So how is capital independently productive?
I think it's more that capital is a bullshit game played by people who monopolise these assets for their own personal benefit. It's a bizarrely persuasive game, but it's still just a con trick - like someone selling you something you already own, and then persuading you that you owe them a debt because of it.
What I mean by independently productive Capital is property/ownership of productive assets.
In my view the key productive assets are:
(a) Location
(b) Energy
(c) Knowledge
In the Coarse Economics which I have worked out for my own delectation, these are the Factors of Production. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Commercial banking was originally developed to make it possible for farmers to grow their production, and also to insure against a poor harvest. The lender took on risk of loss of capital in exchange for a profit.
This was often used abusively, but investment - in the sense of sponsoring innovation and activity - isn't itself a negative thing. Nor is building up social reserves to hedge against future problems.
The problem is that these social relationships tend to be used abusively by default, and they also attract people with abusive personalities.
The social problem is that there's a split between personal and commercial/political morality.
Individuals are expected to act non-criminally in their social contacts and are punished for transgression. But in business and politics, sociopathy is rewarded and seems to be valued. It's non-sociopathic behaviour which is devalued and punished by loss of influence and personal opportunity - which in extreme, and sometimes not so extreme cases, can mean anything from mild aggravation, to homelessness, to death.
This is a very odd thing, and hard to justify, never mind explain.
It's not inherently extractive - it's just used that way by default.
Equity - in the form of shares in Joint Stock Limited Liability Corporation - is indeed inherently extractive. It exists so that rentier shareholders can make money from money.
Banking/credit creation as currently practised is also extractive to the extent that it is carried out for the profit of rentier shareholders. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Let's say I have some spare cash here and that city over there needs a windmill.
The windmill won't happen without funding. So I invest in the windmill project, the city gets a windmill, I get my original money back plus a return.
Overall, that's a net win for everyone.
Now let's say I have some spare cash here. I invest it with Trader B who puts together a portfolio which includes Corporation A, because he knows that Corporation A offers excellent and quick returns.
Immediately there's a difference in motivation. I'm not interested in funding a project, I'm interested in making as much cash as quickly as possible.
Company A is an M&A house. It makes its profits through hostile takeovers.
You can guess what happens next. Corporation A leaves a trail of lost opportunities and diminishing possibilities in its wake. But I have my quick 30% return, so I don't care.
That's clearly extractive.
The problem is that there's no financial or social distinction between investing and sponsoring, and raiding for profit. The shares, the trades and the markets used to mediate these relationships are indistinguishable.
It's the social disconnection that makes the process extractive, because it doesn't include social costs in the transaction.
If Corporation A had to pay a wealth destruction tax (or some other form of compensation) its business model would become obsolete overnight.
it's the stone truth.
by social you could say ethical, same difference.
you succinctly describe the moral fault line whence the Great Quake cometh.
'blind eye' indeed. practically a whole society playing bingo on a raft going over niagara.
beam me up scotty ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
At heart, you have risks, and you have rewards, and these can be improperly assessed, and unfairly allocated, under any system.
Ultimately, it depends on incentives, social and monetary. If you can make a lot of money gaming the system, and this is seen as "success", then you will game the system, however well it is designed.
My job as a banker, on any project, is to try to outthink the people that will try to game the system, and put contractual safeguards so that they can't do it. It can also mean, simply, choosing to not work with some people because, no matter what safeguards you put, if they are in bad faith they will always find a way to fleece you - or try hard enough that you waste a lot of resources preventing them from doing it.
Just like there are no manthematical models that give you an exact number on what risks you are taking in a project, there is no legal framework that will protect you against human nature.
Thus the need for bankers, exercising judgement and able to understand what the underlying project hypotheses are and to evaluate them. It's, fundamentally, a qualitative job, not a quantitative one. In the long run, we're all dead. John Maynard Keynes
IMHO these partnership mechanisms are emerging in use - as did Income Trusts and Royalty Trusts in Canada and Australia - because they share risk and reward in a pre-distributive (sharing gross revenue or production) way that some investors find attractive.
It is therefore possible using such frameworks to raise necessary credit or investment "Peer to Peer" from stakeholders.
This is clearly more efficient - Coops call it the "Cooperative Advantage" - than to go to unproductive rentier credit or investment/speculation intermediaries who are interested only in making money from money, as opposed to being paid for the use of value/ money's worth such as location, energy or knowledge.
The need for banking as a service remains, both for:
(a) managing the process of bilateral Peer to Peer credit creation;
(b) bringing together Peer to Peer investors in productive assets with investment in productive assets.
Why go to to the trouble of setting up completing claims over productive assets - ie those of secured debt and equity - when it is simpler and less conflicted (not to mention fairer) to share production proportionally?
But your point re human nature is absolutely valid. Although I believe that the partnership framework is capable of aligning stakeholder interests in an optimal way, that still does not mean that people will agree, or continue to agree. Partnerships are not a magic bullet, because human beings are fallible. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
