Global Financial Crisis 2008 – Article No 06
by Humphrey McQueen
The market for futures
If Main Street despises bankers, then it loathes the brokers who trade in futures. Bankers, at least, assemble the money necessary for expanded production. Traders in futures make their fortunes by speculating. Worse still are the brokers who trade in financial derivatives.
If Main Street despises bankers, then it loathes the brokers who trade in futures. Bankers, at least, assemble the money necessary for expanded production. Traders in futures make their fortunes by speculating. Worse still are the brokers who trade in financial derivatives.
Allocating dealers to their respective circles in hell tells us nothing about what capitals must do to survive. So, instead of consulting the petty parasites at the St James Ethics Centre, we have to ask how a trade in futures can help the corporations that produce pork or plastics. In finding the answer, we shall also glimpse how Wall Street learnt about futures and derivatives from the Chicago commodity market, developing since the 1860s.
The point of capitalism is to end up with more money to re-invest than you had when you started.
Capital cannot expand merely by exploiting labour. The surplus value that results from that relationship is useless until the commodities in which it is embodied are sold. Nor is selling enough. For instance, a corporation marketing roses has to sell its bunches while they are fresh, otherwise, they are marked down and the sale price will be less than the cost of production. Here is one way in which a futures market helps capital. Instead of selling physical flowers in spring, the corporation sells virtual flowers in winter. This deal means sharing the profit with the traders and possibly accepting a lower return than if the agribusiness had waited to see what price it could get six months hence. The advantage is that the corporation is guaranteed a predictable level of income.
Suppose now that that corporation has sold its future roses at a price which delivers the average rate profit. Its managers’ worries are not over. They still have to lay hands on that money in the shortest possible time. Business is conducted on credit of thirty or more days. While waiting for the income to wind its way back from tens of thousands of florists, the growers depend on their banks. The longer it takes for the sales money to arrive, the more interest the producers pay out of their profit.
To complicate matters, corporations plan their finances much more than thirty days ahead. QANTAS orders a fleet of 797s in 2005 to take delivery in 2009. The final cost for those aircraft fluctuates with the turbulence of the global economy. Hence QANTAS buys “money” at a future price. The traders allow it to bet against an unfavourable shift in the terms of its contract, for example, as the exchange rate swings up and down.
To see how traders service capital is not to accept that those go-betweens provide a social good. There are no “human” interests, only the interests of specific classes. Within the capitalist class, those interests are fractured between kinds of capitalists who cannibalise each other for the largest possible slice of the surplus value from us wage-slaves. Swindling and cheating each other remain the order of the day for production as much as in low finance.
Next: The housing question