown”, then published the following letter to show that it is man enough to take critical comments.

Having served 9,000 homeowners in distress in California and attempted resolutions with almost all of the 14 major servicers, we disagree with your criticisms of the Office of the Comptroller of the Currency (OCC) and the Federal Reserve regarding…

The 6.5% of affected borrowers that you contend suffered financial harm is an erroneous figure by bank consultants who were paid $1.5 billion by the banking industry. Our estimate is more than 50% that suffered some type of harm.

The Newspaper of the Record wrote the following:

Federal banking regulators are trumpeting an $8.5 billion settlement this week with 10 banks as quick justice for aggrieved homeowners, but the deal is actually a way to quietly paper over a deeply flawed review of foreclosed loans across America, according to current and former regulators and consultants … As a result, many victims of foreclosure abuses like bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions will most likely get less money.

The article got lots of comments. “James” from Long Island wrote:

Pardon my selfishness, but what do the folks who live within their means and pay their bills get out of all this? Just asking.

Here, “James” is implying that foreclosures hit the “irresponsible” borrowers only. A variation of this theme is the frequently voiced comment that “despite” all irregularities, not one person who paid his mortgage on time was evicted.

That last point is absolutely correct. But James and his fellow selfish nincompoops who pointed to that fact missed the point. The significance of the case arises from something altogether unrelated to responsible social conduct by boorish behavior by banks which caused “some kind of harm” to home owners. In fact, none of the hundreds of reporters and commentators who wrote about it got the source of its significance right – but that is because the ground of existence of law has shifted!

Recall that the trigger of the ongoing crisis that exploded into the open in 2008 was the fall in the value of “mortgage-packed” securities. Nasser dissected the problem in his blog, here, for example. But we do not need the details. Just keep in mind that “mortgage-packed securities” were created by pooling the mortgages. Now, attention:

Q: Who created the securities?

A: The Wall Street firms.

Q: But the Wall Street firms are not mortgage lenders. They do not lend to home buyers. So, where did they get the mortgages?

A: They bought them from the banks.

Q: Meaning that the banks sold their mortgages to Wall Street?

A: Correct.

Q: But if the banks had sold the mortgages, then they – the banks – no longer owned the mortgages. Right?

A: Right, exactly.

Q: Then, how could the banks foreclose? The OCC settlement is with banks. No Wall Street firm was involved. How could the banks foreclose if they were no longer holding the mortgages, meaning that they were no longer the lender of the record?

Aha.

Here, we need a few things about the jurisprudence in the U.S.

In the U.S., if your financial claim against a party is $5000 or less, you go to a small claims court. (In some states, the amount is lower, but $5000 is the ceiling.)

The small claims courts exist in many countries under such names as the elders’ councils or justice councils. Their role is to mediate the minor claims that arise from the social and commercial interactions at the local level. That relieves the higher courts from having to deal with petty disputes and minor sums.

Small claims courts exist in their own judicial world. Their ruling does not become a precedent. And because of the personal nature of the disputes, both the plaintiff and the defendant are allowed to tell stories about their loss. So if you are suing your cat sitter because she let your cat run away, you can sobbingly describe how dear the cat was to you. That is what you see in “Judge Judy” and her small claims court.

When the money in dispute is more than $5000, you have to file the claim in the civil court. No exceptions.

In the civil court, the “Anglo-Saxon” jurisprudence reigns. The rules of evidence kick in.

No personal stories are allowed in the civil court. The focus is on the violation of the law only. Taking the example of the cat, you have to show which law was violated by the cat sitter’s negligence. If there is no statute and no case law applicable, the cat sitter walks free not matter how severe your emotional distress. The centrality of law is the point of Oliver Wendell Holmes’ famous utterance: “This is a court of law, young man, not a court of justice.”

Because the language of the law is the frame of reference in deciding the cases, the technical law is all that matters: which evidence is admissible; which evidence must be presented for establishing a claim, etc. Hence, the role of lawyers who are trained in the law’s technicality. A defendant could be guilty as a matter of fact, but if the evidence against him is inadmissible – because it was obtained through illegal search or by threat or torture – the court will set him free. That is the meaning of a case being dismissed “on a technicality”, an expression familiar to all Americans of a certain age through real life cases or the court-room dramas on TV and in Hollywood movies.

Returning to our main topic, imagine you are a bank. A while back, you lent $200,000 to a homebuyer on which he defaulted. Now, to foreclose so you could claim the house, you have gone to court. There, the absolute first thing you need to do is to establish the evidence of indebtedness; you have to show that the party you are suing owes you money.

But as a participant in the great wave of securitization you have sold the mortgage note, remember?

Now how are you going to establish your claim? You are in a court where stories are not allowed. “Your honor, this is the copy of an advice that shows we deposited $200,000 a few years back to the defendant’s account” will not work. The defendant can claim that he returned the money next day in small bills in a laundry bag. He will demand that you produce the evidence of indebtedness.

With the evidence of indebtedness gone – or lost, or destroyed of misplaced in the mortgage frenzy – the only way to satisfy that demand is to create the evidence. That is forgery. Knowingly testifying to the authenticity of a forged document is perjury. Both are serious offenses punishable by jail time. That is what the closely related but now expunged-from-the-record “robo signing” scandal was all about.

In “robo signing”, a neutered phrase meaning “robot signing”, letters signed by fictional bank staff were presented as the evidence of indebtedness of homeowners who were late in their payments. Those were then used to start the foreclosure and eviction proceedings. Google “robo signing” and read some of the articles. They should make sense now. See also how the central crime of the case is consistently concealed as a matter of good journalism.

Yet, no one served a day in jail. And the settlement with the OCC will see to it that no one will. That is the critical point of the settlement – it is not the fine which works out to a few thousand dollars per “injured” party, but rather, shutting the door to legal action. The offending banks can no longer be sued. The case is closed.

But let us not focus on the OCC. The agency could not and would not settle the case if the rot had already not set in.

The rot is a legal one. It changes the law from a shield protecting the people to a sword attacking them. The headlines of a New York headlines a few months ago about the tactics of collection agencies put that succinctly:In Prosecutors, Debt Collectors Find a Partner

Here is the opening paragraph:

The letters are sent by the thousands to people across the country who have written bad checks, threatening them with jail if they do not pay up.

They bear the seal and signature of the local district attorney’s office. But there is a catch: the letters are from debt-collection companies, which the prosecutors allow to use their letterhead. In return, the companies try to collect not only the unpaid check, but also high fees from debtors … some of which goes back to the district attorneys’ offices.

In the mortgage scandal, a few home owners did try to fight in court. They got nowhere. The fix – long in the making – was in. From the New York Times of November 29, 2010, reporting about the “high speed” court in Florida which was set up to handle the foreclosure cases:

Lawyers such as Mr Parker allege that these courts show leniency towards the sloppy bookkeeping of the banks, but crack down on homeowners who are ill-prepared.

In a testimony … one executive from Countrywide Financial said it was routine not to pass along the original notes and related documents as part of the securitization process of the loans…

“After this, the judges in foreclosure cases are going to have to start ignoring massive systemic violations of law in order to grant foreclosures … Do we save the financial markets and sacrifice the rule of law? You can’t save both, you’ve got the sacrifice one for the other.

This “transformation” of the law is the shift in the ground of existence.

Lifestyle

A Close up of a Few VIPs

“VIP” is an American appellation. It stands for very important person – or people; I am not sure which. Very important people do not wait in line. They get the best tables at restaurants. And often, they get to set or influence policy – if not directly, then indirectly. A few of them were recently in news.(i)Not Understanding What I Hear, Not Knowing What I WriteThe recently released minutes of the Federal Reserve Board shows that as late as August 2007, the Board members had no inkling about the approaching storm. The Financial Times reported the story under the heading Fed red-faced as notes reveal officials failed to grasp dangers of 2007 crisis.

The ever obsequious New York Times put a positive spin on the story and presented it as the problem of scarcity of data. We learned that one Board member had presented as evidence of weakening economic conditions his private conversation with a Wal-Mart executive who said that Mexican workers were sending less money back home. Blah, blah, blah.

Of course, no institution in the world has more facts and data about the U.S. economy than the Fed. So what blinded the Board Members was not the paucity of facts, but the inability to interpret them. The mind is an active, synthesizing and interpretive faculty. A deficiency in its interpretive dimension makes it less than whole. The interpretative deficiency we are discussing has its roots not so much in biological, but social factors: facts must be fitted into the Procrustean Bed of the official beliefs and ideologies. As these beliefs and ideologies are false, the interpretations they lead to are necessarily bunk.

Two years before the 2007 Federal Reserve Board meeting, and with the knowledge gleaned from the reading only the newspapers, this is what Nasser wrote in Vol. 3 of Speculative Capital:

The rise of credit derivatives is the latest evolution of finance capital where market and credit “dimensions” are brought together. We are currently witnessing the early stages of this development. But armed with the theory of speculative capital we can see what is happening, i.e., what is changing. We can also discern the cause, pattern and characteristics of the change. So whereas for others credit derivatives are the risk-diversifying, need-fulfilling products of an innovative Wall Street, for us they are the footprint of speculative capital on its march towards systemic crisis.

(ii)Ditto

Speaking of inability to interpret, a couple of times in his blog Nasser mildly criticized Mohamad El-Erian’s understanding of finance. El-Erian, in case you do not know, is the CEO and co-chief investment officer (with Bill Gross) of Pimco, the largest fixed income fund in the world, with $1 trillion under management.

Both Gross and El-Erian are media darlings. Rarely a day goes by without one or both of them appearing on a TV program or penning a commentary piece in the Financial Times.

Yet, what is the quality of their comments? Here is what El-Erian, rumored to be the more intellectual of the two, wrote on January 8 in the FT:

The investment recommendations made by many financial commentators are dominated by cross-asset-class relative valuation rather than the fundamentals of the investment. A typical refrain runs something like this: buy X because it is cheaper than other things out there.

This is an understandable approach, as unusual central bank activism has artificially elevated certain asset prices. Yet the dominance of this increasingly popular advice comes with potential risks that need to be well understood and well managed.

In talking about the “domination” of “cross-asset-class relative valuation”, our man is describing the modus operandi of speculative capital. Nasser developed a theory and wrote a series of books on that. From his Vol. 1 (1999):

Speculative capital is massive in size. It grazes on the spreads and brings volatility to markets … Because speculative capital was hidden from the view, the cause of this volatility remained a mystery. Markets seemed increasingly irrational.

What can you really know about a stock when its value seesaws 10% or 15% in the space of a week or less for no apparent reason? Not much, say some perplexed investors. With the stock market embroiled in some of the most volatile moves in years, it is getting increasingly difficult for money managers to plan and execute their strategies. (Wall Street Journal, November 24, 1997, p. C1)

And:

Rising volatility is worrisome, if only because people who are paid to study such things have no clear answers as to why it is happening now. (New York Times, August 31, 1997, p. F4)

Nevertheless, fund managers must deliver results. Staying on the sidelines on account of volatility is not an option. What can they do if stocks are volatile and drop for no apparent reason? The answer is that they discover “relative value” trading. A news story in the Wall Street Journal captured this crucial shift in stock trading strategy:

[Mr. Schermerhorn who manages $4 billion] also scorns the growing emphasis on “relative” valuation, comparing a company’s P/E ratio with those of other companies in the sector, rather than absolute valuations or historical levels. But other investors concede they are reluctantly having to pay more attention to relative valuation. “Lately, if you’d used almost any kind of absolute-valuation guidelines, you’d have kept out of this market altogether, and missed a lot of the bull market,” sighs Mr. Jandrain [who manages a stock fund]. “The reality is that we’re still at record [valuation] levels historically by nearly every measure, and you have to look for pockets of relative value.” (Wall Street Journal, November 24, 1997, p. C1)

“Rrelative value” trading – comparing one stock against similar stocks – is arbitrage trading. Mr. Jandrain … is being forced to disregard forecasting, i.e., individual stock analysis with an eye to estimating its future growth, in favor of buying relatively undervalued or selling relatively overvalued stocks. He calls that “looking for pockets of relative value.” But arbitrage by any name is arbitrage. In his quest for pockets of relative value in the equities market, Jandrain has assigned his fund to the ranks of speculative capital, thus guaranteeing that relative value trading, and, with it, the volatility of the stock market, will increase.

Such is the impact of speculative capital on financial markets: fund managers reluctantly joining a trend which they abhor and whose dynamics they do not understand. In the process, they push stock market even higher. Those traders who position themselves to profit from a decrease in P/E ratios get clobbered.

Relative value trading, rise in the market volatility, rise in high-frequency trading, synchronization of the markets across countries, correlation of assets classes (bonds, stock, commodities) as a result of which they all move up and down at the same time (and render diversification for the purpose of hedging pointless) and finally, globalization have but one common cause: speculative capital. El-Erian sees every one of those causes and can dispense expert advice about the best trading strategies under each condition. What he cannot do is see the larger force that links them all together. That is why he could never see what is about to come not matter how hard he looks – or thinks.(iii)The Chief of the Naval Operations of Afghanistan

What would you say, and how would you react, if the man sitting next to you on a plane introduced himself as the chief of naval operations of Afghanistan?

Why, you would laugh. You might not actually say anything in consideration of etiquette, but you would involuntarily chortle. Afghanistan, after all, is a land locked country; I am not sure it even has a lake. So the idea of it having a chief of naval operations is prime facie absurd. How could the position even exist and what kind of an ass would accept it if he were offered?

Now, what would you say, and how would you react, if someone introduced himself as the Ireland pension ombudsman?

If you are not sure, see the above. The catch is that this position, unbelievably, does exist and is currently occupied by one Paul Kenny.

Why unbelievably? Because conceptually, an Ireland pension ombudsman is as absurd as an Afghanistan chief of naval operations. What makes the two comparable is that there is exactly the same number of protections for workers’ pensions in Ireland that there is access to open seas in Afghanistan.

From the Financial Times of January 3, under the heading Aer Lingus pension move sheds light on Ireland’s woes:

Under Irish law there is little oversight of the pensions sector and no safety net for workers. Solvent employers with underfunded schemes can wind them up and walk away.

Solvent employers with underfunded schemes – underfunded because they, the employers, have chosen not to put money into the fund – can wind them up and walk away. Just like that.

Note also the word “scheme”. There was a time pension plans were called plans. Now the FT, with its editors’ British sensitivity to words, calls them schemes. Here is the difference between plans and schemes:

“We know from what the Pensions Board has said that 80 per cent of defined benefit pensions schemes in Ireland are technically insolvent,” says Paul Kenny, Ireland pension ombudsman…. But the real issue, analysts say, is whether Irish politicians are prepared to force already hard-pressed businesses to top up the underfunded pensions.

Jim Kelly, regional secretary with the Unite trade union, said companies were using the economic crisis in Ireland as an excuse to close their defined benefit schemes and in some cases to try to get out of providing any pension to workers.

“In the current difficult economic climate businesses are putting more emphasis on their own viability than on their employees’ entitlements,” Mr Kelly said. “This will end up being a disaster for the future. It is only when we get out of this crisis that we will see the real tragedy that has occurred for workers

(iv)

A Sad, Sad Woman

I am talking about Ruth Porat who is being considered for the No. 2 spot at the Treasury.

Ruth is quite a go-getter: Stanford, Wharton, what have you. A 2010 New York Times laudatory profile quoted he colleagues who said that she was “a tireless worker”. That turned out to be an understatement:

In 1992, during the birth of her first son, she was on the phone in the delivery room making client calls. And in her spare time she, along with her husband, a lawyer, renovate and sell New York City apartments.

Ms. Meeker, the godmother to each of Ms. Porat’s three sons, remembers one meeting with management at the media company Ziff Davis where Ms. Porat threw her back out. “Instead of leaving she laid on the boardroom table and continued on with the presentation,” Ms. Meeker said.

Ruth Porat reminds me of the Ugly – of The Good, The Bad, The Ugly fame – who, trying to entice his fellow thieves, asked them: If you work to live, then why kill yourself working?

The Ugly knew a thing or two about work-life balance.

Yet, there is another angle here beyond obsession with work and money that the Porats, renovating and selling fixed-it-uppers in their “spare time”, cannot hide.

Imagine – visualize – a woman lying in pain on her back on a table in a boardroom full of people and giving a PowerPoint presentation. Can you imagine a man doing it? A George Soros? A Tim Geithner?

Imagine making client calls when you are about to deliver a baby.

Can you top these scenes in obscenity?

There are different ways for the underdogs to put up a defense. Jean Genet gave us one in Our Lady of the Flowers: “If I declare that I am an old whore, no one can better that, I discourage insult.”

Ruth Porat is playing a variation of the same theme. She discourages criticism by being obscene herself. But the whole thing stinks: her behavior and the conditions that make her to behave the way she does. That she acts on her own “free will” only adds insult to the injury. There is an Exhibit A of “internalizing the external conditions” if there ever was one.

Uncategorized

Epilogue: The Origin of the [Crisis in the] European Union

The idea of a man-made machine escaping his control and becoming a menace is familiar to modern men. It is the fantastic, subjective reflection in his mind of his real-life condition of being subjugated to the unrelenting rhythm of the factory system. The system was firmly in place in Western Europe by the beginning of the 19th century. Shelly published her Frankenstein in 1818.

The rise of large-scale industrialization in the next century and the introduction of the assembly line further intensified the subjugation. Assembly lines break down the manufacturing process into simple, repetitive tasks. Simplicity, as they say, is the killer. It allows for the replacement of skilled labor by the unskilled cheaper labor. In this way, it makes the individual differences irrelevant, reducing men to interchangeable cogs in a mechanical process that dictates the speed and intensity of their work and over which they have no control.

An out-of-control monster lends itself nicely to story-telling and visual presentation, which is why the new medium of film in the 20th century repeatedly visited the subject. Chaplin’s The Modern Times, Kubrik’s 2001 with its homicidal computer, The Blade Runner and The Terminator are perhaps among the better known examples of the genre. Movies exploited the menace of machinery at the same time that they kept it alive in the popular psyche.

But the mechanical aspect was always unconvincing. A physical monster is limited in size, proportion and reach. So its capacity to harm is limited. More to the point, a machine, no matter how intelligent, powerful or sinister, could always be brought under control – or just destroyed – possibilities that all film makers, as well as Shelly herself, had to acknowledge.

If we wanted to make a real menace, we would have to do away with such limitations.

Think of a menace that you could not see!

The invisibility I am talking about here is not a matter of stealthiness. Stealthiness is a property of physical objects and has the same limitations: it could be defeated and destroyed. Think, rather, of a menace that you cannot see because it is per se invisible. Such a menace could not be something physical. It would have to be something conceptual.

Conceptual is different from subjective. A subjective thing is purely mental, with no independent existence outside the mind of the person who is thinking it. Fear is subjective. It exists in a person’s mind only. Even when it arises from something real in the outside world, it can be driven out of thought. That is what Roosevelt was advising with his “the only thing we have to fear is fear itself” pronouncement. One could stop fearing.

Force, by contrast, is conceptual and real. It exists in the material world independent of our imagination. Whether we think of gravity or not, whether we are conscious of it or not, it exists and will continue to exist. It cannot be wished away or dispelled by determination and mental prowess.

How do we know that the invisible gravity exists? We know that from its manifestations: because objects fall; because there are two high tides a day; because the moon stays in its orbit around the earth; because the earth stays in its orbit around the sun.

Each manifestation, however, is individual and thus, limited. It cannot make known the full extent of the force because the force is more than – broader than – any of its individual manifestations. No amount of mere observation would lead one to suspect that there was a commonality between an apple falling from a tree, the daily high tides and the structure of the solar system. It is impossible to understand these phenomena and thus, impossible to establish a link between them, unless we understand the force of gravity in its fullness. To understand gravity in its fullness is to understand it as concept.

As a concept, gravity has no physical or temporal boundaries. Hence, the universality of its effects. Because it is nowhere and nowhen, it is invisible.

Capital, too, is a conceptual force, only that it is social. Being social, it is historical: There was a time in the course of the development of societies when capital did not exist. This historical-vs-natural distinction between capital and gravity is no idle erudition. I bring it up because it goes to the heart of understanding capital and our subject of the EU crisis. For, unlike gravity which is a blind force, capital is a live and a conscious force.

In his Doctrine of Notion, Hegel deduces the category of life as “unity in plurality”. Life is a “conception of unity whose whole nature consists solely in its differentiation into the plurality which is subsumed under it, and a plurality whose whole nature consists solely in its forming that unity.”

The “life” in Hegel is not the organic life as we know and understand it. Life’s multitude of dimensions goes beyond the unity-in-plurality attribute. Hegel merely names an abstract category he is deriving after a well-known concept.

Still, the plurality-in-unity is an important distinguishing characteristic of organic life. An arm and a leg are what they are by virtue of coming together in an organic unity that is the body. Cut off from the body, they cease to be what they were. They become dead meat. The organism, likewise, has no meaning except as the plurality of its parts.

If capital is a living concept, then it must contain the defining plurality-in-unity attribute. Since as a concept, capital cannot be seen, we must first identify the “body” through which it operates, its sensuous manifestation, so to speak. Only such embodiment will lend itself to our inspection. We thus ask: Life to the human body is like capital is to what?

The answer is: corporation.

Legally, corporation, too, is a concept. But we must focus on the economic angle. Economically, a corporation could be large or small; industrial or financial, domestic or international. How could we tell such varieties from each other? The answer is: balance sheets. Corporations’ balance sheets are where the type of corporation and, with that, the composition of the capital in them, is registered.

Here is a sample balance sheet:

Look at the entries under Assets at the top. They include cash, inventory, plant and machinery, office equipment, etc. What is in common between these disparate items that allow them to be added as “assets”? (In large corporations, where the composition of capital is more complex, the asset items are even more extensive. Look, for example, at IBM’s balance sheet).

You know the “apples with apples, oranges with oranges” adage. Adding presupposes grouping. Grouping presupposes a commonality among the group members. What is the commonality between building, inventory, office furniture and cash?

The answer is that they are the constituting parts of capital the way arms, legs and organs are the constituting parts of the body. This point needs elaborating; the analogy might not be obvious without some background accounting. To that end, let us build a balance sheet from “scratch”. We follow an entrepreneur who believes he can make a good profit producing and selling some “widget”, say, a toy, a pen or a particularly cheap wristwatch. So, he takes out $10 million that he had stashed in a safe place, incorporates a corporation and begins work.

Let us assume that he spends $5,000,000 to build the plant, $1,000,000 for an office from which to run his enterprise and $1,000,000 for the office furniture, supplies, systems,etc. We further assume that he pays $1,500,000 for raw materials and $500,000 in wages to workers to produce 100,000 widgets. The final $1,000,000 he keeps as cash for the day-to-day operation of the plant. The entrepreneur has set the widget price at $25. Since 100,000 widgets are produced, their total price is $2,500,000. In accounting parlance, that is the inventory.

At that point, the company’s assets will look as follows:


Cash                                 $1,000,000
Plant/Equipment            $5,000,000
Office/Supplies               $1,000,000
Building                          $1,000,000
Inventory                       $2,500,000


Note that the assets add up to $10,500,000; $500,000 more than the money our entrepreneur advanced. How this magic is performed does not at present concern us. Our focus is on the conversion of money to capital and its unity-in-plurality.

Beginning with the conversion, note that cash – money – is not capital. Stashed in a mattress or kept in a safe deposit box, it would not multiply; it would not increase by a penny. Our entrepreneur knew that, which is why he took $10 million out of a safe and invested it in the widget venture.

In a like manner, the $1 million cash on the balance sheet is considered “working capital” precisely because it stands with the other components of the widget-producing capital. Taken out of that relationship, it becomes money again. It could be spent as money, but it will never increase in size.

The same reasoning applies to other asset items. The plant, for example, is a component of capital by virtue of being a place where widgets are produced – but only if there is an office from which to manage the production: dispenses cash, hire workers, raw materials, etc. Taken out of that relation, the plant becomes a storage for idle machinery. It eventually crumbles and dies, which is how the decommissioned plants are literally referred to in English. The town such plants once operated become, taking another word that is meaningful with reference to once alive bodies only, ghost towns.

The concept of capital, we see, then, can only be understood as the coming-together of various qualitatively different parts in such a way that the integrated whole is capable of internal growth. That’s how $10,000,000 became $10,500,000. That is the characteristic of an organic entity.

But, as in all organic bodies, it is not all quantity. There is a quantitative relation as well between the parts. A man’s head or heart can grow larger or smaller only so much before the distortion becomes fatal.

The relation between the various asset parts, likewise, must remain within certain quantitative limits. We intuitively grasp that point with regards to the plant or the office space. It would be madness for a small company to build a high-rise headquarter in an expensive downtown lot or a car manufacturer to try to squeeze its assembly line into an area one-half the size of what is necessary.

The relation of cash and inventory to other asset components is less intuitively apparent – because there is a supposition that “more money” can never hurt – but that is precisely when the abnormality in the body capital begins.

Look at the assets above. The company’s inventory is its lifeline. It was produced by workers who were paid $500,000 in wages and used $1,500,000 worth of raw material in the production process. The value of inventory is $2.5 million; $500,000 more than what went for its production. For that profit to be realized and for the process to continue – for which the entrepreneur must order $1,500,000 worth of raw materials set aside $500,000 in wages – the inventory must first be sold. The workers and raw material suppliers do not want widgets. They want money. Selling, converting inventory to money, is vital to the survival of capital. Hence, the pressure on the sales force and the resulting psychosis.

If the widgets cannot be sold at $25 each, they would have to be discounted; offered at say, $20. In that case, the entrepreneur would have advanced $2 million in wages and raw material to withdraw the same $2 million. That would be an absurd and pointless exercise and very discouraging to our entrepreneur. (We ignore depreciation and other such technical considerations that have no effect on our discussion).

If there are still no takers, the discount would have to be deeper; the widgets would have to be offered at say, $15. In that case, the capital would fall below its original $10 million. That would be the destruction of capital.

No sane entrepreneur would tolerate the condition of throwing money into the production circuit only to see it diminish in size. The logical step would be to curtail the production. If the demand for widgets is soft, in the next cycle our entrepreneur will produce only half as many widgets. Consequently, he will need half as much labor and raw material. In that case, two things would happen. First, the demand for labor would fall, with the result that unemployment would rise. That story you know. Second, the cash on the balance sheet would rise.

If our entrepreneur gets $2.5 million from the sale of his inventory but produces half as many widgets as before, he would only need to spend $1 million on labor and raw material, one-half of what he would normally spend on these items. In that case, even if he pockets $500,000 as before, $1 million surplus cash will be added to the balance sheet.

That is what has been happening in the US and the EU. Look, for example, at the “short term investment” in the IBM balance sheet (3rd from top) which is where the company has parked its unused cash. Or check out the balance sheet of GE under “cash only” (2nd from top).

The development is widely reported in the press as “cash hoarding” by corporations. But the labeling itself shows how little the problem is understood.

Look at this Yahoo analysis, for example, under the heading Largest Public Companies Continue to Hoard Cash at Record Levels. The writer complains that companies have “unnecessarily” tied up cash in inventory.

The men and a few women in charge of finances of large corporations are high ranking executives who oversee thousands of staff and billions of dollars of budget. They have bankers, advisers, consultants, traders and portfolio managers who keep them abreast of any change in the market. It is laughable to suggest that they might “unnecessarily” tie-up cash – and do so all at the same time.

Or look at this Associated Press story which begins this way:
Americans’ wealth last summer suffered its biggest quarterly loss in more than two years as stocks, pension funds and home values lost value. At the same time, corporations raised their cash stockpiles to record levels.There is a relation between the decrease in the wealth of the Americans and stockpiling of cash by corporations, but not because of corporate wickedness, which is what the writer implies. Here is how I would rewrite the opening sentences to make the cause-and-effect relation clear: It is precisely because corporations were forced to raise their cash stockpiles that the wealth of Americans suffered its biggest loss.

Corporations’ cash stockpile has been increasing because they have been curtailing production. They have been curtailing production because their rate of profit has fallen. And this phenomenon has taken place across all industries. Imagine not being able to sell the widgets at $25 and having to reduce the price to $23, $21, $20 and then $17 and $15.

Under that condition, there would be no need for the same number of workers as before, and for the same office space and plant as before. They all must be reduced. The destruction of capital is thus set in motion. Depending on the severity and magnitude of destruction, the result is called a recession or a depression. From the Financial Times of January 9, 2012, under the heading Earnings growth falters for S&P 500:
US corporate earnings grew in the fourth quarter of 2011 at their slowest pace for more than two years … and are expected to slow even more in the first quarter of this year as profits are hit by global economic turbulence. The US earnings season begins today with Alcoa, one of the world’s largest aluminum producers, reporting fourth-quarter results after the stock market closes. Expectations of Aloca’s profits have been scaled back sharply in recent months … Alcoa said last week that it would take a charge of $155-$160m in the quarter for the cost of shutting down temporarily or permanently 12 per cent of its smelting capacity as it attempts to cut costs and respond to a weaker aluminum price.(How about Alcoa’s cash position, you might ask – Alcoa, too? Alcoa, too. Click here and check out the first two asset items.)

Destruction of capital and what follows from it – the rise in unemployment, the rise in corporate cash holding, the fall in interest rates, the rise in the number of unemployed, the factory closings, the savage cuts to government spending, lowering of wages – are all effects of the same cause, namely, the fall in the rate of profit across the industries.

This fall is a “macro”, socio-economic phenomenon. It could not be remedied by the actions of individual governments or corporations. It required a socio-economic solution. The solution was the EU, whose raison d’être is increasing the labor productivity principally through lowering its costs. That is what the EU is fundamentally all about. Everything else about it is incidental.

Why the profit across industries fall is a subject of Vol. 4 of Speculative Capital.

But I took a long detour to touch upon the composition of capital and corporate asset structure to highlight a point that I have made above only implicitly.

Capital is a social, living concept. Its components – workers and communities clearly, but also plants and buildings – are likewise social. They are the parts of body capital.

As long as capital is “alive”, as long as it is humming along and producing an agreeable rate of profit, there is prosperity. Men are employed, there is money to go around, cities are booming and everyone is happy.

When capital is destroyed, when it dies, the components die as well. Plants become idle, corporations go bankrupt, ships rust, towns become ghost towns and men become unemployed, poor and desperate.

To prevent such outcome, one must keep capital alive.

But capital is inherently self-destructive.

Now how do you deal with this menace?

Chekhov’s experience points the way. In his trip to the hellish Siberian penal colony, the perceptive author of Sakhalin Island learned that one must be extremely careful in taking on evil – careful not in the sense of being timid, but in the sense of knowing what to do and how to act. Not infrequently, the solutions which seem obvious on moral or social grounds make matters worse because they flow from the wrong diagnosis of the ills. If you believe, for example, that greed and corruption of bankers and financiers caused the current crisis, your solution would be to put God-fearing Christians and men of good moral standing in charge – men like Gingrich and Santorum.

Hence, the critical role of the theory which helps us see the cause. Theory delivers us from the passive acceptance of events just because they are and allows us to influence them by anticipating where they are heading.

Which brings me to our main subject.

There is a tremendous amount of noise around the EU. If you are following the goings on in your local paper, it is impossible to make head or tail of it. Some of the issues, like the imposition of austerity budgets, pertain to individual countries and local governments. Others, like the possibility of the EU members issuing eurobonds, are technical subjects of concern to only a small minority.Then there is the rumor of Greece going bankrupt. Then, Portugal. Spain, too, perhaps. The euro will survive. Strike in Hungary. The euro will not survive. France downgraded. Cameron blew it. Merkel is resolute. Sarkozy says the point is moot. ECB, Ireland, Draghi, England, Finland, the European Commission, the European Council. (Do you know the difference?)

It is truly confusing, even without the constant stream of nonsense that poltroons in the media and academia produce on the subject.

But, relax, I say! This undulated European phantasmagoria arises from a falling rate of profit and the efforts of capital to check and reverse it. When you see that, the chaos disappears. And that, our theory, has been made easy to see. Substitute the PR approved positive words “growth” and “productivity” for it and you will see it everywhere. From the Financial Times of January 9 under the heading Berlin and Paris move growth to top of agenda:
Germany and France are set to propose measures to revive economic growth in Europe and reduce youth unemployment, including actions to increase cross-border labour mobility, to complement budget discipline and debt reduction in the eurozone…. France wants measures to make it easier for workers to move between countries, for example from Spain, with 40 per cent youth unemployment, to Germany, with falling unemployment and a skills shortage.(Why is France concerned about Spanish youth finding employment in Germany, you ask, and why youth, when the adult heads of household are unemployed in millions? Because young workers, especially foreign, emigrant, young workers, could be hired at lower wages. In this way, they help reduce the general labor costs, just like women do.)

You want more? Headline from the Financial Times of January 6:

Sarkozy seeks to cut labour costs before election


More, still? Google “labor productivity in the EU” or “labor productivity” in general. You will see!

If you do not know this driving force behind the events, you will get in its way and get crushed. Just ask Viktor Orban, the Hungarian prime minister.

Dimly aware that under the EU mandates the country was losing its sovereignty, he introduced several mild measures to the country’s constitution which included supervision of the central bank by the government. That was a red line. Central bank “independence” is the primary control tool of finance capital as I explained in Vol. 1 of Speculative Capital. The quote from a New York Times editorial which I provided then, with the comment about the audacity of the government thinking of controlling the supply of money captured the gist of the issue. Here it is. For “investors in financial markets” read finance capital.

In May 1997 … under a descriptive heading, “Divorcing Central Banks and Politics: Independence Helps in Inflation Fight,” [the New York Times] wrote:

In granting more independence to the Bank of England, the new British Government is a later entrant in a trend that has seen nations give increasing autonomy to their central banks, distancing monetary policy from direct political control. The practice has spread across the globe in response to demands from investors in financial markets for proof that governments will remain committed to inflation fighting … The trend toward independence is rapidly eroding the practice, common only a few years ago in nearly all nations except the United States and Germany, of regarding monetary policy as the responsibility and right of the government of the day.

So controlling the supply of money and rate of interest is no longer deemed to be the responsibility of governments!

But how would a Hungarian know that, fresh from behind the Iron Curtain? He thought he had arrived because Hungary was a NATO member. He thought he had endeared himself to Sarkozy by preventing the plane carrying the Iranian foreign minister to land in Hungary for refueling. See Nicolas, we’re on the same side!

He must not have been prepared for what followed. From the Financial Times of December 21, 2011:
The International Monetary Fund and European Union have warned Hungary that they will not return to the country to negotiate a new credit facility unless Budapest commits to modifying two draft laws. EU and IMF officials broke off preparatory talks with Budapest a day early last week, after Hungary’s government moved to push the laws on central bank reform and fiscal stability through parliament despite negotiators’ concerns. One person familiar with the situation told the FT that negotiators had been “explicitly clear to the government” before the talks about their concern… In a letter sent to Viktor Orban, Hungary’s prime minister, by Jose Manuel Barroso, European Commission president, and described to the FT, Mr Barroso “strongly advised” Hungary to withdraw the two draft laws. In unusually blunt language, the commission president observed that Hungary’s domestic policy, and not the broader European debt crisis, were the origin of the country’s financial and economic difficulties.Look at the message: How dare you enact laws without our permission?

Look at the tone: The unusually blunt language, of the kind one uses to train dogs, to make sure that the Balkan understands the seriousness of the issue.

Look at the attitude: You people are the cause of your own misfortune.

Then the name calling began: Orban the Stalin, Orban the Mao. Orban the tyrant.

Then people came out to warn against the erosion of democracy.

Prime Minster Orban should have known that bargaining with George Soros is a two-way street.

Naturally, he gave in. He had the good sense to realize that fighting against the Soviet tanks in 1956 must have been easier. At least then there was a target one could throw a molotov cocktail at. How do you fight finance capital?

That is why I am nonchalant about events in the EU, which explains why this series has taken 6 months to complete! The almost daily crisis alerts and headlines are not for me. They are for traders to exploit the situation and net a basis point here and there. Or for telegraphing one’s position in upcoming negotiations. Or sending a message to politicians. In all events, they are a sideshow, which is why they leave me unmoved.

The real event is the march of capital towards the higher rate of profit which will continue resolutely, unabatedly and without regards for consequences.

What happens if in the process Greece defaults? Well, what happens if a Sanchez or a Brown dies in a war somewhere in the Middle East? Nothing happens. Life would go on.

What happens if Spain defaults? The same, meaning that nothing happens to the march of capital towards higher rates of return. People will not doubt get hurt but to make omelet you have to break a few eggs.

What if Hungary breaks away from the EU? Let them. They are begging to be made an example of. They will see what it means to pay back euro and Swiss franc debt in worthless forints.

And if euro does not survive? So it won’t. People lived for centuries without the euro.

But surely there is a concern for the EU breaking apart?

No, there is not. There is a fall back plan. We’d go back to the “Anglo-Saxon Model”.

The “Anglo-Saxon” model which the U.S. has adopted is, in a nutshell, based on the principle of refusing to pay for the cow when you could have the milk for free. In practice, that translates to bilateral agreements with individual countries, enabling the US to take advantage of low labors costs there without the hassle of integration. The North American Free Trade Agreement is Exhibit-A in that regard. NAFTA guarantees the free movement of capital across US-Mexico border but actual Mexicans are prevented from coming into the US. A combination of walls, thugs with guns and immigration offices see to that.

That is also the UK’s ideal. Hence its general displeasure with the EU, especially as it puts British manufacturing at a disadvantage compared to Germany’s. Under the circumstances, see how a total Mr. Establishment, in the person of Derek Scott, economic adviser to Tony Blair and the vice-chairman of “Open Europe” writes like a member of Occupy the Wall Street. He wrote in the FT, under the heading Germany is the loser from Greece’s wriggle:
More than 20 years ago, Nicholas Ridley was forced to resign from the British cabinet for describing economic and monetary union as a “German racket” … In so far as Mr Ridley’s “racket” had substance, it reflected the implicit collusion between German manufacturers, bankers and politicians.At least I do not believe in conspiracies! Hell hath no fury like an Englishman left out of a racket.

So, is the EU a fait accompli?

Yes, it is.

But there is more.

In a scientific experiment, we disturb the natural state of an object and force it to react to new, specifically created conditions. In so reacting, the object reveals new properties and thus, enhances our knowledge of it.

As with objects, so with societies. The EU is an economic end in itself. But it is also a complex project in social engineering, not so much by design but because of the consequence. Like objects, social organisms, too, when disturbed, react to new conditions in ways that were not known, anticipated or contemplated.

We have not heard the last word on the subject.

Stay with me.

Uncategorized

Analysis of Psychosis

On the quiet Friday following Thanksgiving, I read the “business life” of Sue Raby in the Financial Times, an Avon saleswoman slugging it out on the outskirts of Liverpool.
Sue Raby, coiffed shoulder-length brown hair, a grey shawl-collar coat, sets off down the road with a wheelie shopping bag full of Avon catalogues. The 52-year old single mother of two girls (22 and 11), sweeps her arm theatrically in the air. “This is one of my streets, this estate is my territory,” she says. This “territory” is a small patch of Formby, an affluent dormitory town for Liverpool, in the northwest of England.
This opening paragraph is not dissimilar to the interview scene in the opening of The Shining. Everything seems good and in order – even slightly uplifting. Sure, the main character calls a small patch of a bedroom community her “territory”, but who among us has not exaggerated the importance of his or her job/role/blog? What matters – the take away as they call it in the corporate parlance, the thing that one has to learn from the story – is that she has options, unlike those women in Afghanistan. A single mother of two driving to work in “her territory”: what was empowering women all about if not this?
If you cut Ms Raby, a former physics teacher, in half, she says, you would find Avon in the middle. The ringtone on her mobile is the sound of a doorbell, a reference to the 1960s advertising campaign catchphrase “Ding Dong, Avon calling.” When driving her silver Vauxhall, which has a pink sign advertising her website on the side, she plays motivational CDs to gee her along. Back at her suburban home, Avon boxes and catalogues are strewn around the sitting room, piled up in the hallway.
If we cut Sue Raby in half, we’d find Avon. Avon the company? Avon’s products? Avon’s certificate of incorporation?

Okay, so the former physics teacher is using poor imagery to say that she has “internalized” Avon. But that, too, does not square with what follows. “Boxes and catalogues strewn around the sitting room and piled up in the hallway” are more like an external intrusion; she, an outstanding example of a worker forced to take her job home.
This morning she is knocking on doors, selling silky-wear lipsticks and face-lifting creams while also on the lookout to recruit new sales reps. She earns 25 per cent commission on direct sales and a percentage of those clinched by reps in her team. The hardest bit, she says, is getting people to the door – “they might think I’m a Jehovah’s Witness, or the council or bailiffs”. If she is working a estate, she says, she wears jeans rather than a skirt, which looks more official. She also tends to steer clear of houses with dogs, although others push catalogues through the letterboxes with a spatula to fend off canine bites.
The “location”, like the Overlook Hotel in The Shining, is beginning to reveal things that we did not originally know.

The affluent bedroom community has turned out to be a place where, if you knocked on a door, they would think you were a bailiff or the council; the coiffed Ms Raby has to dress down to even have her knock answered. And her territory, far from being hers, is an open field for an assortment of aggressive and enterprising competitors who brave dogs and who want to eat her lunch. No wonder she listens to motivational speakers: she needs some stimulus to carry her through the day. Before she could sell, she had to buy into the confidence game of the confidence men selling confidence. It’s a mighty hard time, but I’m on my way, they have no doubt told her to constantly mutter to herself.

Suddenly she sprints off towards a blonde woman pushing a pram with one hand, grasping a toddler’s arm with the other. Ms Raby is – in the parlance – “buggy bashing”, stopping a young woman in the hope of recruiting her to her sales team. “Would you like to earn some extra money?” Ms Raby enquires tantalizingly.

Why would Ms Raby want to give her own customers to someone who has confessed to being incapable of making a sale? She insists she has spotted a potential “gem”. “You need confidence. I could get Kate up and running.” She knows this from personal experience. “When I first did sales I would go around houses with my one-year old with the catalogues under the buggy. I ran away from the door before anyone saw me. I was that under-confident”.

Forget the recruitment system that is modeled on degenerate cell mutation. I recruit you and you recruit another person who then recruits someone else and before you know it, the entire population of the earth has turned into Avon reps.
Look at buggy bashing, which is in the “parlance”. The FT writer, one Emma Jacobs, defines it as “stopping a young woman”, but she is being intuitively evasive and dishonest. She ignores the word buggy, which is central to the expression. Buggy bashing is recruiting a young woman with an infant. The infant is where the focus is because children elicit sympathy. Ask any beggar in Bangladesh. Better yet, read Oliver Twist, which is culturally closer to Ms Raby. Why, she herself was one such recruit, in her salad days when she was “under-confident”.
And that word: under-confident!
What a word! To know what it really means, you have to know the mentality of the people who have created it, their orientation and angle of vision to life. Both are adequately explained by Alec Baldwin’s character in this clip from Glengarry Glen Ross:

How effective is this kind of talk? It is effective enough to have come to use and stay in use. You saw a variation of it in terms of framing the issues in Part IV of the EU crisis. But it works on any scale. After being pumped up by Ms Raby’s faux can-do and you-need-confidence speech, even Emma Jacobs of the FT chimes in to describe a young nurse as having “confessed” to be “incapable of making a sale”.

She is already talking like Baldwin’s character!

The psychosis in the title of this post is not about Ms Raby alone.

(And did you recognize the ABC – Always Be Closing? It is the “ding dong” ringtone of Sue Raby’s cell phone. When her phone rings, it is Avon Calling. But Avon is calling her. It is a reminder that she should always be closing!)

“If I can get Kate up to speed she’ll be doing me a favour. If not, she’ll be off my Christmas card list, and I’ll take my old customers back.”

Here, Sue is creating a “win-win situation”, as she is taught to do in her sales classes. Everything must be framed as a win-win situation.

If Sue Raby can get the under-confident nurse “up to speed”, then she – Sue Raby – will win: she would get a percent of her recruit’s 25% share of a £3 lipstick. Else, she will have one less name on her Christmas card list.

This latter expression – one less name on the Christmas list – Sue Raby has learned in the sales classes. The expression is on one hand allegorical. But at the same time it is very real in the sense that that concept of friendship (and Christmas cards) as means towards closing a sale are the Alpha and Omega of the salesmanship as spelled out by the grand daddy of all salesmen, Dale Carnegie. The Avon Lady is following him to a “t”. I quote from the upcoming Vol. 4:

Given this centrality of sales and its practically limitless sub-specialties in a Capitalist society– in the U.S., one could find hiring ads for “nuclear waste salesman” – it is natural that the subject is deeply embedded – intertwined, really – with culture. Often, it is the driver and creator of the culture, especially in the “Anglo-Saxon” U.S. and U.K., where the influence of businessmen goes further than other nations. The culture in these countries is the culture of a salesman, as it is shaped by the habits, sensibilities, tastes and priorities of salesmen. The influence is in plain view in Dale Carnegie’s How to Win Friends and Influence People. The book’s title is precise. It telegraphs the content, so attention must be paid. Carnegie wants to win friends. Why? Because he wants to influence them. But the purpose of this influence is not bringing the newly acquired friends to the righteous path. Carnegie is not an Islamic zealot practicing the Prevention of Vice and the Propagation of Virtues. He wants to influence people in order to sell to them. Friendship is a mere strategy, a means, towards that end. Note the word “win” – not finding friends or making friends but “winning” friends. The purpose is exploitation, after which “friends” become what they always were: people. It is a singularly calculating and cynical title.

But Baldwin’s character in the above clip does not fit the bill of a congenial salesman in search of friends. What gives?

The answer is what links Ms Raby to the EU crisis: the falling rate of profit. From Vol. 4:

When the “conduct” of the salesman changes in a fundamental way, the effects reverberate across the social and cultural spectrum.  One such fundamental change took place after the collapse of the Bretton Woods system in 1973. The change which began gradually and continues to date was the intensification of competition due to the falling rates of profit. Coupled with the gradual desensitization and resistance of the population to the advertising pitches, the increased competition made selling a more stressful occupation than it was in the heydays of the U.S. industrial power.  This gradual, but persistent and grinding trend, forced the salesman be more “productive”; he had to sell more than before in less time than before. But other salesmen faced the same conditions, so it became tough for everyone to make a living. The ensuing stress darkened the salesman’s mood, with the result that passive Willy Loman gave way to the obscenities spewing, conniving and downright criminal salesmen of Mamet’s Glengarry Glen Ross. How much can a man take!

We continue.

Cars and phones are dangled in front of them as incentives. Gatherings at countrywide Avon events are said to induce cult-like fervor. Worshiped are the gurus – the high earners. In Britain, there are no bigger stars than Debbie Davis and her partner Dave Carter. Ms Davis turned to Avon after being made redundant from a printing firm. Within three weeks, she had sold almost £19,000 of products and recruited her partner. Now the two have an 8,000-strong team and have turned over £13m in the past seven years.

You probably smiled reading about cars and phones being dangled in front of sales reps as incentives. Alec Baldwin’s character offered a Cadillac Eldorado and steak knives!

The ultimate incentive, though, are the high earners. They are real flesh and blood, people like just us, and they show that it can be done. It is only a matter of confidence and pushing forward and being steadfast in the face of adversity.

But then, there is the math.

Avon now operates in more than 100 countries with more than 6.5 million sales reps around the world (just over half the company’s earnings are from emerging markets). Last year, the company’s revenues were $10bn. Sales in North America account for about 20 per cent of this, while the UK is one of its top five markets.

$10bn in revenues divided by 6.5m sales reps works out to about $1,500 per rep, of which they get 25% commission. So a rep, probably a young mother with a child, can expect to make just under $400 a year.

With that, we go to the final scene in the FT story where Sue Raby has “put on” a “Christmas Party” in her mother’s house, no doubt because her own has no room thanks to Avon catalogues and products.

That afternoon Ms Raby puts on a Christmas party in her mother’s house, down the street from her own. Plastic holly garlands hang around the fireplace, gold tinsel wraps the light shades and Merry Christmas signs are on the wall. Purple, orange-and-green packaged creams and perfumes are arranged in pyramids on tables. Mini-vanilla slices and bite-size doughnuts defrost in the kitchen. Cups of tea are handed out to the nine female guests who arrive, some with young children, some with their free old-age bus pass, to browse the catalogue.  Ms Raby is on top form, showing off creams and fixing appointments to visit the guests in their homes. “You get out of it what you put into it,” she comments. What does she want to get out of it? “I don’t want to get myself a target as that would limit me. But maybe £80K a year. No, let’s say £100K.

How do you write a modern Gothic story?

I could begin with a Christmas party:

Plastic holly garlands hung around the fireplace, gold tinsel wrapped the light shades and Merry Christmas signs were on the wall. Purple, orange-and-green packaged creams and perfumes were arranged in pyramids on tables. Mini-vanilla slices and bite-size doughnuts defrosted in the kitchen. Nine female guests, some with young children, some with their free old-age bus pass, had arrived to browse the catalogue. 

You say that this is not per se Gothic, that it could be an O’Henry story about the warm hearts of the poor during Christmas? Perhaps. Try now:

The host, a single mother of two who was made redundant from her job teaching physics one supposes because all the knife wielding Liverpool students had mastered Newtonian mechanics, was taking down guests’ name to later visit them in their homes for a sales pitch for lipsticks and facial creams.

Psychosis is, to use a term favored by Sartre, situational. Its dictionary definition is “profound disorganization of mind, personality, or behavior that results from an individual’s inability to tolerate the demands of his social environment whether because of the enormity of the imposed stress or because of primary inadequacy or acquired debility of his organism especially in regard to the central nervous system or because of combinations of these factors and that may be manifested by disorders of perception, thinking, or affect symptoms of neurosis, by criminality, or by any combination of these”.

Those weasels at the American Psychiatric Society! How conveniently and cynically they shift the blame from the situational, which is always at least partially social, to individual.

Inability [of the individual] to tolerate the demands of his social environment either because of the enormity of the imposed stress [on him] or because of primary inadequacy or “acquired debility” of his organism.

Let us define psychosis properly, for what it is:

Psychosis is the breakdown of the individual who, persistently and as a matter of his working condition, is put in a situation where he must perform at levels that the general, controlling conditions, will not allow.

The twin drugs of sermon and motivational speech that are commonly prescribed might at short term delay the onset of the disease – which is why they are commonly prescribed – but in the long run they exacerbate the tension and make its flare-up more violent.

The impossibility of reconciling the contradiction between an individual’s particular situation and the general conditions surrounding him is the trigger for the breakdown.

In The Shining, Jack goes mad because he cannot write. The Shining, according to Stephen King, is about writer’s block.

Writer’s block is a modern phenomenon. Billions of people throughout centuries could not write, in the sense that they were bad writers. That was perfectly alright.

Then, modern economic conditions forced some people who could not write into the craft. Here,  force is social.  People are forced into writing for the same reason that they are forced into sales: because they need money and that is the only option. That is the social element in “writer’s block”. In the absence of social force, only those who could would take up writing. Can you imagine a Tolstoy struggling to tell a story or a Hemingway having trouble with a sentence?

What is one to do if he has to write but cannot? His particular situation could offer an escape route. If he has to take care of a young child, for example, or there was an extended illness in the family, he could point to them as circumstances beyond his control standing in the way of completing the work. Everyone would understand and the psychosis might be avoided or at not least not intensified.

But when the situation eliminates all the excuses – think of the quiet setting of a remote hotel for a writer, cut off from any distraction – the tension from the inability to perform finds no outward outlet and turns inward. If the situation persists, the result is psychosis and madness.

Look, now, at the position of Sue Raby. She expects to make £80K a year – no, make it £100k – from selling £3 lipsticks on which she collects 25% commission.  The average rep makes about $400 a year. But some reps make millions, so her goal is not really overly ambitious, is it?

If she cannot reach her goal, it could only be that she was under-confident and incapable of doing what others have done.

“You get out of it what you put into it,” says she, blissfully unaware of what she is saying, for what she has put in, beside some mini-vanilla slices and a few bite-size frozen doughnuts, is her time and labor, which is all but worthless as per educational authorities in Liverpool.

In Cameron’s England, for a 52-year old single mother of two, conditioned to believe in she-believed-she-could-so-she-did bullshit, if that is not the set-up for potential horror to come, I don’t know what is.