please post articles, papers, videos and lecture notes on the origins of the current crisis which look beyond the specific issue of finance and financialisation towards capitalist fundamentals.
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On the origins of the crisis (beyond finance)
please post articles, papers, videos and lecture notes on the origins of the current crisis which look beyond the specific issue of finance and financialisation towards capitalist fundamentals.
Posted: 24 June 09
Just as medical science progresses through pathology, Marxist political economy develops through the analysis of the actual crises of capitalism. It is therefore no surprise that the current paroxysm has sparked both a revival of interest in Marxism1 and a flurry of responses by prominent Marxists. My focus here should not be taken to indicate that non-Marxist accounts are unworthy of engagement. A number of mainstream economists have been forced, whether enthusiastically or reluctantly, to grapple with the realities of the system.2 But the crisis has also revealed the paucity of what passes for academic economic theory, captured in an astonishing admission by Willem Buiter, a London School of Economics professor and a former member of the Bank of England monetary policy committee:
The record of Marxists has been better. Nonetheless, their approaches to the crisis are far from homogenous, have often been developed in isolation from each other and diverge on several points. Here I consider widely accessible accounts that have appeared in English over the past few months, appraising their strengths and weaknesses relative to each other and to the tradition associated with this journal.4
All Marxist accounts of the current crisis have been forced to recognise its financial dimension. The crisis has been marked by the near collapse of the banking system in several countries and began with the bursting of the subprime mortgage bubble in the US. One of the first Marxist accounts to draw attention to subprime was produced by Robin Blackburn, who wrote on this subject as early as spring 2007, a few months before the real panic began:
Back then the term subprime barely warranted a mention in most newspapers. The Financial Times was more attentive than most, carrying an article entitled “Subprime Sickness”, which argued:
Unlike the Financial Times, Blackburn was “ahead of the curve” because he had focused in the preceding years on developing a detailed analysis of the fragilities of the global financial system.7 However, it was possible to see the outlines of a potential crisis from a different starting point. International Socialism published a remarkably prophetic article in summer 2007, which, by coincidence, came out just in time for the onset of the credit crunch. This saw the growth of finance originating in the decline of profit rates during the post-war boom and the failure to sufficiently restore them from the low levels they had reached by the 1980s. This led to a scramble for alternative outlets for profits:
These two different accounts illustrate a dividing line in Marxist analyses of the current crisis. Some emphasise the internal logic of “financialisation” and tend to see the financial crisis as impinging upon the “real” economy from the outside; others, while recognising the importance of the financial dimension, emphasise the underlying problems in the “real” economy that drove the expansion of finance and paved the way for the crisis.
The distinction between the “real” and the financial has to be qualified in two ways. First, the growth of finance has, in part, been driven by traditional corporations based in the “real” economy. For instance, by 2003, 42 percent of General Electric’s profits were generated by its financial wing, GE Capital.9
Second, and more fundamentally, for Marxists the financial system is not simply something grafted onto a pure, non-financial capitalism. Whenever money ceases to function simply as money, when it also functions as capital, it opens up the possibility of credit and financial speculation.10 As David Harvey has recently argued, “There is a more dialectical relationship between what you might call the ‘real’ and ‘financial’ sides of the economy”.11
The real questions at stake are whether financial growth is driven by processes autonomous from the non-financial areas of the economy; whether the current crisis is a new type of crisis or is rooted in tendencies Marx identified, even if the crisis is deferred and given unique characteristics by the growth of finance;12 and whether the dynamic of the system has been fundamentally changed by a process of “financialisation”. I will begin by considering those accounts that emphasise the transformation of capitalism through finance over the recent period.
For Robin Blackburn, “Financialisation now runs the gamut from corporate strategy to personal finance. It permeates everyday life, with more products that arise from the increasing commodification of the life course, such as student debt or personal pensions, as well as with the marketing of credit cards or the arrangement of mortgages”.13
Few writers have been as effective as Blackburn in explaining the complexities of finance to a lay readership. But his essays show relatively little engagement with the concepts traditionally associated with Marxist political economy and tend to consider the wider economic system only insomuch as it has been drawn into the financial world. As Geoff Mann points out, “The analysis of value, money and capital…are not part of Blackburn’s discussion, but they remain an essential part of the political-economic stakes”.14 Blackburn has replied that he implicitly operates within a Marxist framework. But his positive statement of what this framework consists of seems to emphasise the limited capacity of workers to consume, arguing that “the root cause of the crisis was, quite simply, poverty” and increased consumption by Chinese workers could “help to lift the global economy”.15
Often his writing gives the impression that the rise of finance comes out of finance itself: “Two processes that took hold in the 1950s and 1960s nourished financialisation—new principles of consumer credit, and the rise of institutional finance and fund management”.16 Peter Gowan,17 another Marxist associated with the journal New Left Review, put an even harder case for the autonomy of finance: “An understanding of the credit crunch requires us to transcend the commonsense idea that change in the so-called real economy drives outcomes in a supposed financial superstructure”.18 For Gowan, financialisation was an answer to problems faced by US capitalism as a whole.19 But he saw the growth of finance mainly as a product of changes within finance itself which were supported as a deliberate strategy by the American (and in a subordinate role the British) elite.20 He put a powerful argument that this elite was not ignorant of the problems of financial bubbles, but that they believed that, “between blow-outs, the best way for the financial sector to make large amounts of money is to sweep away restrictions on what private actors get up to…[and] when bubbles burst and blow-outs occur, the banks, strongly aided by the actions of the state authorities, can cope with the consequences”.21
Just how swollen has the financial system become? “As a percentage of total US corporate profits, financial sector profits rose from 14 percent in 1981 to 39 percent in 2001,” writes Blackburn.22 “In 2006, no less than 40 percent of American corporate profits accrued to the financial sector,” according to Gowan.23 This is a huge chunk of the US economy (although the US economy represents only about one quarter of the world system). But in a period characterised by a series of bubbles, profits estimated by looking at balance sheets composed of assets rising in price can be based on what Blackburn calls “fantasy valuations”.24
What has to be explored is not just the scale of the financial sector measured in its own terms, but the effects of its growth on real accumulation. The financial sector can swell far beyond the scale justified by the value created in the productive economy.25 But this process cannot continue indefinitely. Finance in itself does not create new value, and eventually its profits must be obtained from the productive sector of the economy. In this context, crisis can be seen as “a call to order by the law of value” when the productive sphere must try to cash the cheques written by finance.26
Some of the accounts of financialisation risk making exaggerated claims about the changes wrought by “neoliberal” or “financialised” capitalism.27 For Blackburn, “From the standpoint of the ‘pure’ investor, the corporation itself is an accidental bundle of liabilities and assets that is there to be rearranged to maximise shareholder value, which in turn reflects back the fickle enthusiasms of the investors. The corporation and its workforce are, in principle, disposable”.28 The idea that shareholder value is the central preoccupation of the ruling class as a whole is questionable, especially given the reaction to the banking crisis in which governments and central bankers have, where necessary, inflicted substantial losses on shareholders. More generally, David Harvey, in a book quite favourable to financialisation theories, argues that in recent decades “the power of the actual owners of capital, the stockholders, has been somewhat diminished” relative to those actually running companies.29 For instance, institutional shareholders are rarely involved in the day to day running of corporations. Of course, there are tensions within the ruling class, and these are exacerbated in crises, but the short-term interests of shareholders do not always win out.
Finally, there are political implications to the financialisation arguments. According to Gowan the crisis poses a choice between two models: “A public-utility credit and banking system, geared to capital accumulation in the productive sector, versus a capitalist credit and banking system, subordinating all other economic activities to its own profit drives”.30
Similarly, Blackburn writes, “When properly embedded in structures of social control, finance can help to allocate capital, facilitate investment and smooth demand”.31 “The solution…is not to abandon money or finance but to embed them in a properly regulated system”.32 Geoff Mann has challenged such views: “Turning over our upside-down world requires not just the taming or grounding or redistribution of value, but its destruction. The overthrow of capitalism is the only way out. In short, it is the acceptance of the necessity, not the inevitability, of revolution that makes a Marxist adequate to Marx’s analysis”.33
Blackburn has replied that the sorts of demands he raises are “transitional measures that address the deep crisis in effective ways…which would benefit new collective and democratic institutions, in the shape of a network of social funds”.34 Demands short of revolution are certainly important. Through winning such demands workers become aware of their power to collectively transform society and confident of their strength to do so. But the relationship between these demands and the movement from below is left a little vague—with Blackburn seeing his prescriptions as measures to be brought in once a “seriously anti-capitalist government has been established” creating a system of “financial dual power”.35
Another Marxist associated with financialisation theory, Costas Lapavitsas, gives more consideration to the wider problems in accumulation, writing that “productivity growth has been problematic from the middle of the 1970s to the middle of the 1990s, most significantly in the USA”.36 But he is reluctant to root this in a long-term crisis of profitability:
Lapavitsas produces figures for the percentage of corporate liabilities represented by bank loans in the US, Germany and Japan. However, shifts in these figures do not seem dramatic enough to explain a systemic transformation of capitalism—from about 12 or 13 percent in the US in the 1980s to about 10 percent through the 1990s and then falling to about 5 to 6 percent in the current decade; and remaining at above 30 percent and around 40 percent, after slight declines, in Germany and Japan respectively.38
The growth of consumer finance across many economies in recent decades is, however, undeniable.39 Banks have moved into “areas that are not directly connected with the generation of value and surplus value…finance has become relatively autonomous from productive enterprises as well as growing rapidly”.40 Lapavitsas’s account makes a rather abstract appeal to shifts in the “forces and relations of production” to explain the rise of finance. But this runs the risk of lapsing into a determinism that seeks to explain the trajectory of the system through recent innovations in information and communication technologies:
Technological innovation can, of course, open up new areas of potential profit making. But this innovation should not be seen as an autonomous process that develops in isolation from the economy. In particular, it is necessary to account for the flows of surplus value into different areas of the economy that spur waves of restructuring and innovation.42 An account of the long-term decline in profitability in the productive economy has the advantage of explaining why the incentive to invest in these areas declined and why finance exploded.
But whatever the causes, Lapavitsas has raised important questions about the consequences of financialisation. Traditionally Marxists have argued that the profits made by industrial capitalists and the interest earned by those who lend them money are each claims on a portion of the surplus value generated through the exploitation of workers in the productive economy.43
Lapavitsas has put forward the clearest alternative analysis. He has argued that banks are now involved in the “direct exploitation” of consumers to make profits. This is “direct” because it is a mechanism lying outside capitalist production, instead occurring in the sphere of circulation. It is exploitation, he argues, because finance is now seen as necessary for many workers to cover basic living costs.44
But exploitation in a Marxist sense has a quite specific meaning.45 It relates to the extraction of surplus value from workers even though the commodity they supply, their labour power, is obtained by the capitalist at its value. The surplus value generated is not a “swindle” as pre-Marxist socialists had argued but a result of the gap between the new value created by labour over a given period of time and the value required to reproduce that labour power (the wage).46 The mechanisms associated with financialisation do not generate surplus value,47 and Lapavitsas has more recently used the less loaded phrase “financial expropriation”, which he defines as a process by which financial institutions “extract profits directly and systematically out of wages and salaries”.48 As anyone with an overdraft can testify, it is undeniable that banks make profit out of personal finance. What is at stake is not whether this takes place but whether it represents a “systemic transformation of the capitalist economy”.49
Such processes are certainly not historically novel. In the context of a discussion of the “lending” of houses to workers at usurious rates in 19th century capitalism, Marx writes:
The analogy with price rises by retailers who sell wage goods to workers is apt. If almost 20 percent of disposable income went towards debt-servicing in the US by 2007,51 this means that it has become more expensive for the system to reproduce labour power. To the extent that wages rise to account for this, it is a mechanism that shifts surplus value from capitalists concerned with production to those concerned with lending money, just as an arbitrary rise in the price of bread would (if wages rose correspondingly) shift surplus value to bread-producing capitalists. To the extent that wages are held down, it represents an increase in overall exploitation of workers, just as an arbitrary rise in food prices would under conditions of wage repression. And to the extent that workers default on their debts, whether credit cards or subprime mortgages, it represents a decline in a market in fictitious capital, with banks (and others) holding claims over future wage income, some of which turn out to be worthless. Whatever happens, the generation of surplus value within capitalist enterprises remains central to the system as a whole.
Of those Marxists who offer accounts stressing wider economic processes, rather than financialisation, I intend to concentrate on those who see the period since the 1970s as one in which capitalism has been unable to resolve underlying problems in accumulation. There are, however, exceptions. A recent paper by David McNally argues that the crisis cannot be understood simply through a focus on financialisation, which is “unable to explain why this crisis has not been restricted to financial markets, or to probe its interconnection with the problems of global over-accumulation”. 52 But he also rejects the notion that crisis “is just the latest manifestation of a crisis of profitability that began in the early 1970s”.53
He substantiates this by referring to Fred Moseley’s figures showing a restoration of profit rates.54 However, there are different estimates of profitability. According to the method used by Robert Brenner, in the US the return on fixed capital has oscillated around 10.5 percent since 1974, down from an average of around 14 or 15 percent in the preceding period.55 Other major economies such as Japan and Germany also seem to have witnessed similar falls.56 Andrew Kilman gives average rates of profit in the US of 28.2 percent for 1941-1956, 20.4 percent for 1957-1980 and 14.2 percent for 1980-2004.57
The evidence suggests only a partial restoration of profitability, driven, in particular, by increased exploitation. McNally argues that this underpinned a new period of accumulation that “enabled capitalism to avoid a world crisis for 25 years”—specifically from the recession of the early 1980s through to the current crisis.58 This accumulation was, for him, centred on East Asia up until the East Asian crisis of 1997-8. After that continued growth was premised on a bubble of credit, particularly credit supplied by the same East Asian economies, rather than rapid accumulation. In other words, McNally changes the start date for the period of financialisation and credit-driven growth from the early 1980s to 1997.
There are, however, several problems with his periodisation. First, it is not clear that the rapid accumulation in East Asia was concentrated in the period from 1981 to 1997. Chinese growth rates remained high even after 1997, a “paradox” that McNally himself recognises.59 By contrast, Japan, the biggest East Asian economy, grew steadily in the 1980s but then stagnated after 1991, something strangely elided in his account. Second, the world system may have avoided a crisis on the scale of the current one for 25 years, but there was a serious crisis in the US in 1990-1 and another in 2000-1.
Third, McNally does not sufficiently explore the relationship between accumulation in East Asia and the larger Western economies. Is there evidence that somewhat increased profitability in the West led to a wave of investment in East Asia concentrated in the period before 1997? This certainly does not seem to hold for the 1980s when, for instance, foreign direct investment into the East Asian economies remained fairly constant and low relative to investment in the major OECD economies.60
Fourth, McNally’s claim that “financialisation” took off after 1997 is dubious. While the East Asian economies certainly helped fuel credit growth in the US after 1997, for instance by building up large reserves of US Treasury bonds, many of the elements that would be carried to grotesque proportions in the run-up to the current meltdown were already in place. The first sharp rise in the US debt to GDP ratio was between 1981 and 1987, followed by a second sharp rise from 1997, which accelerated after 2001. The rise in the financial share of corporate profits took place in two bursts, the first in 1985-1994, the second from 2001.61
Writers associated with Monthly Review, an influential journal of the US left, stress the stagnation of late capitalism, rather than its dynamism. The journal has regularly reported on the crisis, and a collection of recent articles by John Bellamy Foster and Fred Magdoff has been published as a short book.62
The authors pay serious attention to the growth of finance, providing a detailed analysis of consumer debt in the US and of mechanisms associated with financial speculation. But unlike many such accounts, this growth is seen as a result of problems faced by the wider economy and is not seen as representing a new stage: “Although the system has changed as a result of financialisation, this falls short of a whole new stage, since the basic problem of accumulation within production remains the same”.63
This “problem of accumulation” is, for Foster and Magdoff, the one first identified by Paul Sweezy and Paul Baran in the 1960s: that post-war capitalism contains an inherent tendency towards stagnation. This was, for them, driven by the formation of monopolies that could manipulate prices, creating surplus profits that the system struggled to absorb. The result was productive overcapacity, and hence slowing investment, along with the growth of areas of “waste” spending such as arms production to absorb this surplus.64 The massively overblown financial system represents another such waste area.65
In many ways the pioneering analysis of Monthly Review (MR) paralleled that of International Socialism (IS), as developed by Tony Cliff, Mike Kidron, Chris Harman and others, and a greater interaction between these two traditions would strengthen both.66 But the MR tradition seems to suffer from three drawbacks relative to this IS tradition. First, for MR, crisis is seen as a result of limited consumption. The roots of this go back to Paul Sweezy’s writings:
But in a Marxist framework the demand for output comes from both consumption and investment in means of production, and some of the latter will be used to produce yet more means of production, and so on—this source of demand being limited by the rate of profit. Underconsumption (or overproduction) is best viewed as a symptom of crisis rather than the cause.68
However, Foster and Magdoff, working in a framework that assumes monopolies manipulate prices to boost their “surplus”, have little place for Marx’s “law of the tendency of the rate of profit to fall”.69 Their stress on limited consumption allows the authors to rely heavily on John Maynard Keynes, Michal Kalecki and subsequent left Keynesians for their general account of crisis.70 This means, for instance, that while the IS stressed the development of waste areas such as arms spending as a means of draining surplus value away from accumulation, and so reducing the downward pressure on profit rates, Foster and Magdoff stress the role of arms spending as a boost to demand that could offset underconsumption.71
Second, the MR tradition can overemphasise the tendency to stagnation. Their analysis relies upon the idea that the formation of giant firms prevents the entry of potential rivals into a sector of the economy because they cannot raise the funds necessary to break into the market. But this overlooks the capacity of financial systems to draw such funds together if sufficient profits seem to be on offer—often doing so with the backing of the state, as with the rise of Japan, the “Asian Tiger” economies and then China.72
Faced with these challenges, even the US economy restructured to an extent after the crisis of the 1980s and again in the mid to late 1990s.73 The MR tradition seems little interested in these forms of competitive struggle, in part because it holds a particular vision of inter-imperialist rivalry. Imperialism is seen primarily as the plunder of the Third World, rather than a system of conflict between rival national capitalisms within a system that develops unevenly.74 Foster and Magdoff explain that they have limited the analysis in their collection of essays to US capitalism75—but it is impossible to explain the trajectory of the world system without taking imperialist rivalry into account.
Finally, while the MR tradition has the great strength of drawing attention to the changes in capitalism, these need to be integrated together with Marxist value theory. However, the MR tradition, in assuming late capitalism to be characterised by monopoly rather than competition, which was for Marx what enforced the law of value,76 have relegated the role of value theory to a secondary position. As Harvey, citing Sweezy and Baran’s Monopoly Capitalism, writes:
Robert Brenner is another Marxist who has looked in detail at recent empirical trends within the capitalist system. He has also, in a number of talks and articles, set out an eloquent and detailed analysis of the current crisis. He is critical of the notion that this is simply a crisis of financialisation:
He sees a low level of investment since the 1970s as originating from low profit rates: “The declining economic dynamism of the advanced capitalist world is rooted in a major drop in profitability, caused primarily by a chronic tendency to overcapacity in the world manufacturing sector, going back to the late 1960s and early 1970s”.79 The slowdown in investment and repression of wages as corporations attacked workers led to low levels of demand, with the gap being plugged by increasing levels of debt. A series of stock market and financial bubbles helped to keep the system moving forwards.80 But profit rates were only partially improved: “Non-financial corporations…raised their profit rates significantly, but still not back to the already reduced levels of the 1990s”.81 So, for Brenner, the crisis we are seeing today is a deferred crisis, one that would have broken before, had not various counteracting mechanisms come into play.
There are many similarities between Brenner’s framework and the IS tradition, particularly his emphasis on low rates of profit. But there are also differences. Notably, Brenner sees low profitability as rooted in overproduction and overcapacity, brought about by competition between blocs of capital with investments of fixed capital of differing age and efficiency.82 As new capitals with more advanced and efficient fixed capital enter a sector, those with older “sunk” investment engage in price-cutting to maintain market share or suffer from excess capacity—either way the profit (the return on the total investment made by the capitalist) falls. Brenner concentrates on US manufacturing, where there was significant competition from Japanese and German exports from the mid-1960s, and suggests that a fall in profit rates in this area then impacted upon the wider profitability of the economy.
There are problems with such an account. For one thing, as Fred Moseley points out:
In other words, even if it is the case, as Brenner argues, that intensified competition in manufacturing reduced prices in this sector, this in turn would reduce the price of inputs for capitalists who use these manufactured goods—and could be expected to raise the profit rates in other areas of the economy. To claim that a reduction of competition in manufacturing would solve capitalism’s problems is wrong, even if it could redistribute some surplus value to manufacturing from other areas of the economy.84 In addition, Anwar Shaikh has shown, in a painstaking empirical study:
An alternative explanation of this trend is required. For Marx, the tendency for profit rates to fall was based on a rising organic composition of capital (roughly the ratio of investment in plant, equipment and raw material to that in wages). This squeezes out the source of surplus value (what Marx calls “living labour”), relative to overall investment. Unfortunately, Brenner rejects this explanation, believing it to be paradoxical that capitalists would “adopt techniques that decrease their own rate of profit”.86
But it might be perfectly logical for the first capitalist in a sector to make a productivity-raising investment, driving down the value embodied in the individual commodities they produce, because this would allow them to undercut rivals, grabbing market share and boosting profitability in the short term. It is the succeeding process in which the innovation spreads through a particular sector, driving down prices, that puts pressure on profit rates. Eventually, every capitalist in a particular sector would have to introduce the new technology, because, even though the resulting rate of profit is lower, failure to do so means that they cannot compete with rivals by charging the new, lower price—and the reduced profits now on offer are better than no profit at all.87
Having rejected this Brenner is left with a detailed narrative focusing on the rise and fall of rival blocs of capital locked into competitive struggle in a particular phase of the system’s development. But what is required is both a general account of the tendencies towards crisis, based on Marx’s value theory, and an account of the “specific structural forms taken by capitalism during its history”, which shape how these tendencies work themselves out.88 I will turn next to two theorists who have sought to apply Marx’s law of the tendency of the rate of profit to fall to contemporary capitalism, before looking at the IS tradition’s account of the historical development of the system.
Andrew Kliman has, like Brenner, argued that the current meltdown is rooted in a long-term failure of capitalism to shrug off problems that emerged from the 1970s: “The crisis is rooted in the fact that capital was not destroyed to a sufficient degree during the global economic slump of the mid-1970s”.89 This follows Marx, who saw crisis as a mechanism through which the capitalist system can restore profitability and temporarily work out the contradictions that build up in periods of growth:
The collapse in the price of machinery, raw materials and other inputs during a crisis, along with the failure of whole companies (and attacks on wages and conditions of workers), can boost the profitability of firms that survive:
Kliman makes a distinction between an “observed” and an “underlying” rate of profit. He claims that the latter is a mathematical limit governed by two variables—the rate of growth of living labour and the rate at which value is accumulated—which Kliman believes are both more or less constant.92 The observed rate will tend to fall towards this limit, before being boosted by the destruction of capital in crisis—if this destruction of capital is able to take place. Kliman’s formulation is essentially a mathematical proof of the direction profit rates should move in, rather than a description of their concrete movements. There seems little reason to believe that the accumulation rate and expansion of living labour will stay constant in the short term, but Kliman believes that they may be trendless when considered over long historical periods.93 It appears that his argument is directed against the large number of Marxist theorists who have rejected the law of the tendency of the rate of profit to fall altogether.94 But for those who already accept this tendency, which would include most of those who have written in this journal in recent years, a focus on actual movements of the organic composition of capital, which in turn imply changes to profit rates, may be more useful.
Kliman’s central point about the destruction of capital stands, whatever approach is taken and, of course, begs the question of why the contradictions did not work their way out of the system.95 Kliman points to the reluctance of policy makers to allow the current crisis to destroy capital.96 This in turn needs to be embedded in an account of the trajectory of capitalism since the Second World War, showing why this reluctance is greater than it was in previous crises, a point I shall return to below.
Anwar Shaikh is the Marxist theoretician who, perhaps more than any other, has stressed the centrality of the rate of profit to the dynamics of the system. For Shaikh the current crisis is a “structural crisis that had been postponed or turned into a false boom”. The period since the 1970s has been one in which the amounts of profit generated by the system have risen but profit rates have been “essentially stagnant”.
The additional point added by Shaikh’s analysis is that it is necessary to look at sustained shifts in interest rates alongside profit rates in order to understand the accumulation that did take place in recent decades. “What stimulates accumulation is not the profit rate but the profit rate net of the cost of borrowing capital, ie the interest rate. If the profit rate is flat and interest rates are falling, the incentive to accumulate is kept alive, though it’s kept alive artificially.” The prime rate (the interest rate that businesses care about) tended to rise gradually from the end of the Second World War, with the rise accelerating sharply in the late 1970s and early 1980s, before beginning a gradual long-term decline.97
This created a “false boom” based on “profit of enterprise”—the term used by Marx in the third volume of Capital for profits net of interest payments. The long decline in interest rates also allowed consumer debt to grow for a period without, at least initially, massively increasing the debt repayments made by workers.98
What is required is an analysis of capitalism as it ages combined with the rigour of Marx’s value theory, drawing on the insights of many of the theorists I have surveyed.
Aging capitalism leads to the growth of unproductive and “waste” areas of economies. For instance, the IS tradition emphasised the role of arms spending during the long post-war boom. Military rivalry between the two Cold War superpowers, which maintained high levels of arms spending following the Second World War, created a “permanent arms economy”.99 This spending could stabilise the system as a whole by functioning as a “leak” out of the circuit of capital and thus draining off surplus value that otherwise would have been accumulated.100
The permanent arms economy contained the seeds of its own collapse. The boom period also saw the rise of “non-militarised state capitalisms” (notably Japan and Germany), which spent less on defence. They could invest a greater proportion of surplus value in export industries, undercutting the major arms spending economies in these areas by engaging in price competition. In the wake of the rise of these powers, and reductions in the defence budgets of the US and USSR, arms spending, though still high in absolute terms, ceased to keep pace with the growth of the world economy.101
Other forms of spending that are not directly productive of surplus value have also grown, and done so more evenly across the advanced capitalist economies and without subsequently declining. These include unproductive expenditures, for instance advertising.102 There are also areas that might be described as “indirectly productive”, such as public healthcare and education, which do not directly yield surplus value but which are essential to the reproduction of the kinds of labour power required in a modern capitalist economy.103
The rise of waste can stabilise the system but it is also a burden on the particular capitalist economy in which the waste spending takes place. Fred Moseley, for instance, believes that the rise of unproductive labour had as great an impact in reducing the US profit rate from the late 1940s to the mid-1970s as the rising organic composition of capital.104
In the post-war period the system did not grow as rapidly as it might have if all the surplus value had been accumulated in productive areas. However, nor did the ratio of investment to labour grow, or the rate of profit fall, as rapidly as it would otherwise have done. It was this that allowed the boom that followed the Second World War to extend for an unprecedented duration. When from the mid-1970s onwards crisis returned, it impacted upon a world that had been transformed during the long boom. In particular the units of capital—the firms within the system—had become larger through the processes of concentration (the gradual accumulation of capital) and centralisation (mergers and takeovers) identified by Marx.105
This meant that the very mechanism that clears out the system and restores it for a time to some level of health—economic crisis—had become more dangerous for the system. The collapse of one or two giant multinationals now posed the risk that profitable sections of the economy could be dragged down alongside unprofitable sections. The firms that made up the economy had also become more deeply intertwined with the state and financial system, and indeed the recent growth of finance has exacerbated the problems.106 The growing dangers explain the recent panic over the implosion of Lehman Brothers and the way the state has intervened to manage the restructuring through bankruptcy of the US car giants GM and Chrysler.107
The unwillingness of capitalist states to allow crisis to sweep through the system does not imply a collapse into permanent stagnation. Capitalism remains a system of competitive accumulation, along with imperialist rivalry, even if large firms have more freedom to determine prices until competitors harness the resources required to enter a market.108 But unless there is destruction of capital on a sufficient scale, a sustained boom for the system as a whole, as opposed to temporary and localised booms, is unlikely—and periods of stagnation across areas of the system a real possibility.
As Kliman and Brenner argue, a sufficient destruction of capital certainly did not take place in the 1970s or early 1980s. Instead mechanisms came into play that deferred the crisis at the cost of generating growing contradictions that permeated the system. There was a dramatic increase in the rate of exploitation from the 1980s onwards. This is reflected, for instance, in the extension of the working year in America, to the extent that “in manufacturing the average worker put in nearly two weeks more in 2002 than in 1982”.109 The offensive on labour allowed for a partial, but only partial, restoration of profit rates.110
The other mechanism deferring crisis was the growth of finance as capitalists and some states sought investment opportunities beyond the rather unprofitable productive economy. This had three effects.
The first was to prevent a crisis arising from the inability of firms to sell their output and so “realise the surplus value” embedded in the goods and services produced by the system.111 If profit rates are high, limited consumption by workers is not a problem because there is plenty of demand for machinery, raw materials and so on. In a period of low profitability—and therefore low average levels of investment—the restriction of workers’ wages can create huge problems. The growth of debt, especially personal debt in economies such as the US, allowed consumers to form a “market of last resort”, providing the demand to keep capitalism in business.
The second effect was to create the illusion of profitability and dynamism through asset price bubbles. As profits sought an outlet in the world of finance there was a process of accumulation of what Marx calls “fictitious capital”. Fictitious capital does not mean capital that does not exist, or necessarily imply fraud of some kind. Rather it is investment in “paper claims” over a share of value to be produced. The fact that fictitious capital entitles the owner to a stream of income makes it appear like real capital that a capitalist might throw into production to generate surplus value or loan out at the going rate of interest.
One classic example would be the bonds issued by governments, which entitle the owners to a share of future tax revenue; another would be the shares issued by companies that entitle shareholders to dividends that are a portion of the surplus value generated by the company.112 Marx points out that, even when the paper claim “does not represent a purely fictitious capital…the capital-value of such paper is nevertheless wholly illusory”. In other words, if we are dealing, for instance, in shares in a productive enterprise, the paper is merely a “title of ownership which represents this capital”. Marx cautions against the illusion that the titles are the actual capital: “Capital does not exist twice, once as the capital-value of titles of ownership (stocks) on the one hand and on the other hand as the actual capital invested, or to be invested, in those enterprises”.113
Fictitious capital can be traded. Indeed, Marx argues, it circulates according to “its own laws of motion”, different from the laws of motion of real capital.114 The market prices of shares might rise and fall depending on how the income flowing from them compares with that which can be obtained from other sorts of investment. Because the price of shares and other examples of fictitious capital can fluctuate in this manner, investors may also start to speculate—purchasing them in the expectation that their prices will rise and they can later be sold at a profit. In an economic “bubble” investors outbid each other in the chase after such claims and, in the process, raise their prices. So, for instance, shares in a company can be pushed well above the level represented by the actual value of the plant and equipment it owns.
The process of “fictitious accumulation” associated with rising asset prices could boost the balance sheets of the firms involved, especially financial corporations, creating the illusion of profitability.115 In addition, although fictitious accumulation in itself produces nothing, it could spur some development of productive areas of the economy, which can add to the sense of dynamism. (For instance, the workers who serve coffee at the Starbucks branches that have sprung up across the City of London are productive workers, even if their customers are often not.)
The third effect of the growth of finance was to further reduce the pressure for profit rates to fall. One reason for this is that the growth of the financial sector is in itself a growth of waste. The investment that goes into buildings or wages in the financial sector is unproductive—it does not lead to the generation of new surplus value and is therefore a burden on productive capital. It constitutes a “leak” from the system in much the same way as arms spending did in the post-war boom.
However, not all the money harnessed by finance represents such a leak. In the traditional Marxist picture banks gather “interest-bearing capital” which they loan to industrial capitalists, who then use it to generate surplus value, some of which then goes to the bank as interest. When this happens, “fictitious accumulation” translates into real accumulation.116
If, as Lapavitsas and others have argued, banks are increasingly interested in lending to workers rather than industrial capital, how does this modify the picture? The lending gives banks a claim over workers’ future earnings. This has the effect of raising the rate of exploitation of the workers, unless they succeed in forcing their employer to pay higher wages, in which case the employer in effect pays for the interest on the workers’ loans through a reduction in their surplus value. The bank then has the possibility of using the interest payments for productive investment.
But there is nothing automatic about finance flowing towards productive ventures, rather than speculation. For instance, mortgages and other debt have, over recent years, been repackaged as securities with names such as “collateralised debt obligations”. Capitalists could then gamble on the future value of these. Derivatives called “credit default swaps” were created, which insured against people defaulting on their loans. These too became subject to speculation.117 More generally, as a whole series of markets in fictitious capital were created or expanded, with increasingly tenuous relationships to the generation of surplus value in the wider economy, the market prices of these assets lost touch with the underlying process of value creation.118 As long as the resulting speculative bubbles were growing, these markets could act as a temporary a “reservoir” for surplus value (as opposed to a permanent “leak” because some of this value could, in principle, find its way back into production, for instance if assets were sold and the money ploughed into a productive firm). As each bubble collapsed, another one had to be blown on an even greater scale. But crisis always threatened to force markets in fictitious capital back into line with the prospects for value production in the wider economy.
The destruction of fictitious capital goes hand in hand with the wider devaluation of capital through crisis. In principle it can help pave the way for future expansion by removing a burden on productive capital, by accelerating the processes of restructuring through crisis (for instance, by firms taking over failing rivals whose share price has collapsed) and by removing some of the claims on future value.119 But in practice it is increasingly hard to disentangle fictitious accumulation from real accumulation. If banks that have speculated unwisely go bust, they can drag down firms that have borrowed to invest in production. If financial institutions that are seen as central to the system have lost money and are threatened with collapse, states may step in to bail them out, and they will expect either productive sectors of the economy or workers to pick up the tab.120
So the collapses taking place in finance are adding to the trauma of the productive sectors of the economy, even as the chronic problems afflicting these sectors for 30 years are exposed and the credit dragging the system forward is withdrawn. Financial expansion is best seen as a “counteracting tendency”, deferring crisis, but one of a transitory nature. The price paid for this temporary fix was the creation of enormous imbalances within the economy—including the growth of unsustainable levels of debt, soaring financial and trade imbalances such as those between China and the US, and the formation of economic bubbles on an enormous scale. These features of the previous period help explain why, when the deferred crisis eventually broke, it did so with enormous speed, global reach and coordination, and with such terrible severity.
1: This has been the object of some fascination in the mainstream press, which has reported a seven-fold increase in sales of Marx’s Capital in Germany, the success of a Manga comic version of the work in Japan and now a musical, currently in production in Shanghai, which, according to the director, “will bring Marx’s economic theories to life in a trendy, interesting and educational play that will be fun to watch”.
2: For instance, Graham Turner’s recent book (2008) or, from a more right wing perspective, Martin Wolf’s latest work-see Callinicos, 2009. On Turner’s book, see also Murphy, 2009.
an illuminating discussion of the International Socialist tradition in
political economy, listen to Alex Callinicos’s recent seminar on the
5: Blackburn, 2007a. The article was written in the wake of a short and sharp decline in stock markets on 27 February 2007. The warning by a “Lehman Brothers analyst” was particularly ironic. A year and a half later Lehman Brothers’ exposure to toxic assets caused it to implode in the largest bankruptcy in world history-six times bigger than the previous record (WorldCom) and ten times bigger than Enron.
6: “Subprime Sickness”, Financial Times, 23 February 2007. By September 2008 the last two surviving Wall Street investment banks had changed their status to that of commercial banks.
7: See for example Blackburn, 2007b.
8: Harman, 2007, pp157-158.
9: Blackburn, 2006, p44.
10: Marx, 1972, pp338-343; Lapavisas, 2003, pp66-70. And, historically, credit pre-dates productive capital: “Interest-bearing capital, or, as we may call it in its antiquated form, usurer’s capital, belongs…to the antediluvian forms of capital, which precede the capitalist mode of production”-Marx, 1972, p593.
11: Harvey, 2009, p18.
12: I argue the latter in Choonara, 2008.
13: Blackburn, 2006, p39.
14: Mann, 2009, p120.
15: Blackburn, 2009, pp129-130. Blackburn draws on Turner, 2008, to make this argument. But while the great strength of Turner’s book is to root credit bubbles in wider economic patterns, in particular wage repression, from a Marxist perspective it is also necessary to consider tendencies arising from accumulation, in particular Marx’s famous law of the tendency of the rate of profit to fall. Blackburn also claims that his account is framed by the writings of the Marxist authors Robert Brenner, Andrew Glyn and Giovanni Arrighi (see, for instance, Blackburn, 2008, pp65-66) but there are important differences between these theorists precisely over questions such as the cause of the decline in profitability. So, for example, Moseley, 1999, pp132-133, contrasts the approaches of Glyn and Brenner.
16: Blackburn, 2008, p85.
17: As we were going to press we were saddened to hear of the death of Peter Gowan after his courageous battle with cancer.
18: Gowan, 2009, p5. He argued that this break with the “common sense” meant that “real actors” such as US homeowners were not responsible for the crisis and that “new actors” based on a “New Wall Street System” were to blame. But this seems to beg the question of whether some of the “old” capitalist actors in the wider economy (as opposed to US workers) were also to blame-Gowan, 2009, p6.
19: Panitch and Gindin, 2009, puts forwards a position similar to Gowan’s: “The current economic crisis has to be understood in terms of the historical dynamics and contradictions of capitalist finance…the origins of today’s US-based financial crisis are not rooted in a profitability crisis in the sphere of production.” Elsewhere, these authors have argued that the development of the “New Wall Street System” effectively resolved the crisis of profitability of the 1970s. See Panitch and Gindin, 2006, and the response Callinicos, 2006.
20: Gowan, 2009, pp7-9.
21: Gowan, 2009, p21. See also Brenner, 2004, where the emerging system of “Stock Market Keynesianism”, as he puts it, is explicitly seen as a response to the failure of profit rates to recover.
22: Blackburn, 2006, p39.
23: Gowan, 2009, p7.
24: Blackburn, 2008, p69.
25: By “productive economy” I mean, following Marx, the areas of the economy producing surplus value, the basis of profit and interest payments.
26: Husson, 2008, p2.
27: Harman, 2008a, is a particularly vehement rejection of such accounts.
28: Blackburn, 2006, p43. See also Lapavitsas, 2009b, p20.
29: Harvey, 2005, p33.
30: Gowan, 2009, p21.
31: Blackburn, 2008, p84.
32: Blackburn, 2008, p106.
33: Mann, 2009, p126.
34: Blackburn, 2009, p128.
35: Blackburn, 2009, pp133, 134.
36: Lapavitsas, 2008a, p11.
37: Lapavitsas, 2008b, p19. See Lapavitsas, 2009b, pp14-19, for a more lengthy discussion.
38: Lapavitsas, 2009a, p13.
39: Although, again, the trends are less sharp than sometimes implied. See the graphs in Lapavitsas, 2009a, pp14-17.
40: Lapavitsas, 2008b, pp17-18.
41: Lapavitsas, 2009b, pp12.
42: And many of the innovations required were in place before financialisation took off. See, for instance, Panitch and Konings, 2009, p69.
43: Fine, 2008, p3.
44: Lapavitsas, 2008a, p15.
45: Choonara, 2009, pp29-35.
46: Marx, 1970, pp164-172.
47: Something Lapavitsas, of course, recognises-2009b, p10.
48: Lapavitsas, 2009b, p8. The term “direct exploitation” is especially confusing because Marx uses the phrase to mean exploitation of labourers in production, ie in the opposite sense to Lapavitsas-see, for instance, Marx, 1972, p244.
49: Lapavitsas, 2009b, p13.
50: Marx, 1972, p609.
51: Lapavitsas, 2008b, p19.
52: McNally, 2008, p4.
53: McNally, 2008, p3. Jim Kincaid, 2008, has put forward a much harder version of the argument, claiming, “The basic story of the world economy over the past 25 years has been one of rising profits, and growth in output and levels of capital accumulation. Advances in productivity have not undermined profitability.” I have not considered his argument here because it was developed prior to the current crisis, but see Harman, 2008b.
54: McNally, 2008, p4. See, for example, Moseley, 2008, p171. See Moseley, 2003, for the evolution of his account.
55: Calculated from Bureau of Economic Analysis data.
56: For this, and a careful critique of Brenners’ method, see Shaikh, 1999.
57: Kliman, 2009, pp3-4.
58: McNally, 2008, p4.
59: McNally, 2008, p10.
60: Liu, Chow and Li, 2006, p3. And even at its subsequent peak, foreign direct investment into East Asia, excluding Japan and South Korea, was substantially lower than flows into the OECD economies. See also, UNCTAD, 2006, pp39, 82.
61: See, for example, the graphs in Foster and Magdoff, 2009, pp47, 55.
63: Foster and Magdoff, 2009, p77.
64: See Foster and Magdoff, 2009, pp63-65, for a summary of this account of “monopoly capitalism”.
65: Foster and Magdoff, 2009, pp83-84.
66: See Harman, 1984, for an account of the IS tradition.
67: Sweezy, 1970, pp162-186.
68: Carchedi, 1991, pp184-186; Carchedi, 2009; Fine and Harris, 1979, p79. See also Cliff, 2001, p106.
69: They do point out that in crisis capital is “devalued” boosting profitability-Foster and Magdoff, 2009, p20. They follow this up by quoting Marx, who writes, “The real barrier of capitalist production is capital itself.” The passage comes from part three of the third volume of Capital, entitled “The Law of the Tendency of the Rate of Profit to Fall”. The subsequent sentences have some bearing on the MR analysis: “Capital and its self-expansion appear as the starting and the closing point, the motive and the purpose of production; that production is only production for capital and not vice versa, the means of production are not mere means for a constant expansion of the living process of the society of producers”-Marx, 1972, p250.
70: See for example, Foster and Magdoff, 2009, pp12-20.
71: Foster and Magdoff, 2009, pp42-44.
72: See Brenner, 1999, and the references therein.
73: Harman, 2007, pp151-152.
74: Foster and Magdoff, 2009, pp41, 75-76, 87.
75: Foster and Magdoff, 2009, p21.
76: Choonara, 2009, pp21, 68-70, 77.
77: Harvey, 2006, p141. Sweezy claimed that he had merely “transformed” value theory, but if this is the case, he transformed it beyond recognition. See Howard and King, 1992, p120.
78: Brenner, 2009.
79: Brenner, 2008.
80: See, for example, Brenner, 2004.
81: Brenner, 2008.
82: He provides the most detailed account of his approach in Brenner, 2006, pp27-40. For detailed critiques of this work, see the symposium in issues 4 and 5 of Historical Materialism, in particular Harman, 1999; Callinicos, 1999; Moseley, 1999; Shaikh, 1999; Carchedi, 1999.
83: Moseley, 1999, p139.
84: Moseley, 1999, p145.
85: Shaikh, 1999, p115.
86: See Brenner, 2006, pp14-15, and, in particular footnote 1 where he links his rejection of Marx’s account to the “proof” by Okishio. For refutations of Okishio see Kliman, 2007; Carchedi, 1999; Shaikh, 1999.
87: Shaikh, 1999, pp121-122. For an introductory elaboration of Marx’s law of the tendency of the rate of profit to fall, see Choonara, 2009, pp68-78.
88: Callinicos, 1999, pp18, 25-28.
89: Kliman, 2009, p1. Earlier Kliman wrote a useful account of the developing crisis for International Socialism (though obviously, like all the articles penned at this stage, it has now been overtaken by events)-Kliman, 2008.
90: Marx, 1972, p249; Choonara, 2009, pp79-82.
91: Kliman, 2009, p1. Brenner, 2009, also puts forward the view that “it’s by way of crisis that, historically, capitalism has restored the rate of profit and established the necessary conditions for more dynamic capital accumulation… The current crisis is about that shakeout that never happened.” For the role of the Second World War in the recovery from the 1930s, see Freeman, 2009.
92: The precise expression for the limit will depend on how much constant capital is fixed and how much is circulating. See the references in Kliman, 2009, for the maths.
93: Personal correspondence.
94: See Kliman, 2007, chapter 7, for a terrific defence of Marx in the face of this barrage. Carchedi, 2009, also provides a powerful vindication of Marx’s explanation of why the profit rate falls.
95: Although there are debates over terminology. According to David Harvey, “Capital that is not realised is variously termed ‘devalued’, ‘devalorised’, ‘depreciated’ or even ‘destroyed’. Marx-or his translators-seem to use these terms interchangeably and inconsistently. I shall restrict my own uses of them in the following way. The ‘destruction of capital’ refers to the physical loss of use-values. I shall restrict the use of the idea of ‘depreciation of capital’ largely in accordance with modern usage, to deal with the changing monetary valuation of assets… And I shall reserve the term ‘devaluation’ for situations in which the socially necessary labour time embodied in material form is lost without, necessarily, any destruction of the material form itself”-Harvey, 2006, p84.
96: Kliman, 2009, p1.
97: See, for instance, www.project.org/images/graphs/Prime_Rate_1.jpg
98: Shaikh, 2008; all quotes are my transcriptions from this recording.
99: See, for instance, Kidron, 1970.
100: Choonara, 2009, pp134-137. Harman, 1984, chapter 3, gives a more detailed explanation of the role of arms spending.
101: For instance, US arms spending now represents between 4 and 5 percent of GDP, compared to about 10 percent in the late 1950s. World arms spending was about 2 percent of world GDP in 2007.
102: On the astonishing amounts spent on advertising in the US, see the figures in McChesney, Foster, Stole and Holleman, 2009.
103: Choonara, 2009, pp45-49.
104: Moseley, 2003, pp217-218.
105: Choonara, 2009, pp90-95.
106: “The effect [of the growth of finance] was not to subordinate state capacities to market forces, but rather to make political intervention all the more necessary-not least in fighting fires sparked by financial volatility-as well as more feasible… The result was the step by step construction of a too big to fail regime, whereby intermediaries that were so large and so interconnected that their failure would bring down a significant part of the system could count on the US state, and especially the Treasury, to come to the rescue”-Panitch and Konings, 2009, p72.
107: There has been some “restructuring through crisis” in recent decades-Harman, 2007, pp151-152. Anwar Shaikh, 2008, makes a similar point about the crisis of the 1970s: “You had recovery in the 1980s because of job losses, because of bankruptcies, because of business failures and because of a decline in real wages…which greatly stimulated the profitability of surviving companies.” Shaikh contrasts this with the crisis in Japan, which, he argues, the state prevented from sharpening through business failure and which was, consequently, a much more drawn out crisis.
108: Even in the most extreme version of monopolisation-bureaucratic state capitalism as practised in the USSR-in which the law of value was “partially negated”, competition reasserted itself through the struggle to produce use-values, in particular weapons, enforcing a drive to accumulate-see Cliff, 1996, chapter 7.
109: Moody, 2007, p34.
110: See Harman, 2007, for a detailed discussion.
111: Marx, 1972, p244.
112: These are the examples given in Marx, 1972, pp465-468.
113: Marx, 1972, p466.
114: Marx, 1972, p465.
115: Although often this was rather opaque. On the kind of financial wizardry practised in the City of London, see Lancaster, 2009.
116: Fine, 2008, p3.
117: Ultimately it was credit derivatives issued by AIG that brought down the insurance giant. For more on the way credit default swaps were exploited by bodies such as pension funds to get round statutory requirements for them to invest only in safe concerns, see Carchedi, 2009.
118: And in some cases the assets created were so complex and unique that markets for them simply did not exist. Those who held the assets had to guess how much they were worth. This has created a situation where many banks hold assets (often off their balance sheets) that have turned out to be worth only a fraction of their “market” price. It was in this context that the recent announcements by the Bank of America of losses of $15.3 billion and Citigroup of $18.7 billion “confirmed what many experts have long suspected: the subprime losses of 2007 were a bullet that fatally wounded the banks. Many lost so much money on toxic subprime mortgage-related derivatives that they have been essentially insolvent for more than a year”-Financial Times, 18 January 2009.
119: See Perelman, 2008, especially pp29-31.
120: For instance, the British government admits it has lost at least £50 billion bailing out banks.
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Two brilliant assessment of the crisis and its causes from Internationalist Perspective. These articles develop insights from Roots of the Capitalist Crisis, perhaps the most comprehensive Marxian prediction of the current crisis. We at RPOTC feel ashamed that it has taken us so long to post it here.
The recent implosion of the real estate bubble in the USA and related credit crisis have not yet triggered a collapse of the global capitalist economy but they do bring us one step closer to it. Marx’ value-theory is an indispensable instrument to understand what is happening. It allows us to see how the tenacity of the capitalist mode of production is directly related to its development of new methods of exploitation, new terrains for value-creation. But it also makes it possible to understand how capitalists, in their unceasing hunt for surplus value, are making capitalism more obsolete and are raising the obstacles that make its economic breakdown inevitable, to new heights. The following article analyses the evolution of the conditions for value-creation from the emergence of Fordism to the present-day impasse, from which only a working class revolution offers a way out.
Introduction: On Relative Surplus Value
In Capital, vol.1, Marx attaches great importance to the distinction between absolute and relative surplus-value (SV), which he clearly defines:
He goes on to explain that the second is a function of the rise in productivity in those branches of industry which determine the value of labour-power, adding that a rise of productivity in sectors which neither directly nor indirectly produce means of subsistence, does not alter the value of labour-power and therefore does not increase relative surplus-value. From this follows that the increase of relative surplus-value is not a conscious, direct method by which the generic capitalist seeks to increase his profit but rather a by-product of capitalism’s general tendency of raising productivity: “When an individual capitalist cheapens shirts, for instance, by increasing the productivity of labour, he by no means necessarily aims to reduce the value of labour-power and shorten necessary labour-time in proportion to this. But he contributes towards increasing the general rate of surplus-value only in so far as he ultimately contributes to this result.” (p.433)
Even though it is mainly a by-product of capitalism’s technological drive rather than a consciously sought result, Marx considers relative SV the main source of profit for capitalism when it develops a specifically capitalist production process, when it becomes the real subsumption of labour (the real domination of capital). So when he explains this transition, he begins by recalling the importance of relative SV:
There is an apparent contradiction between this quote (from “Results of the immediate process of production”, the chapter of Capital, vol. 1 that he decided not to include when that work was published) and the first ones (from part 4 of volume 1). In the first, Marx is saying that the capitalist, by lowering the value of his product does not automatically create more relative SV, that he does so only to the extent that this contributes to a reduction of the value of labour-power in general. In the second, he seems to be saying that he does: when the individual capitalist lowers the value of his product, he writes, “surplus-value is created for him”. It’s easy to misunderstand this as implying that the cheapening of the product is itself creating SV, which would mean that its source would not be labour power but technology. That would contradict the very basis of his value-theory, in which there is no other source of SV but labour-power. But that is not what he meant. The confusion arises in part because he is explaining things on the basis of analyses that are not part of vol. 1 but vol. 3, which is probably the reason why he decided not to include “Results…” in vol. 1. But Marx did not mean to deny that the rise of relative SV under the real domination of capital is due to anything else but the reduction of the relative value of labour-power or to imply that going under the market-value creates SV for capital as a whole. Rather, he wanted to point to the genesis of the shift from absolute to relative SV as the principal source of profit growth, and explain it as a result of a change in the basic method by which capitalists seek to increase their profits. Whereas under formal domination this method consisted mainly in reorganizing production on the basis of buying labour-power, changing peasants and craftsmen into workers and making them work as many hours as possible, now the principal method became cheapening the individual value of the commodity under its market-value in order to obtain a surplus-profit which results from a transfer of SV on the market, in the phase of circulation. That is a form of redistribution of SV, not of its creation, but the more this becomes the dominant method of seeking profit, the more means of subsistence are cheapened by the general rise of productivity, so that the paid portion of the working day shrinks in proportion to the unpaid portion.
It’s important to distinguish what drives capitalists from what makes capitalism a success or failure. The conditions for the incentive to produce and the overall conditions for accumulation are related but not the same. We have analyzed elsewhere how real domination creates a widening gap between the growth of exchange value and use values which places obstacles before capitalism, in its phase of production (tendential fall of the rate of profit) and (dialectically linked to it) in its phase of circulation (overcapacity) which it cannot overcome except through massive devalorization in crisis and war. These obstacles confront capitalists as a force from outside like stormy weather but meanwhile their drive remains to obtain profits by going under the market value and to seek the conditions to make that possible. It should be noted that, the more homogeneous the conditions of production become, the more extra-capitalist producers and capitalist producers with a relatively low OCC (‘organic composition of capital’, the ratio of indirect, past labour to direct, living labour) are marginalized, the more difficult that becomes. In Capital, vol. 3 Marx remarks, if the whole world production would be in the hands of a few giant companies, “the vital flame of production would be altogether extinguished.”
Since there are conflicting definitions of that term, let me clarify what I mean by it: industrial mass production with mechanical technology at its center and the constant increase of the scale of production as its never ceasing purpose; the large, integrated and centralized company is its typical form of appearance, the assembly-line its hallmark, repetitious, monotonous work whose content and pace is dictated by the machine characterizes the labour process and Taylorism characterizes the management of that labour process.
The first real assembly-line was introduced in a Ford-plant in 1913, but this was preceded by several decades of changes in the production process in that direction. Fordism expressed the general tendency of capitalism to raise labour productivity by lowering the value of commodities while increasing their volume, and as such realized its general tendency to reduce socially necessary labour-time, thereby realizing its latent tendencies to falling profit-rates and overproduction.
These obstacles do not exist on a merely abstract theoretical level but in the real world. As such, they are also a function of the concrete, specific characteristics of capitalism as an historical product, such as the presence of counter-acting factors to the tendential fall of the rate of profit (like the potential metabolism with extra-capitalist production) and the development of the economic-political structure of capitalism at a given point in history. This explains why the instances of massive devalorization in the 20th century occurred when they did and why Fordism knew its apogee only after the Second World War, when the Bretton-Woods framework created for the first time a vast global (more or less) free trade zone with a common, expansive world currency, serving both as means of circulation and means of payment. No longer hemmed in by national borders (or at least much less than before), no longer hampered by the vagaries of national currencies or the tight restrictions of the gold standard (although the dollar remained, in theory, tied to gold, and all other main currencies thus indirectly also), the productivity-raising potential of Fordism was finally unleashed, creating a vast increase of relative SV-extraction.
This explains the strength and duration of the post-war boom. But with the homogenization of Fordist production conditions in North-America, Western Europe and Japan, the growing marginalization of underdeveloped countries and the impediments created by the cold war context to the expansion of the world market, the same twin obstacles returned by the late 1960’s. To these difficulties must be added the strong resistance of the working class to the intensification of the labour process which Fordism made technologically possible. The high cost of un-utilized productive capacity made Fordism, by its nature, particularly vulnerable to strikes as well as to stagnation of market expansion. Furthermore, global overcapacity leads to chronic stagnation, even for the strongest capitals. As Marx explains in Capital vol. 3, in conditions of overcapacity, the social value is determined by the most favorable conditions of production, eliminating the surplus profit which those would yield under normal circumstances. The incentive to speculate replaces the incentive to invest.
The world currency was also the currency of a particular nation, which created the irresistible possibility for the U.S. to use its position to try to spend its way out of trouble, at the expense of the entire dollar-zone. This forced the U.S. to untie the dollar from the gold standard (formally in 1971, de facto earlier) after which monetary expansion went out of control. The impossibility of resolving capitalism’s contradictions by throwing money at them resulted in the stagflation of the 1970’s and, by the end of the decade, brought the world economy at the brink of paralyzing hyper-inflation. It was time to try something else.
It is not a perfect term since it seems to suggest that Fordism is a thing of the past which is hardly the case. Nevertheless, in the 1980’s, something different emerged at the cutting edge of capitalism. But the changes in the mode of production proper were only part of it. A seismic shift in the overall structure of world capitalism (the end of the cold war, the end of China’s autarkic course and the resulting globalization) provided the context for post-Fordism to thrive.
The changes were guided by several goals:
The main characteristic of the post-Fordist mode of production is that automation replaces mechanical technology at the nexus of production. While the first large scale development of automation dates already from the late 1950’s, it accelerated enormously since the 1980’s with the development and widespread application of information technology (IT). Together with this, the importance of applied science in general in the production process grew enormously and thus also the role of what’s been called immaterial or cognitive labour. This entailed a huge change in the composition of the working class, whose most decisive component now embodies what Marx foresaw:
While Marx, in my opinion, meant with “the social individual,” the whole working class (and thus including the Fordist worker who remains an essential component of the production process), his description is particularly apt in regard to the post-Fordist worker. That his enormously productive collective labour is the foundation-stone of much wealth today seems clear. That post-Fordist production yields huge profits is also clear. But what does it mean for the creation of value? After all, direct labour time may no longer be the great foundation-stone of wealth, but it remains the measuring rod, the foundation-stone of the law of value.
Post-Fordism and Value-creation
Let’s examine how post-Fordism, and the globalization (new division of labour) which it helped to make possible, have affected the creation of surplus-value.
1. It diminished the value of constant capital C (machinery, infrastructure, raw materials) and thus increased profits (S/C+V) by leading to cost savings on many levels. It has led to greater efficiency of resources, a faster turnover of capital, lower storage costs, lower transportation and communication costs, etc.
2. It has diminished the value of variable capital V (labour power) by reducing the value of the commodities which workers need (and thus increased the rate of relative SV).
3. It has increased the intensity of labour. IT made possible a deeper penetration of the law of value inside the production process and a much closer management and control of that process (‘post-Taylorism’ is even more ruthless and controlling than its predecessor).
4. It has greatly enhanced the mobility of capital and thereby altered the balance of forces between capital and labour in the former’s favour, which has also helped to increase S/V.
5. It led to the transfer of a large part of Fordist production to previously underdeveloped parts of the world, China in particular. Conditions there, made accessible by geo-political changes and the steep decline of transportation and communications costs as well as other technological developments, opened the door to a vast increase in both absolute and relative surplus value extraction. The increased metabolism with extra-capitalist producers and low OCC-capitalism should be stressed in this regard. It is these backward conditions which determine what the means of subsistence are but for high OCC production they represent very little value. The historically unprecedented possibility to combine the living conditions of low productivity-society with the technology and production methods of high productivity-society yields a very high rate of SV. The vast majority of the commodities thus produced are cheap consumer goods destined for the market of developed countries. So they lower the value of labour power there (increasing relative SV) and are a main reason why inflation staid so low for so long (another one is the global context of overcapacity, which, as Marx explains in Capital vol. 3, brings the social value of a commodity down to the value of those which are produced under the most favorable conditions, in other words, the cheapest). Furthermore, this transfer was relatively painless because the simultaneous move of developed capital into post-Fordist production created a division of labour, a complementary development. To this could be added the market that their development provided for the developed countries, but as we shall see further, as impressive as it is, it has severe limits.
6. It has, together with the global reorganization of capital which it helped to bring about, greatly facilitated the penetration of the law of value into areas that were not yet commodified, and thereby it opened important new avenues for value creation. Examples include the displacement of family farms by agribusiness, the displacement of services (in the marxian sense: labour that is directly consumed rather than creating a commodity that enters into the flow of capital) by service-industries, as well as the appearance of new services and goods as a direct result of its development, and even the displacement of labour exchanges done freely between family members, friends and neighbours by commodified exchanges.
All these factors have stimulated value-creation to a great extent (quite aside from the question of who benefited from this). But like all periods of innovation, it had its “sturm und drang”-period, after which the effect began to diminish, in part because of the homogenization it accomplished. In China, wages are rising, pushed up inevitably because changes in the very world the workers inhabit (technification of cities, destruction of the semi-proletariat which obtains part of its means of existence by farming on small plots of land) increases the value of labour power, despite the decline in industrial employment caused by the decay of low OCC-production, and the continuing flight of millions of unsettled peasants to the cities. Furthermore, the demand of the new Fordist production in China for prime resources, oil in particular, in combination with the prospect of their depletion becoming more realistic, is pushing up their prices, increasingly neutralizing China’s export’s beneficial effect on inflation. Inflation is rising rapidly in China. And in India too. Despite the growth of call centers there, the number of jobs being created by IT is lower than the number of indebted farmers committing suicide. In model-city Bangalore, the slums are growing much faster than the prosperous parts of town. Expulsion and destruction are inevitable companions of post-Fordism’s globalization.
While it’s true that the usual suspects stay on the cutting edge in IT, we are witnessing a generalization of its myriad applications throughout the globalized chain of production. This homogenization accelerates the pace in which gains in productivity are generalized. That means that the value savings which those gains allow, are lost more quickly because of the decline of the social value (the social reproduction cost) of the commodity. The faster this decline happens, the more a gap tends to open between the value of the capital advanced for production and the (social) value of the commodities resulting from production.
Marx emphasized that the effect of the increase of the OCC and the productivity-gain it causes, is two-edged. On the one hand, it increases SV/V, the rate of surplus value, by reducing necessary labour-time (the value of the goods that constitute the value of labour power). On the other, it diminishes the weight of living labour in production, and therefore also of the part of it that is unpaid, surplus value. From the pace of living labour’s decline depends whether a rise of a part of it (SV/V) can compensate the decline of the total (V+SV). Which force is the strongest today? The characteristics of automation are such that the second is increasingly winning. This is especially clear in the most emblematic product of post-Fordism, digital goods and software in particular. Their growing role –as means to obtain profit, as components of the production process, tools to create wealth, tools for creativity, communication and consumption- in society cannot be denied. It is true that the creation of these goods requires a lot of labour power. This labour power is exploited by capital, its value and surplus value is crystallized in the commodity that results from it. But this value is fleeting. No matter how many hours have been spent to create a particular digital commodity, the value of its copy is, like of any other commodity, equal to the value of the direct and indirect labour spent to make it plus (average) profit on the capital advanced. In the case of digital goods, it is almost nothing. What Marx wrote about machines: “However young and full of life the machine may be, its value is no longer determined by the necessary labour-time actually objectified in it, but by the labour-time necessary to reproduce either it or the better machine. It has therefore been devalued to a greater or lesser extent” (Capital vol.1, p.528) is true for all commodities. The fact that digital commodities may be highly profitable should not deceive us. Their producers obtain SV, but it comes from their customers.
But it is in the nature of information in general, and of the inherently communicative structure of IT in particular, to invite sharing, and thereby to pull the market price of digital commodities down to their next to nothing market value. That’s why the IT-sector is the most glaring example of the growing tendency to monopoly-capitalism (which has echoes in the periods preceding World War One and the 1920’s). The steep increase in the use of patents, copyrights, licences etc to commodify the knowledge that leads to surplus profits (Microsoft takes out 3000 patents a year), implies the need for a world order in which their price can be enforced, and the untamable tendency of the market to subvert this, of the law of value to pull the price down to its real social value, can be checked. This, together with the desire for control over resources, weighs heavily on geopolitics and on American military strategy in particular.
Marx called the devaluation caused by a fast decline of reproduction costs “moral depreciation”. It does not affect only digital goods. The faster the pace of technological innovation and of its integration in production and consumption, the more constant capital loses its value before it has transferred its value into other commodities. The more technological innovation is chased for the surplus profits that it yields, the more the capitalist investor is willing to bear the cost of moral depreciation. In an earlier text, I called this hidden overproduction. It is one of the principal ways in which the market-barrier manifests itself today.
The market-barrier manifests itself not in the form of an absolute limit to the consumption power of capitalist society but in the form of growing disproportionalities. The high rate of technological innovation of post-Fordism has accelerated a long-term tendency of real domination to over-accumulate producer goods and under-accumulate consumer goods, of which moral depreciation is an expression. Another disproportionality created by the drive for surplus profit is caused by its own success, paid for by the reduction of the value of labour power as well as with the SV of other capitalists who must buy at a price above the value. With concentration of wealth on one side, creating a steep increase of demand for all sorts of luxury goods and thus a higher rate of profit in the production of goods destined for unproductive production, and a relative decline of the demand for productive consumption on the other, the proportionality achieved by the market further deviates from the proportionality required for accumulation (analyzed in Capital vol.2) and further mortgages value-creation. To this should be added a rise of unproductive, ‘faux frais’ in general, which includes the costs of maintaining order and projecting power. The cost of the wars in Iraq and Afghanistan are approaching $1 trillion. The costs of anti-terrorist protection and of controlling excess population go far beyond that (in the US more than 1 % of the adult population is in prison). In addition, there is the rise in costs which capitals on the cutting edge must incur to stay on the cutting edge. Many global companies spend more capital on marketing than on production in order to create a socially perceived, artificial scarcity (for example, the difference between “Nikes” and simply sneakers) that yields surplus profits.
The Present Crisis
Despite the relative success of capitals on the cutting edge to create, for themselves, new markets yielding surplus profits, the overall context remains one of overwhelming overcapacity. Nevertheless, capitalism avoided a collapse, thanks to the fall of the value of labour power. But to keep the world economy growing in the face of global overcapacity, it had to be fed by an exponentially growing monetary expansion. This was what happened in the 1970’s too, but during that period monetary expansion was aimed more at slowing the erosion of general purchasing power, because of the high cost of unused production capacity in the Fordist economy. The 1980’s began with an abrupt curtailment of the growth of money in circulation to rein in inflation. But public dept continued to grow at an accelerating rate, while state expenditures shifted from supporting the social wage to unproductive spending such as armaments. Even more important was the expansion of the financial sector. With the elimination of most restrictions on the mobility and activities of financial capital, it grew enormously, creating all sorts of financial instruments promising to preserve and expand the value parked in them. Since all that money did not circulate goods, it did not raise their prices, so it caused no general inflation. Its fictitious character would manifest itself in other ways.
The first winner of the post-Fordist era was Japanese capital which was very successful in the 1980’s in lowering the individual value of the commodities of its export-sector under the social value by pioneering post-Fordist reforms. Japan amassed huge profits but experienced growing difficulties in investing them in a way that did not disrupt the foreign markets, in the first place the American market, on which it depended and that did not cause inflation to rise in its domestic economy. The alternatives were to keep hundreds of billions of dollars in the bank (subject to huge losses when the dollar was devalued) or to park them in property whose price was perceived as able to resist the general trend of diminishing value; in other words, to speculate. Japanese capital did both. Speculation feeds on itself because the rising demand it engenders delivers massive profits at first. Because this is a pyramid-game, it always ends in even more massive losses. When the bubble burst, Japan sank into protracted stagnation. That this did not lead to depression was mainly due to the fact that, globally, post-Fordism continued to expand and Japan remained a first-rate competitor.
The next bubble exploded in South-East Asia with strong reverberations in Latin America and Russia (which later recovered thanks to the rising oil price). The enormous devalorization which property (including labour power) in these countries suffered reinforced the safe haven-appeal of assets in the central countries. This, and the cutting edge position of American capital in the most profitable sectors of production, as well as the size of the U.S.-market, created an ever growing stream of savings to the US. By 2004, 80% of the net-savings of the world flowed to the US.
But a growing size of the expansion of the U.S. market was supported by nothing. Year in year out, the U.S. consumed more than it produced, now to the tune of more than $800 billion a year, a figure which vastly underestimates the amount of the value-transfer. In return, the rest of the world acquired stocks, bonds, treasury-notes and other debt-certificates as well as other property, with a nominal value of many trillions of dollars. The U.S. was the only country which could do that, because of its control over the world currency. But it also seems to have consciously stimulated the safe haven-effect through its global policies, as well to have encouraged the inflation of its assets, in particular with various policies to stimulate demand for its unproductive FIRE (Finances, Insurance, Real Estate) sector. Inevitably, it grew dependent on it. By 2004, it needed its ‘fix’ of $2.6 billion of foreign capital a day, just to keep going.
So that was the basic mechanism that kept the train on the tracks: the US kept market expansion alive, the profits were spread more globally, but a huge and growing part of these profits had to remain hoarded, unable to reenter into circulation or its fictitious origin would be exposed by inflation.
But the promise to capital that is hoarded in financial assets and real estate is that it will be kept alive, that it will be protected from devalorization in a world in which the overall direction is towards falling values. The promise is kept as long as demand is rising strongly. But when it begins to peter out, the speculative nature of the undertaking is revealed. The U.S. was not the only country whose paper value grew disproportionally. That the expansion of money was untethered from the blunt instrument of the gold standard was inevitable and logical. But in order to circulate value and retain credibility as a means of payment, the expansion of money had to remain tied to the expansion of value. That was not the case. Money transactions related to material goods production counted 80% of the total global transactions in 1970, a ratio which by 1997 had already dropped to 0.7%. In the U.S., since 1985, money has been growing more than six times faster than production.
Last year, the declining global demand for U.S. stocks and bonds, and the desperate attempts to keep up demand in real-estate by offering ever cheaper mortgages (many of them sold with deceit and without regard to the buyer’s ability to pay), showed what was coming: Another exploding bubble, but now at the centre of capitalism.
With house-prices falling, already more than 10% of American home-owners owe more in mortgage-obligations than what their house is worth. Millions are facing foreclosure. The continuing decline threatens to wipe out several trillions of household-wealth. The asset-deflation is not limited to real estate but is spreading to the credit market and beyond. Nobody has any idea how big the losses could be in the parallel financial markets. For example, the market of credit default swaps (derivatives), total $45.5 trillion, more than twice the size of the entire US stock market. It consists of trade in contracts that promise payment in case of a company defaults, which can be sold, by both parties of the contract and get traded over and over again, without any guarantee that the buyer of the contract will be able to pay in case of default. The more the US sinks into a recession, the faster this market will deflate.
With so much wealth evaporating, the non-payment of countless transactions and the banks forced to tighten their loaning practice, the crisis snowballs to the production sector, leading to a wave of bankruptcies and rising unemployment, and inflation fostered by the attempts to slow the tide by increasing public spending and lowering interest rates. A painful downturn of the American economy, and by extension of all the other economies depending on it, is inevitable.
It would be easy to imagine a credible scenario of how this crisis could spiral into becoming the great depression of the 21st century. Quite a few intelligent persons do. They may be right. But they may also underestimate how the capacity of the global capitalist class to act in concert when push comes to shove, has grown since the previous depression. I don’t think the US can pull itself up by its own bootstraps. It must count on the dependency of its trading partners on the American market. On the fact that they have no alternative to the present global trade patterns, and thereby are obliged to come to the rescue and invest in the recovery of the American economy. The crisis itself will have a considerable tonic effect for the strong who survive it. But nothing will be solved. This crisis is a milestone, marking the beginning of a new phase, characterized by increasingly intense economic shocks which could set the scene for increasingly intense class struggle.
1. Marx, Grundrisse (Penguin edition), p.197-198.
2. Idem, p.212
3. Idem, p.704-705.
4. Marx, Capital vol.1, (Penguin edition) p.656
5. Marx, Results of the immediate production, addendum in Capital, vol.1, p.1024
6. Marx saw the labor power needed to bring the commodity into the reach of the consumer as an extension of production into the phase of circulation, and thus adding value to the commodity and creating sv for capital.
7. Marx, Grundrisse, p.706
8. Idem, p.340
9. Marx, Economic Manuscripts of 1861-63,Third Chapter. Capital and Profit, pt.6
10. Or, in other words, surplus-profit. More on the process of the equalization of the rate of profit in "The Roots of Capitalist Crisis part 3: From Decline to Collapse, Internationalist Perspective 32-33. The tendential fall of the rate of profit is one of the most contested analyses of Marx. It seems counter-intuitive: Increasing productivity through technological innovation means more profit for the capitalist, so why shouldn’t it also mean that for capitalism? The answer is that the interests of individual capitalists and those of the total capital, the value-system, often conflict. The irrationality of capitalism is the sum of countless rational decisions by capitalists. The “proof” that the tendential fall of the rate of profit a mere red herring was supposedly delivered by the Okishio-theorem, which came to the opposite conclusion from Marx’s. I know little of mathematics,but I know that any such scheme can only be as good as its assumptions. Okishio assumed that the same commodities have the same price before and after production. He took it as a given that their value is stable while Marx’s point was precisely that it falls. So Okishio’s conclusion and starting point were the same. More on this in: Kliman: Reclaiming Marx’s Capital, chapter 7, Lexington Books 2007
11. According to Paul Samuelson, “economists of all schools can agree that Karl Marx did make one stellar contribution” (with his analysis of expanded reproduction). (Samuelson, Economics (McGraw Hill, 10th edition), p.865.
12. See Marx, Capital, vol. 3, (New World Paperbacks), chapter 10, p191
13. Marx, Grundrisse, p.340
14. Marx, Capital, vol.2 (Penguin) p.470
15. Marx, Results… op.cit. p.1037
16. Marx, Theories of Surplus-Value, vol.3, (Progress ed) p.118
17. Marx, Capital, vol.3, p. 245
18. Marx, Capital, vol.3, p.305
19. Marx, Capital,vol.1, p.726-727
20. Marx, Results…, p 1046
21. Marx, Theories…, vol. 3, p.88
22. Marx, Grundrisse, p.218
Stephen Roach: Economic Armageddon Predicted. Boston Herald, November 23, 2004
24. Amongst others, by: Peter Gowan, ‘Crisis in the Heartland’, in New left Review 55. 25. Capital, vol.1, p. 875.
26. Capital, vol.3, p. 238
27. Capital, vol. 1, p. 528
28. This is not a perfect term, since it is usually associated with amorality and in Marxist politics with the position that capitalism reaches a point at which it can no longer develop its productive forces. We, by contrast think that they have developed considerably during capitalism’s decadence, since what makes them develop, the hunt for surplus-profit, has only intensified. To name the new framework, some prefer the term “era of retrogression,” others “permanent crisis.” The latter term is in my view not a good choice, since, by its very nature, no crisis is permanent. But more important than the choice of a word is the recognition that a new phase, with stark choices for the world, and for the working class in particular, had opened.
29. The average per capita worldwide growth rate was 2.9% in 1951-1973 and 1.6% in 1974-2003.(Angus Maddison’s annual data)
30. See: Bernard Lietaer, The Future of Money, Random House 2002.
The Anatomy of Financial and Economic Crisis
The Gildersleeve Lecture at Barnard College, April 17, 2009. The talk investigates the theory of financial and economic crises as a social coordination problem. It discusses the origins of the 2007-8 crises in financial fragility and global structural instability of capital movements and effective demand. The talk ends with suggestions for a new regime for the global economy based on fixed exchange rates, capital movement controls, and political regulation of key prices.
"On the Roots of the Current Economic Crisis and Some Proposed Solutions"
from Marxist-Humanist Initiative
A clear analysis and critique of different Marxian crisis theories as they apply to the current crisis which argues strongly in defense of Marx's theory of the falling rate of profit.
On his new webpage devoted to "crisis intervention" Andrew Kliman has provided a timely analysis of profit rate tendencies and their relevance to understanding the current crisis:
“The Destruction of Capital” and the Current Economic Crisis
Professor, Department of Economics
Pleasantville, NY 10570
1st Draft, January 15, 2009
One key concept in Karl Marx’s theory of capitalist economic crisis is “the destruction of capital through crises” (Marx 1989: 127, emphasis omitted). He meant by this not only the destruction of physical capital assets, but also, and especially, of the value of capital assets. This paper analyzes the current crisis in the light of that concept.
I will argue that the crisis is rooted in the fact that capital was not destroyed to a sufficient degree during the global economic slump of the mid-1970s. Unless and until sufficient destruction of capital occurs (perhaps in the present slump?) there can be no new, sustainable boom. This is because the destruction of capital restores profitability; without enough destruction of it, profitability will remain too low. Yet policymakers, unwilling to allow capital to be destroyed to a sufficient degree, have repeatedly chosen to “manage” the relative stagnation by encouraging excessive expansion of debt. This artificially boosts profitability and economic growth, but in an unsustainable manner, and it leads to repeated debt crises. The present crisis is the most serious and acute of these. Policymakers are responding to the crisis by once again papering over bad debts with more debt, this time to an unprecedented degree. I will conclude by exploring some possible consequences and political implications of this response.
In an economic slump, machines and buildings lie idle, rust and deteriorate, so physical capital is destroyed. More importantly, debts go unpaid, asset prices fall, and other prices may also fall, so the value of physical as well as financial capital assets is destroyed. Yet the destruction of capital is also the key mechanism that leads to the next boom. For instance, if a business can generate $3 million in profit annually, but the value of the capital invested in the business is $100 million, its rate of profit is a mere 3%. But if the destruction of capital values enables new owners to acquire the business for only $10 million instead of $100 million, their rate of profit is a healthy 30%. That is a tremendous spur to a new boom. Thus the post-war boom which followed the massive destruction of capital that occurred during the Great Depression and World War II came about as a result of that destruction.
If, on the other hand, capital is not destroyed to a sufficient degree, there is no boost in profitability. Yet why isn’t profitability great enough to sustain an economic boom even without such a boost, without capital being destroyed?
The answer, I believe, is that the “underlying” rate of profit––the rate toward which the empirically observed rate of profit tends in the long-run, all else being equal––is chronically too low to permit a healthy rate of economic growth. The “underlying” rate depends in part upon the rate of growth of surplus-value, and thus upon the rate of growth of employment, but this latter rate is held down by labor-saving technical progress. There are several other determinants of the “underlying” rate of profit as well, all of which seem to be fairly stable in the long run. There is thus little reason to expect the “underlying” rate to rise or fall over time.
One might infer from this conclusion that I reject Marx’s law of the tendential fall in the rate of profit. Actually, the opposite is the case. If it is indeed the case that the “underlying” rate of profit is chronically too low to sustain a boom, and that the empirically observed rate of profit tends in the long-run to converge upon this too-low “underlying” rate, then the rate of profit does tend to fall if it initially starts off at a higher level. That will be the case at the start of every boom, after the crisis and the attendant destruction of capital have boosted the observed rate of profit. I believe that the tendential fall in the rate of profit to which Marx referred is just this tendency of the observed profit rate to fall downward toward the “underlying” rate (see Kliman 2003:123–26). This falling tendency persists until capital is once again destroyed to a degree sufficient to offset it.
* * *
In the 1970s and thereafter, policymakers in the U.S. and abroad have understandably been afraid of a repeat of the Great Depression, especially of the destabilization of the capitalist system and the radicalization of working people that accompanied it. They have therefore repeatedly attempted to retard and prevent the destruction of capital. This has “contained” the problem, while also prolonging it (and, I shall argue, exacerbating it). As a result, the global economy has never fully recovered from the slump of the 1970s, certainly not in the way in which it recovered from the Great Depression and World War II.
For instance, in the developed “Western” countries (including Japan), and in the world as a whole, the average growth rate of Gross Domestic Product (GDP) per person during the 1973–2003 period was just barely more than half the growth rate between 1950 and 1973 (see Figure 1). Excluding China, the worldwide growth rate fell by almost two-thirds.
If we look at the average rate of profit of U.S. corporations by taking the ratio of their pre-tax profits to their net stock of fixed capital assets valued at actual purchase prices (see Figure 2), we observe a strong recovery of corporate profitability following the Great Depression but the lack of such a recovery in the period since the slump of the mid–1970s (except for the bubble-induced spike during the last few years). During the 1941–1956 period, after capital had
been destroyed on a massive scale, the rate of profit averaged 28.2%. The high rate of profit in the early part of the 1941–1956 period was partly due to government borrowing and spending during World War II, but the rate of profit remained very high for more than a decade thereafter, which is clear evidence of a sustained boom rather than a debt-induced bubble. However, the rate of profit then fell to an average of 20.4% in the 1957–1980 period. Moreover, despite frequent claims that neoliberal policies and globalization brought about a sustained recovery from the crisis of the 1970s, the rate of profit continued to fall in the1981–2004 period, to an average of 14.2%.
The sharp rise in the rate of profit in the 1941–1956 period, and the lack of a sustained recovery in profitability following the crisis of the mid-1970s, is consonant with the above analysis of the effects of full-scale versus incomplete destruction of capital. It is also consonant with the hypothesis that the observed rate of profit has a tendency, in the absence of a sufficient destruction of capital, to converge upon a too-low “underlying” rate.
In order to mitigate the effects of this phenomenon, and perhaps hoping to overcome it, policymakers have tried to prop up growth and profitability artificially throughout the last three decades. For instance, the slump has been contained in the developed countries to some degree by “exporting” it to the most vulnerable parts of the Third World. In the U.S., profitability has been propped up by means of a decline in real wages for most workers and other austerity measures. Most importantly for the present analysis, the sluggishness of the economy has been papered over by an ever-growing mountain of mortgage, consumer, government, and corporate debt.
For instance, reduced corporate taxes have boosted the after-tax rate of profit relative to the pre-tax rate, but this boost has been financed by additional public debt. More than three-eighths of the increase $6.8 trillion increase in U.S. Treasury debt after 1986 (through fiscal year 2007) is attributable to reduced corporate taxes as a percentage of corporate profits. Almost all of the remaining increase in the government’s indebtedness is used to cover lost revenue resulting from reductions in individual income taxes, reductions that have served to prop up consumer spending and asset prices artificially. Similarly, the effects of declining real wages have until recently been mitigated by easy-credit conditions and rising prices of homes and stocks, brought about by Federal Reserve policies and other means. This has allowed consumers and homeowners to borrow more and save less. Whereas Americans saved about 10% of their after-tax income through the mid-1980s, the saving rate then fell consistently, bottoming out at 0.6% in the 2005–2007 period.
In the long run, however, debt cannot be used to "grow the economy" faster than is warranted by the underlying flow of new value generated in production. Efforts to do so create bubbles, but bubbles burst. The current economic crisis, which began with and remains centered in the crisis in the U.S. housing market, provides a striking example of this phenomenon. In large part because the Federal Reserve pursued a “cheap-money, easy-credit” strategy in order to prop up the economy in the wake of the collapse of the dot-com boom, 9/11, the recession of 2001, and the drop in employment that continued into mid-2003, home mortgage borrowing as a percentage of after-tax income more than doubled from 2000 to 2005, rising to levels far in excess of those seen previously. This caused home prices to skyrocket. Mortgage debt and home prices both doubled between start of 2000 and the end of 2005.
But the rise in home prices was far greater than the growth of value from new production that alone could guarantee repayment of the mortgages in the long run. New value created in production is ultimately the sole source of all income, including homeowners’ wages and salaries, and therefore it is the sole basis upon which the repayment of mortgages ultimately rests. Between 2000 and 2005, total after-tax income rose by just 35% percent, barely one-third of the increase in home prices. This is precisely why the real-estate bubble proved to be a bubble.
Thus, in the period since the crisis of the mid–1970s, there have been recurrent upturns that have rested upon debt expansion. For that reason, they have been relatively short-lived and unsustainable. And the excessive run-up of debt has resulted in recurrent crises, such as the Third World debt crisis of the early 1980s, the savings and loan crisis of the early 1990s, the East Asian crisis that spread to Russia and Latin America toward the end of the decade, the collapse of the dot-com stock market boom shortly thereafter, and now the crisis in the U.S. housing market that has triggered the most acute economic crisis since the Great Depression.
* * *
Policymakers are responding to this crisis with more of the same––much, much more. The U.S. government is borrowing a phenomenal amount of money, for the $700-plus Troubled Assets Relief Program (TARP), Obama’s stimulus package, etc., etc. If these measures succeed, full-scale destruction of capital will continue to be averted. But if the analysis of this paper is correct, the consequences of success will be continuing relative stagnation and further debt crises down the road, not a sustainable boom. To repeat, unless sufficient capital is destroyed, profitability cannot return to a level great enough to usher in a boom. And given the huge increase in debt that the U.S. government is now taking on, the next debt crisis could be much worse than the current one. It is therefore not unlikely that the next wave of panic that strikes the financial markets will be even more severe than the current one, and have more serious consequences.
If the new policy measures fail, we may soon be facing a very severe slump. It might not be as nearly as bad as the Great Depression, but it might be even worse. It might lead to full-scale destruction of capital and a new boom, but in the 1930s, capitalism’s self-correcting mechanisms proved too weak to bring that about. Recovery required both massive state intervention––which is taking place again––and the destructiveness of World War. This time around, it is not inconceivable that we will descend into fascism or warlordism before that point is reached.
Now that a shift away from the “free market” and toward government intervention and regulation is taking place, it is important to recognize that there is nothing inherently progressive about this. It is true that during the New Deal, intervention and regulation were accompanied by some progressive social welfare policies, but that was because a gigantic mobilization of working people forced the U.S. government to make concessions in order to save the capitalist system. If it can save the system without giving such concessions, increased intervention and regulation will be just that––intervention and regulation, period. We have already seen that the TARP bailout money isn’t there to make our lives better.
As in the 1930s, working people need to mobilize in order to protect themselves during the crisis as well as they can. They need to look to themselves, not to the government. By getting their demands met, they will help themselves in the short run. We should be aware, however, that concessions are not a solution to the economic crisis, not a pathway to a new boom. Concessions do not restore profitability, but as long as we remain within the confines of the capitalist system, a new boom will require destruction of capital to an extent sufficient to restore profitability.
We may soon be in a situation in which great numbers of people begin to search for an explanation of what has gone wrong and a different way of life. We need to be prepared to meet them halfway with a clear understanding of how capitalism works, and why, when push comes to shove, it cannot work to the benefit of the vast majority. And we need to get serious about working out how an emancipatory alternative to capitalism might be a real possibility.
Kliman, Andrew. 2003. Value Production and Economic Crisis: A temporal analysis. In Richard
Westra and Alan Zuege (eds.), Value and the World Economy Today (London and New York: Palgrave Macmillan).
Kliman, Andrew. 2007. Reclaiming Marx’s “Capital”: A refutation of the myth of inconsistency. Lanham, MD: Lexington Books.
Kliman, Andrew. 2008. A crisis for the centre of the system. International Socialism, No. 120. Available at http://isj.org.uk.
Marx, Karl. 1989. Karl Marx, Frederick Engels: Collected Works, Vol. 32. New York: International Publishers.
 These other determinants are the rate of exploitation, the share of profit that is reinvested, and the rate of increase in nominal values (prices) relative to real ones. The first two move within strict limits and should be expected to be roughly constant over the long run. If there is not an excessive run-up of debt (which, I argue below, is ultimately self-negating), so should the last determinant. See Kliman (2003:123–26) for a fuller discussion.
 The Okishio theorem was long thought to have shown that Marx’s law is a logical impossibility, but the theorem has been disproved. See Kliman (2007, Chap. 7).
 I have used the authoritative data compiled by Angus Maddison for the 1950–2003 period, available at www.ggdc.net/maddison/Historical_Statistics/horizontal-file_03-2007.xls. His GDP figures are measured in constant 1990 international dollars (Geary-Khamis dollars).
 The data come from the Bureau of Economic Analysis of the U.S. Department of Commerce, available at www.bea.gov. Profit data are from NIPA Tables 6.17 A though D, line 1, and fixed asset data are from Fixed Asset Table 6.3, line 2. I have divided profits by the cost of fixed assets at the end of the prior year.
 See Kliman (2008) for sources and further analysis of the housing market crisis.
 Figure 2 provides some indication of the effects of debt-induced expansions. Accelerating inflation artificially propped up the nominal rate of profit in the mid-to-late 1970s, but ultimately led to a disinflationary slump; it also helped prolong a boost in the price of oil that gave rise to the Third World debt crisis. The 1990s was the decade of “the new economy,” a debt-financed dot-com boom that ended as a burst bubble. And of course the spike in profitability between 2002 and 2007 was debt-driven and unsustainable.
 Impressive-looking forecasts notwithstanding, no one knows or can know at this point. In the absence of stable conditions and meaningful precedents from the past to draw upon, forecasts are little more than hunches with numbers attached.
URPE blog entry
The Onset of the Great Depression II: Conceptualizing the Crisis
by David Laibman*
[Note: This text will appear in the "Editorial Perspectives" section of the July 2009 issue of Science & Society. That issue will also contain a Call for Papers for a forthcoming special issue devoted to Marxist Perspectives on the Capitalist World Crisis.]
The Onset Of Great Depression II: Conceptualizing The Crisis
At this writing (January 2009), firms in all sectors of the U. S. economy are cutting their payrolls; unemployment and homelessness are soaring; and the working class is taking the biggest hit to living standards in several generations, raising deep doubts about the capacity of our capitalist society in the near term to ensure overall social reproduction. Similar trends are evident around the world, reflecting a heightened degree of interconnection and transnationalization. Mountains of debt — consumer, business, government, offshore — continue to accumulate, and the fragility of the international financial system becomes daily more apparent, dashing any hope of a quick recovery. We should begin by saying, loud and clear: The Marxist understanding of the inherent instability and progressive unworkability of capitalism has been vindicated! We Marxists have, in our different ways of course, been saying that the “free world” golden age, the long boom, the “free market,” the end of history — whatever — are all one big myth; that capitalist accumulation, with its immanent trope toward polarization, reckless expansion, irresponsibility and instability, is increasingly problematic from any standpoint affirming human survival and fulfillment. We have always known this, while legions of mainstream pundits and scholars have not known it, and have been incapable of knowing it. (They still are.)
Then why don’t we feel vindicated? Why do we feel helpless, like the proverbial deer in the headlights? Where is the confident projection of a future beyond capitalism, to help fuel the sort of massive democratic upsurge that secured the October Revolution of 1917, the U. S. New Deal in the 1930s, and the social wage of the advanced capitalist societies of Western Europe in the post-World War II period? Part of the problem, of course, is that Marxist predictions of crisis have often turned out to be wrong, so that when a crisis “finally” does emerge we experience it in the same way as the correct statement of a stopped clock (which is, after all, right twice a day). The old joke haunts us: “Marxists have successfully predicted ten of the last two crises to hit the U. S. economy.” We need to know: how can we use our grasp of fundamentals to produce a superior analysis of this crisis? How can we avoid succumbing either to the sterile maximalism of simply asserting that “capitalism = crisis” and vapid talk of “general crisis,” on the one hand; or joining the hoards of talking heads who spew forth endless details of sub-prime mortgages, financial derivatives, bailouts, “latest developments,” etc., with the associated anything-is-possible/ nothing-is-possible chatter, on the other? Well, we can but try. The answer won’t be found, in my view, in the form of endless empirical description, nor by means of the “Marxist econometric model” that the late David Gordon so meticulously sought. Nor will it be found in further study of Marx’s texts, although that study remains important as one source of useful insight. As always in these essays, I argue that conceptual clarification is essential, and in this instance I believe a specific conceptual gap has been a defining feature in the work of Marxist economists in capitalist countries who are systematically hostile toward the early-socialist states of the 20th century (the so-called “Western Marxists”). More on that in a moment.
Crises of capitalist accumulation have traditionally been categorized into “cyclical” and “structural.” One can, of course, deploy both concepts simultaneously, as when investigating the cyclical and structural aspects of a given crisis. Cyclical crises are the periodic, and periodically necessary, wrenching adjustments in the path of accumulation, revealing the general recurring tendency of capitalism to undermine its own conditions for further expansion. They have been sub-categorized into crises of “realization” (based on deficiency of demand), and crises of “liquidation” (based on excessively low profit rates). Structural crisis, by contrast, occurs when a given stage of accumulation (or “social structure of accumulation”) must necessarily give way to a succeeding one. One example is capitalism’s need for a qualitatively enhanced form of state regulation, an institutional transformation of the early 20th century that was mightily resisted by capital, even as that system’s most thoughtful representatives saw the need for it and mass working-class struggle from below brought home its necessity. Another such stage (or “stadial”) conception of crisis rests on the “social structure of accumulation” (or, in a different formulation, the “regime of accumulation”) that emerged in the post-World War II period, characterized by “Fordist” mass production, Keynesian demand management, and a capital-labor accord ensuring (relative) class peace in exchange for assured worker participation in rising productivity. The structural crisis was the stormy period of the 1970s emerging from the unraveling of this arrangement.
I would like to propose, amplifying this set of distinctions, a three-way conceptual frame, in which cyclical crisis is sub-divided into two sub-categories: accumulation, and balance-of-forces. We therefore have three crisis types: 1) accumulation-cyclical; 2) balance of forces-cyclical; and 3) stadial-structural. These can be combined to characterize a particular conjuncture. Accumulation-cyclical crises are the classical crises of overproduction, with either the realization or the liquidation aspect in the dominant position. They embody a central capitalist contradiction: individual capitals must seek ever-higher profit rates in ways that undermine the conditions for their realization, where these conditions involve both demand and the nature of production (mechanization, concentration and centralization of capital, etc.).
Stadial-structural crises (to skip over the second type for the moment) refer of course to the stadial, or stage-like, character of capitalism. The stormy transition to a more intense regime of state regulation has already been mentioned; it took the first Great Depression (GD I!) to force it through (1). Now, some seven decades later, the structural contradiction is different: capitalist units of control (firms), as a result of persistent concentration (growth in the size and interdependence of productive units), centralization (gathering of control into fewer and fewer hands), and the rise of information technology, have grown beyond the limits of capital’s own state regulation.
In recent years the rise of “offshore” dollars (until recently the unchallenged international reserve currency) and financial centers has increasingly eroded the power of government stabilization bodies, and even eclipsed the reach of supranational entities such as the IMF and World Bank. The potential for instability in the enormous transnational capital market, enhanced by the rise of financial derivatives whose face value is now many times world GDP, has been richly described by many, but here we place it in the framework of an immanent outcome of continuing capitalist accumulation.
The attenuation of actual and potential regulatory power on the part of governments may be seen as an instance of capitalism, in the late 20th and early 21st centuries, gradually re-asserting its characteristic elemental quality. To understand this fully, however, we must now invoke the second of the three crisis categories: balance of forces-cyclical. Of the three, this one is, I submit, the least well understood, largely because of the widespread failure on the “Western” left to appreciate the revolutionizing role of the Russian Revolution and of the early socialist societies to which it gave rise. October 1917 set in train a powerful movement from below; this movement shaped the path of accumulation throughout the world, including in the advanced capitalist countries. The emergence of a post-capitalist state, in a huge land mass, created a basis for independent political and social development of exploited and impoverished classes in all parts of the capitalist world, and gave Great Depression I its special character as a threat to capitalism as such. This, it should be noted, is true despite the material weakness and political and cultural deformation that were part of Soviet society and its development. The combined effect of the revolutions, both successful and unsuccessful, of the early 20th century and the Depression was to create a massive shift in the balance of class forces in favor of the working class and related subaltern social classes and strata. Except in the USSR and, postwar, Eastern Europe and China, this shift did not eventuate in a transfer of state power or the overthrow of the capitalist ruling classes; it did, however, result in a period in which the elemental capitalist process was repressed, attenuated, forced to function in muted fashion and to respond to popular demands. So alongside early socialist construction to the east, we have European Social Democracy, the social wage, various and sundry “capital-labor accords,” the break-up of the colonial empires, Keynesian stabilization and regulation in the west. The history of the latter decades of the 20th century, until the present, is one of the gradual undoing of this working-class position of strength and reversion of the balance of class forces to its more normal state: a passive, apolitical working class and a healthily (from the capitalist standpoint) valorized labor-power commodity. The decline in trade union membership in the United States is a factual symbol of this history.
And standing in glaring contradiction to it is the emergence in the USA of widespread working-class home ownership after World War II. Reflecting the social advance of the working class, home ownership was also central to the subsequent ideological derailment, as was “consumerism,” the suburban life style, and much else. But the accumulation of personal wealth in the form of real estate was also a growing threat to the classical proletarian condition, and therefore an obstacle to the progressive re-emergence of unfettered capitalist class rule. What was needed — again, from the standpoint of capital — was nothing less than a new re-dispossession of workers on a large scale. From this standpoint, the crisis — for capital — is the advanced social and political position of the working class that emerged following the mobilizations related to the world wars, the Depression, the victory over fascism — and the continued existence, and threat, of the Soviet Union. The resolution of the crisis is re-proletarianization, much more advanced in the USA than in, say, Western Europe.
Now, with these pieces of the puzzle in place, we can briefly describe the present crisis. It is a perfect storm of crisis: a coming-together of accumulation- cyclical, balance of forces-cyclical, and stadial-structural elements.
The crisis of overproduction has been a long time in the making. But financialization — the enormous increase in debt of all kinds — constitutes, as we well know, an offset. When consumer demand is restricted owing to a falling wage share of income (as has been happening since sometime in the 1970s), the gap can be papered over by installment plans, and other forms of consumer borrowing. Public debt can prop up aggregate demand. U. S. factories can ship goods to the rest of the world, and lend the world the money to pay for them. (Of course, this relationship was reversed in the 1980s and 90s, and we now borrow massively from the world, instead of lending to it.) The question, however, is: how far can this process go? How far can the rubber band be stretched, before it breaks?
This writer remembers doing research into debt ratios (consumer debt to personal disposable income, overall debt to GDP, etc.) in the early 1970s, and concluding, truly and ominously, that these ratios were all then just surpassing their 1929 levels! Surely a sound basis for predicting an imminent collapse — which, however, came along almost 40 years later. (Shades of “predicting ten out of two crises.”)
Now the question — how much debt leverage is possible? — seems unanswerable, unless we bring in the balance of forces cycle (the one that, as noted, many Marxists have trouble with). Why, for example, when the mortgage market showed signs of trouble last year, was a new securitization not possible? Tension in this market has been on the rise for years, after all. The answer may well lie along these lines: Repackaging and underwriting of the bad loans was possible, in principle; it would simply have required the sort of lofty thinking and long time horizon that goes against the grain of capital — like chimpanzees standing erect on two legs for short periods — but can be accomplished by them through use of the state apparatus. What happened, however, is that powerful ruling circles in banking and finance (and politics) concluded that the housing crisis should not be further postponed; that it was now both necessary and politically possible. The crisis of homelessness in the U. S. working class is precisely the assertion of a central capitalist imperative: reproduction of the proletarian status of workers ultimately requires their propertylessness (2). This need not be thought of as a simple conspiracy: it is rather that the balance of forces have evolved, in what from our standpoint is an unfavorable direction, to a point at which powerful players in the financial markets, and in government, now think the consequences of saving low-income home ownership are worse than the consequences of letting that ownership slide. This may appear as nothing other than good financial decision making, but it ultimately results from a shifting world balance of class forces, in which the demise of the Soviet Union, while certainly not the only factor, was nevertheless a crucial one. And that, as they say, is where the rubber band snaps.
So. We have an accumulation-cyclical crisis in potential form, developing over time. We have a regulatory-stabilization apparatus designed to either avert the actual economic downturn, or at least soften the blow (this is what they mean by a “soft landing”), an apparatus which however is increasingly undermined by elemental transnationalization. Finally, the balance-of-forces chickens come home to roost: the will to offset the downturn evaporates as the political need to do so vanishes. A perfect storm. When the sea change in working-class consciousness and organization occurs — notice that I say “when,” not “if” — the ruling circles will then need enhanced forms of regulation appropriate to their own newly transnationalized world economy, and they will find that these forms are not in place! Moreover, those forms may not even, ultimately, be possible. But all that, as they say, is (yet) another story.
1. Actually, what we call the (first) Great Depression is really the second. Economic historians are familiar with the period 1870-93 (or thereabouts), a time of depressed trade and high unemployment that was well entrenched in popular consciousness, until erased by the momentous turn of the 1930s. (How quickly we forget!) The crisis of the late 1800s may be considered structural, resolved by the rise of the trusts and robber barons. I will, however, begin the count with the more recent Great Depression (GD I), as we wonder whether we are standing on the threshold of its successor.
2. The use of Medicare as a means of re-dispossession — withholding health care from the elderly until they spend down and are thus divested of their homes, farms, and paper assets, and their children deprived of their inheritance — is yet another element in this overall strategy, one that requires separate and detailed treatment.
* David Laibman is Professor of Economics at Brooklyn College and the Graduate School, CUNY, and Editor of Science & Society. His most recent book, Deep History: A Study in Social Evolution and Human Potential, was published in 2007 by SUNY Press. He can be reached at firstname.lastname@example.org.
Newly added to the Wildcat website:
Kart Heinz Roth: "Global crisis – Global proletarianisation – Counter-perspectives"
It combines an astute analysis of the crisis with a survey of global class composition from the 1970's till today, and a suggestion about what form a revolutionary proletarian response to the crisis might take. Although I take issue with certain aspects of the text (such as his underconsumptionism, and accordant limited support for Keynesian counter-cycular measures) I like the way it takes class composition as its central problematic, both in terms of making sense of the crisis and making sense of a revolutionary response to it. Prol-Position did something similar in Stop Looking Into the Headlights but Roth's text looks more deeply into the global structural foundations of the crisis.
"Financial Implosion and Stagnation: Back To The Real Economy" by John Bellamy Foster and Fred Magdoff
The definitive Baran-Sweezyite "under-consumptionist" account of the current crisis. The last chapter from Bellamy Foster and Magdoff's new book, The Great Financial Crisis: Causes and Consequences (Monthly Review Press, January 2009).
Murray E.G. Smith "Causes and Consequences of the Global Economic Crisis: A Marxist-Socialist Analysis"
see attached pdf
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