8  Climbing the Derivative Ladder


As the world grows ever more resistant to the policies imposed on it from a few command centers, the distinction between fact and fiction is rapidly disappearing. Policies are being shaped less by their feasibility in handling society’s problems than by whether they serve the rate of expansion predetermined by the replacement of growth rates – i.e., of "derivatives of higher degrees" rather than by the actual first-degree tables that are the basis of bookkeeping. To come up with growth rates, however, one must cast one’s nets into the inscrutable future. History alone won’t do. Hence it is the growth rates, and the rate of growth of the rate growth of the actual production, and so on to infinity that come to rule economists’ reasoning.

That widens the gap between reality and the empowered fictions being reared.

The origin of the current acrobatics with derivatives is clear. It came into fashion in price theory, hardly by accident shortly after the Paris Commune (1871) when the labour theory of value (used by David Ricardo and Karl Marx) took the value of goods in a capitalist society to depend on the amount of average labour needed for the commodity’s production. Or, alternatively, by the cost-of-production theory (John Stuart Mill).

Both of these located the site of value creation in the workshop, the "Satanic Mills" of the raw industrial revolution.

That was all right in the days of Ricardo when most English workers were still illiterate. But mechanics’ institutes soon arose to teach workers to read, and what had been over their heads could soon be read by more of them to convey a dangerous angle of vision. Hence, the years after the bloody Paris Commune hailed by Marx from London as the precursor of proletarian revolution created the need for a new observation post for economic theory. From the workshop it was shifted to the counter where shoppers bought the merchandise. And here the value of the goods was seen as determined entirely by the balance of supply and demand – if demand outstripped supply, prices rose. If supply outstripped demand, it sank. What you may ask would determine the level of the constant remainder? The mathematical process of integration: by adding a constant number whenever performing the mathematical process for determining the new market price balancing supply and demand remains constant. That constant, as indicated by the name, is not changed by bargaining between suppliers and demanders. Significantly there was no curiosity among any of the three different marginal utility theories of value that arose quite independently in three different countries at virtually the same time – Britain, France, and Austria.

But marginal utility value theory was baby stuff – it dealt only with the rate of growth or the first-degree derivatives. Basically it expressed the political dominance of the industrial capitalist. But with the triumph of the financial sector of capitalism, the evaluation of worth of shares, bonds, corporations, and the world was done in terms not of ordinary commodity prices, but in terms the rates of interest with which the drover – essentially the deregulated bankers – whipped the productive herds that included the industrialists into profitable obedience. Society thus ascended a further step on the derivative ladder.

This required the cleansing of our universities of everything that had been learned in the Depression of the Thirties, including that the banks had to be prevented from taking over the other "financial pillars" – stock brokers and insurance and real estate. For that we refer you to the article beginning on page 13 of this issue.


– from Economic Reform, October 2007