June 9th, 2014
in Op Ed
by Dirk Ehnts, Econoblog101
The negative interest rate of the deposit facility has prompted an article by Christian Rickens at Spiegel Online, head of the economics and business section, in which he writes:
Zunächst einmal müssten wir dann wahrscheinlich aufhören, unser System als Kapitalismus zu bezeichnen – denn der beruht ja gerade darauf, dass Kapital einen Preis hat und auch in risikofreien Anlageformen Rendite erzielt.
My translation looks like this:
First of all we must probably stop to call our system capitalism – because it is based on the idea that capital has a price and that also with riskless assets you can get a positive rent (or profit or yield).
This is at the same time deeply revealing and deeply disturbing. The head of business and economics at the biggest online magazine of Germany defines capitalism as basically and before everything else a system in which capital has a price and those holding riskless assets should be rewarded. Rickens studied economics in Munich and at the London School of Economics; he has a master degree.
I have two issue with the Rickens capitalism. First, the definition is plain wrong. Capitalism is not defined by capital having a price and positive rents for riskless assets. It is surely an outcome of the system, but essential is the private property character. That does not mean that there cannot be public capital, as most varieties of capitalism from the US (public universities) to China (state-owned companies) show. One interesting question that runs a bit deeper is why capital has a price. I assume that with capital Rickens means physical capital (investment), owned either directly or indirectly. One would think that this has something to do with the profitability of the firms. However, the German stock market index broke the 10,000 mark shortly after the ECB’s announcement, so capital does have a price and actually it is higher than ever before!
Second, Rickens does not seem to understand that the negative interest rate is on reserves, which is central bank money owned by banks, will not directly affect the return to capital. Since the private sector uses deposits but cannot be forced to use them, negative interest rates on bank accounts for “us” are not really an option. Those who have a lot of money will prefer to hold cash. Equally, those holding sovereign eurobonds of longer maturities still get money for nothing. That still applies to those holding bunds. So, it is plain wrong to say that there is no return to capital or (riskless) financial assets.
So, capitalism is still with us. However, it is likely that it needs to be overhauled, because apparently it was very good at channeling free lunch towards a group of people, while leaving other people worse off. And by the way: the low interest rates by the central bank have been caused by slow economic activity. This has been caused by an investment slump after real estate bubbles burst notably in Spain and Ireland, followed by austerity policies across Europe. Now the ideas about how to return to decent growth diverge. Some want more investment, other want less debt. (Both at the same time!!) Finally, a discussion on what kind of Germany (and Europe) we want to have seems to be just around the corner.
This is not about the end of capitalism. This is about varieties of capitalism.