*Aaron Sahr* # Progressive Summary # Definitions # Chapter Notes > In the 2000s, the textile manufacturer Nike, for example, managed to increase its income by 1.2 billion dollars. At the same time, Nike’s real investments – including spending on raw materials for sportswear production – fell by 12 percent. The gains did not come from the sale of more or better running shoes and functional clothing, but primarily from a 470-percent leap in interest and dividend receipts. GE Capital, the financial arm of the holding company of electronics giant General Electric (founded by the light bulb inventor Thomas Edison), is now the seventh largest bank in the US and responsible for at least half of the group’s total profits. In 2004, the automotive group General Motors generated 66 percent of its profits through its in-house bank, and only 34 percent directly from the sale of motor vehicles. Its rival Ford had posted losses for its automotive division that year, but managed to chalk up net profits of over a billion dollars thanks to financial revenues. > The (unequal) wealth distribution we see today is the result of not just two but three appropriative complexes which generate three different types of income: economic income (arising from decisions regarding property), state transfers (based on democratic sovereignty) and para-economic income (the result of decisions to produce money from scratch). Given how little attention the dualistically oriented studies so far conducted into the origins of material inequality within capitalism have paid to this last element in the wealth triad of property, sovereign intervention and keystrokes, it is now crucial to subject it to closer scrutiny. ## 3 - Capacity > The engine of capitalism runs on a single fuel: bank debt. Capitalist economies are monetary and transactional economies, and the universal means of payment – money – exists (nowadays at least) purely in the form of bank debt. From a legal point of view, the bank balances drawn on for most payment transactions are sums which the bank owes to the account holder. This is, in effect, also true of cash. The colourful notes we use to pay for things become money not simply by being printed, but because the central bank enters them on the debit side of its balance sheet. Consequently, when we speak nowadays of a monetary economy, we are referring to money in the sense of ‘circulatable liabilities’. > “Before the existence of banks, earned, inherited or stolen wealth could be exchanged or hoarded. With the invention of modern banks around the thirteenth century, however, and their rapid spread across Europe from the fifteenth century onwards, a systematic and institutionalized method of saving developed. Saving differs from hoarding in that it entails the transfer of (private) wealth to a contractual partner (the bank) who can then invest the money and so maintain the economic cycle. In other words, saving involves debt; by saving, we become a creditor of the bank. The foundations of these now commonplace social technologies were laid (in Europe) in the high and late medieval period, when the ‘commercial revolution’ – the emergence of diverse and complex continental and intercontinental trading relations – fuelled the demand for efficient payment systems. Allowing for a little historical simplification, we can think of the payment system customary at that time in roughly the following terms: When we talk of money in the medieval context, we are talking primarily of precious metal (gold or silver) coins which were produced more or less by the state, or at least by politically authorized minters. The business of mining and processing the precious metal and minting the coins was elaborate and struggled to keep pace with the increasing commercialization of Europe and the steady expansion of Eurasian and European–African trade during this period. Consequently, there were frequent bullion famines. This benefited the money changers who, since their first appearance around the thirteenth century, had been offering specialist services that could replace coins in monetary transactions. They would often sit on benches at long tables counting coins and entering the amounts in ledgers; such, at least, is the etymology of the word ‘bank’ (from ‘banc’, meaning ‘bench’). This period saw the emergence of a range of cashless (meaning, in this case, coinless) payment methods. One method favoured within the Central European trade fair system – a series of large, regularly occurring transregional trade meetings – was the bill of exchange: a promise in writing to pay out a given sum at a specified time or on demand and as such, a functional prototype of modern-day contracts between bank account holders and their credit institutes. It was through contracts of this kind that the economic shift towards debt as a medium of exchange was able to take place. Medieval merchants began to take their stocks of coins, which were heavy and risky to transport, to these early bankers, who would enter the equivalent sum in their books in return. Paper receipts could also be issued bearing the promised amount, and these could be changed back again at other locations within Europe’s growing “network of money changers. If the investors wanted their gold deposits back, they would present the receipt and pay the money changer a small safekeeping fee. It was here, then, that the practice of saving was effectively established: coins were deposited with private banks which then issued paper receipts (banknotes) or simply recorded the amount as book money – that is, money that existed in the same cashless form as most of our money today (as in a current or checking account, for example). This intrinsically valueless book money (also referred to as ‘substanceless’ credit and essentially consisting of nothing more than numeric information) could then be used for buying and selling just like the precious metal currency itself. Credit and banknotes had become anonymously transferable, meaning they could be exchanged for coins by whoever owned them. It no longer mattered whether you or someone else had brought the substanceless credit into being by depositing the cash with a money changer: you could simply use “the anonymized receipt as a means of payment instead of withdrawing the coins. In this way, bank liabilities became circulatable, and debt became a medium of exchange. This arrangement was not yet on a par with the modern banking system, however. Although the money changers’ paper receipts and book entries could be used as a currency, their production had to be (pre-)financed by savings deposits. These deposits consisted of valuable property that the banks were unable to produce themselves. It was only through this property (in the form of savings) that they acquired their capacity to act (by issuing credit). ## 4 - Appropriation ## 5 - Change > The inequality crisis is a consequence of the constellation of an asymmetrical economic appropriative “complex, a weakened political one and a flourishing para-economic one. This is an insight that no contemporary social debate on capitalism and inequality can afford to ignore. To be properly considered, however, it needs to be freed from the all too rigid frame of reference that exists between the opposite poles of the free market and a strong welfare state. The analysis, evaluation and, where appropriate, critique of keystroke capitalism should not be framed as a choice between freedom of economic activity and the solidarity aspirations of democratic communities, or, as Niklas Luhmann puts it, a choice between ‘random’ distribution of wealth via the markets or a ‘communistic’ distribution via the state. The real question is who is entitled to the privilege of creating money from nothing, or who can be reasonably entrusted with it. ### Four approaches to justice > When it comes to differentiating between just and unjust wealth and income, we can, on one hand, set the bar deliberately high and call for **needs-based justice**. This means that income and wealth are justified to the extent necessary to satisfy our needs (howsoever defined), such as a basic level of accommodation, food and so on. By this measure, however, any wealth over and above those needs would be either unjust per se or irrelevant to the justice debate and better judged by other criteria. It is surely indisputable that the nigh-on 117 trillion dollars of private wealth belonging to the richest 0.7 percent of the world’s population cannot be justified on the basis that the 0.7 percent need the same amount as the remaining 99.3 percent who own roughly the other half of global wealth. > A second commonly applied principle for distinguishing between just and unjust wealth (or its distribution) is that of **equality of opportunity**. According to this line of argument, the appropriation of wealth is justified if it takes place via accessible and transparent distributive mechanisms allowing all parties to participate on an equal footing. These mechanisms are generally considered to be embodied by (idealized) markets where goods (including labour) are exchanged. Many people intuitively accept the principle of equal opportunity, and numerous government measures such as educational support are justified on this basis. > A third principle advanced to justify economic disparities is the meritocratic principle, otherwise known as performance-based justice. From this perspective, income and wealth are legitimately earned if they reflect the service performed or promised by their owner. Once again, this principle is generally applied to the market as a distributive mechanism. Some market economy theorists – and, as we know from the press and research, many capitalist actors – have credited the free market with the ability to dispense precisely this kind of justice. > Authors such as John Locke, Friedrich von Hayek, Milton Friedman and Robert Nozick have deployed a ‘historical’ argument to legitimize income and wealth in free constitutional states that still persists in contemporary liberal discourse. This argument considers any income just that is obtained under just conditions. From a liberal perspective, however, ‘just’ conditions are achieved not by distributing wealth according to need, performance or equality of opportunity, but by guaranteeing the freedom of the individual through rights – and in the context of capital assets, rights to private ownership. For ownership rights to be fully asserted and protected, the owner must be able to transfer their property freely. Hence, a just use of one’s wealth to make a purchase results, thanks to ‘the formal justice of the market’, in a legitimate capital gain for the seller. # Quotes # References