VOLUME III, SEMESTER 2, CHAPTER 18, SECTION 1
645 BC, That One Line of Guo She’s
The last chapter laid the worker’s card out on the table. This chapter turns the eyes to the other side, to turn over the capitalist’s family holdings. Open them and you see at once a thing quite unexpected: that sum of money in his hand is not one thing at all, it splits into at least three layers, and the lives of the upper two layers are held, every one, in the hand of the lowest. To see clear the relation of these three layers, first ask an ancestor out. He spoke this matter in eight characters only.
One. The word capital, spoken as a single thing
When people speak the word capital, they speak as though of one thing, a thing of one uniform nature, one uniform temper, one uniform way of walking. The textbook speaks it so, the newspaper speaks it so, the dinner table speaks it so: capital came in, capital ran off, capital chases profit, capital is heartless, as if there really were a thing called capital out there running all over the world. This single thing, today we pry it open, and pried open, inside there are at least three layers of wholly different things.
The first layer is the sum put into the factory, into the field, into the mine, into the freight truck, into the office tower. It becomes machines, becomes plant, becomes raw stock, becomes the workers’ wages, and at last becomes a thing that can be eaten, worn, used. This layer, call it industrial capital.
The second layer is the sum not put directly into production, and it lends to the ones who do industry, or buys the equity and the bonds of industry, and it makes nothing itself, it grows on top of the first layer and feeds itself on the first layer’s harvest. This layer, call it financial capital.
The third layer is further still, and it does not put into industry, nor lend directly to industry, it builds one more layer on top of the second: options, futures, wagering contracts, packing a heap of contracts to sell again, and packing again after the selling. It is already very far from real production, and it feeds itself on the rise and fall, the swell and drop, of the second layer. This layer, call it fictitious capital.
Now the question comes: these three layers, are they three things standing equal? Are they three trades each doing its own thing? They are not.
Two. The hide gone, on what will the hair rest
More than twenty-six hundred years ago, a man spoke the relation of these three layers in a single line. In 645 BC, in the Spring and Autumn era, in the state of Jin, a grandee named Guo She said eight characters to Duke Hui of Jin.
The hide gone, on what will the hair rest, runs the line in the Zuo Commentary, in the fourteenth year of Duke Xi. On its face it is simple past simplicity: the hide gone, where can the hair still rest. What Guo She spoke of back then was a matter of politics, not the economy, yet the position set beneath these eight characters is far larger than the matter he then spoke of. He spoke of the fate of everything under heaven that rests upon another: whether the thing resting on top lives or not turns wholly on whether the thing beneath it is still there.
The hair may grow handsome, may grow fine and dense, may grow in every color, yet the hide gone, the hair does not grow few, it at once ceases to exist. The hair was never a thing standing on its own, the hair is a thing resting on the hide. Put these eight characters back onto capital’s three layers and the whole picture floats up at once: industrial capital is the hide, financial capital is the first coat of hair growing on the hide, fictitious capital is the second coat of hair growing on the hair. Hair growing on hair does not hold on a living body, yet in the account books of these decades, it has happened over and over.
Three. What the hide looks like
Look carefully at this hide. A sum of money put into a factory becomes machines, plant, raw stock, wages, and then these things become products, and the products sell and become cash, returning to the hand that put out the money, a little more, or a little less, as the market takes it or does not. This is one cycle.
This layer has four tempers, remember them. It is slow, a sum put down often takes three years, five, ten to come back, and some trades take twenty. It is heavy, the plant built there cannot be moved, the machines bought cannot be moved, the workers hired cannot be scattered at a word. It is brittle, one turn of the technology, one loss of demand, one shift of policy, and the whole factory may go to zero.
But it is true, it answers to a real thing: a bowl of rice that can be eaten, a garment that can be worn, a road that can be walked, a lamp that can be lit. Industrial capital is the hide. It is not handsome, not deft, not fast, it is heavy and slow and beset with risk at every turn, yet the real load-bearing of the whole institution of capital presses on this one layer. To see whether a place’s days go well, what truly decides it is this hide: whether it can grow grain, make things, afford to lay roads, get the power generated, keep its own people alive. In these decades, the stories people tell of capital are all of valuations, of the trending wind, of platforms, of those handsome coats of hair, and the hide? The hide gets called low-end, traditional, old-fashioned, thin in profit. Guo She’s one line pierces this belittling clean through: the hide, however unhandsome, is still the hide, and the hide once unable to hold, all the hair on top of it goes, every strand, to zero.
Four. What the hair looks like
Then the hair? It too must be looked at honestly. A factory wants to expand output, its own money is not enough, it goes to the bank to borrow, and the bank gathers the deposits of tens of millions and lends to it, and this is the first coat of hair. It makes no chair itself, smelts no steel, grows not a grain of rice, yet it gathers the little bit scattered in the hands of tens of millions into a sum that can get things done. The last chapter reckoned those seven accounts, and the sixth was this one: that interest, what it flows back to in the end is someone’s deposit, some old person’s pension.
Do not take this section for a cursing of finance, there is no cursing here. Hair grows on hide, this is a born position, not a sin, and hide with no hair on it, the wind blows and the hide itself goes cold. A place where no one is willing to gather money and lend it out, and that factory stays forever a small workshop, that road never gets laid. Here only one thing is spoken: position. The hair’s position is to grow on the hide, and it may grow, may grow dense, may grow very handsome, yet the moment it forgets what lies beneath it, the moment it takes itself for a thing that can live apart from the hide, that thing is about to happen.
Five. Hair growing on hair, what layer is that
The third layer, speak of it slowly. A bank has lent out a home loan, and each month interest comes in on this loan, a steady harvest. So someone thinks: I pack a thousand such loans into one bundle, cut it into small shares, and sell it to others, letting others come collect this interest. The bundle sells, and then someone thinks: I pack these bundles into one larger bundle, cut it again, sell it again. And then, someone stops buying bundles, and what he buys is whether this bundle will go wrong, one saying it will not, one saying it will, the two wagering against each other.
Walk to this step, and stop to ask one line: this layer, how many layers is it from the person who borrowed to buy the house? Three layers, four, five. Its rise and its fall lean no longer on whether that person can pay his monthly installment, they lean on the rise and fall of the layer above. Hair growing on hair, the second coat of hair growing on the first. This layer is no sin either, it has its use: it cuts the risk apart and scatters it, letting the ones willing to take the risk take it. Yet the further it is from the hide, the less it knows the hide’s pain.
Six. What this section set, crossing to the next
This section did one thing only: it pried the single thing capital open and saw three layers. Industrial capital is the hide, it is slow, it is heavy, it is brittle, yet it is true, and the whole institution’s load-bearing is on it. Financial capital is the first coat of hair, it gathers scattered money into a great sum, it grows on the hide. Fictitious capital is hair growing on hair, it is furthest from the hide. The three layers are not equal, they rest one upon another, layer growing above layer. Guo She’s eight characters of twenty-six hundred years ago spoke their fate: the hide gone, on what will the hair rest.
This position is set out, yet a line surely rises in the chest: since the hair’s life is held in the hide’s hand, then the hair may grow ever so wild, and at worst the hair alone comes to grief, and the hide should be fine, still fine. Is it so? It is not. The truly deadly thing is the one time the hair grows too fast, too thick, too heavy, heavy enough to drag the very hide beneath it out of place. That time, many people lost their houses. The next section goes back to 2008.
Credit to the ancestors; the mistakes are mine: Tiger Lyon.
Section 2 2008, the Time the Hair Dragged the Hide Out of Place