Brexit Britain's Bridge To Nowhere - Part 24 of 27

In 1987, the financial crisis was ended when the one time gold bug, proponent of sound money, and devotee of Ayn Rand, Alan Greenspan, trashed the Dollar, and pumped billions of paper Dollars into circulation, setting in place the Greenspan Put, the epitome of the conservative social-democratic (neoliberal) model, and delusion that wealth could be created from thin air via asset price inflation. 

Having crashed by 25% in a day, and more over the duration of the crisis, a year later, the financial markets ended 50% higher! But, this delusion did not change the underlying reality. The Federal Reserve, and other central banks, increasing liquidity, (devaluing the currency), which then flowed into the purchase of fictitious-capital (shares, bonds and derivatives), as well as into other assets such as land, and existing property, spreading into art, vinyl records, wine, and later into things that were not even use-values, such as crypto-currencies, and so had no value at all, did not add one single machine to US productive capacity, or the ability of that real industrial capital to produce more surplus value. It simply inflated asset prices, and, thereby, reduced the yields on those assets.

Because the owners of fictitious-capital, i.e. the global ruling class, exercise control over real industrial capital, enshrined in company law, they were able to respond to falling dividend yields by increasing the proportion of profits that went to dividends. Hence Haldane's observation that dividend yields went from 10% of profits, in the 1970's, to 70%, by 2015. As I have set out, elsewhere, this same process spread through the economy.

In the early post-war period, the cost of land accounted for just 10% of the price of a new house. But, asset price speculation that drove up the market prices of existing houses, by the 2000's, meant that, builders could make surplus profits, by selling new houses at those existing inflated market prices. As with all such surplus profits, they are the source of the rent extracted by the landowner. Consequently, capitalised rents (price of land) soared, so that, as with dividends as a share of profits, land, today, accounts for 70% of the price of a new house, inflating the cost of production and prices of new houses, thereby restricting both demand and supply.

It was one reason that housebuilders sought to disguise the rise in those prices, by selling houses cheaper, but as leasehold rather than freehold. Governments, although they have feigned concern, as a moral panic erupted over leasehold, facilitated such developments, as they sought to continually goose housing demand, as prices soared, by introducing all sorts of scams such as rent-to buy, shared ownership, Help To Buy, and so on, because the fundamental model of conservative-social democracy was this delusion that wealth could be created out of thin air from continual asset price inflation. It is the same delusion perpetrated in a different manner by Modern Monetary Theory, and essentially no different to the ideas of John Law, and the Pereire Brothers.

What the ruling-class has done, over the last 30 years, and the last 20 years to an even greater extent, is essentially to asset-strip real industrial capital, by using inflated asset prices as the source of its wealth, a part of which it periodically liquidates – what financial advisors fallaciously call “taking profits” - when the ability to take even more of actual profits as dividends, became no longer feasible. As Haldane, noted, in that 2015 Newsnight, interview, reported by the BBC,

“that left far less cash available for growth-boosting investment and that firms risked "eating themselves".

Corporate short-termism - a focus on immediate gains rather than long-term prospects - was a rising problem for companies and pre-dated the financial crisis, he said.

Mr Haldane believes that one possible major cause of this short-termism is the nature of UK company law, which gives most decision making power to shareholders.”

Back To Part 23

Forward To Part 25