November 18, 2008

Marx on Debt

Filed under: Economics, Marx, NP — duncan @ 5:51 pm

Why is there a social imperative, in capitalism, towards valorisation, accumulation, expansion of markets and production? Here’s a passage from Capital Volume III. Marx is talking about interest rates, and the division of surplus value into interest on capital and profit of enterprise.

[T]his mutual ossification and autonomization of the two parts of the gross profit, as if they derived from two essentially separate sources, must now be fixed for the entire capitalist class and the total capital. Furthermore, this is true irrespective of whether the capital applied by the active capitalist is borrowed or not, or whether or not the money capitalist who owns the capital uses it himself. The profit on any capital, and thus also the average profit based on the equalization of capitals among themselves, breaks down or is divided into two qualitatively different, mutually autonomous and independent parts, interest and profit of enterprise, which are both determined by particular laws. The capitalist who works with his own capital, as well as the one working with borrowed capital, divides his gross profit into interest that accrues to him as owner, as lender of his own capital to himself, and profit of enterprise, which accrues to him as an active, functioning capitalist. It becomes a matter of indifference, as far as this division is concerned, whether the capitalist really does have to share with another or not. The person who applies the capital, even if he works with his own capital, breaks down into two persons, the mere owner of capital and its user

Money that is lent out must be returned to the lender with interest added on – this is the principle of lending. [Though see below.] Another way of saying that: money lent out must be valorised. Now – this doesn’t mean that money lent out will ‘really’ be valorised, through the production of ‘real’ additional value. It doesn’t (contra my macroeconomics textbook) mean that all money lent out must be lent out for investment purposes (still less for successful investment). But the additional value that’s returned to the lender as the price of borrowing has to come from somewhere. For the particular borrower, this additional money could come from, say, reduced consumption at the appropriate time. But just as the capitalist class as a whole can’t make money by individual capitalists thieving off each other, so for the system as a whole interest on borrowing can’t be repaid just by taking money from elsewhere. If the economic system as a whole necessarily involves lending (which it does), then, for the system as a whole, there are only two options (both of which can be (and are) operative at once, of course): 1) default; 2) growth. [Though this ignores changes in price levels, which is really important. Sorry :-(.] I hope I’m more or less right in saying this.

What’s particularly striking about the Volume III passage I quoted, is that here Marx suggests that the logic of lending applies even to capitals that are not in fact lent out – that even the capitalist who invests his own money obeys the capitalist logic of interest and (therefore) valorisation. This is turn suggests that it’s a mistake to give too much emphasis to private property, in our analysis of the capitalist system. One of the things that’s distinctive about capital as a movement of valorisation, Marx suggests, is not private property per se, but rather the interplay between private property and debt, and the entrance of the social logic of debt into some kinds of apparently clear-cut private property.

Keynes on Marx (and Malthus)

Filed under: Economics, Keynes, Marx — duncan @ 11:49 am

Writing to George Bernard Shaw, during the composition period of the General Theory, Keynes justified his dismissal of Marx by claiming that the Theory “will largely revolutionize – not at once but in the course of the next ten years – the way the world thinks about economic problems. There will be a great change, and, in particular, the Ricardian foundations of Marxism will be knocked away.”

At the moment I’m reading Keynes’s Essays in Biography. His discussion of Ricardo and Malthus’s corresondence is interesting – Keynes writes: “If only Malthus, rather than Ricardo, had been the parent stem from which nineteenth-century economics proceeded, what a much richer and wiser place the world would have been today!” That sentence follows several long passages from Malthus’s side of the correspondence, which Keynes sees as articulating ideas neglected by the subsequent tradition. For example:

We see in almost every part of the world vast powers of production which are not put into action, and I explain this phenomenon by saying that from a want of the proper distribution of the actual produce adequate motives are not furnished to continued production… [I]f it be true that an attempt to accumulate very rapidly will occasion such a division between labour and profits as almost to destroy both the motive and the power of future accumulation… must it not be acknowledged that such an attempt to accumulate… may be really prejudicial to a country.

Now here’s part of one of Keynes’s earlier footnotes:

Marx, criticising Malthus, had held that over-population was purely the product of a capitalist society and could not occur under Socialism. Marx’s reasons for holding this view are by no means without interest, being in fact closely akin to Malthus’s own theory that ‘effective demand’ may fail in a capitalist society to keep pace with output.

Quite so. It’s a large mistake to see the foundations of Marxism as ‘Ricardian’, in this sense, or to think that a knocking away of such foundations is also the invalidation of Marx. (I haven’t read Ricardo, I should add, or the modern neo-Ricardians, and Keynes may well be being unfair about Ricardo too.) Marx’s discussion of crises, of overproduction, of the economic imperatives that move capital from industry to industry (driven not by the pull of ‘equilibrium’, but constantly refreshed disequilibriums) – all this is much closer to the Malthus of ‘effective demand’ than to the caricatured ‘long termism’ Keynes attacks, in the General Theory and elsewhere.

Although, of course: central to Marx’s critique is the way in which the logic of capital subjects our lives to the imperatives of production, valorisation, accumulation. Whereas Malthus is clear about the final purpose of his economic theorising:

I expressly say that it is my object to show what are the causes which call forth the powers of production; and if I recommend a certain proportion of unproductive consumption, it is obviously and expressly with the sole view of furnishing the necessary motive to the greatest continued production… [A]n increase of unproductive consumption among landlords and capitalists may… sometimes be the proper remedy for a state of things in which the motives to production fail.

November 15, 2008

Labour Theory of Value: Interim Report (Part 3)

Filed under: Economics, Marx, NP — duncan @ 5:16 pm

Okay – here’s the really controversial one [edited down substantially, since the original version – oh dear…].

In my opinion, the Labour Theory of Value is a fetishised form of thought – a theory that’s the product of, rather than say an expose or analysis of, fetishism, as fetishism is defined in Chapter One of Volume One of Capital.

Here’s part of the famous passage.

“It is nothing but the definite social relation between men themselves which assumes here, for them, the fantastic form of a relation between things… I call this the fetishism which attaches itself to the products of labour as soon as they are produced as commodities”.

This sort of fetishism stuff is I think generally read as something like: the thing which is manifested and occluded in commodities is the value-producing activity of labour. Value may appear to be a quality of the commodities themselves, but it is actually a property produced by labour, and then fetishistically attached to commodities, occluding the fundamental link between labour and value.

Now, as I’ve already said, I don’t think we should accept that labour has the particular property of producing value, or of endowing commodities with value. Instead, value is a social category produced or enacted by a whole set of social and economic relations.

Under some circumstances, in capitalism, it becomes plausible to attribute the property of producing value not to this whole set of relations, but rather to a particular relation – the relation between a worker and the means of production – and in particular to the labouring activity itself. It becomes plausible to see labour as solely productive of value. But this is not, in fact, the case. We have taken a complex set of social relations, actions, interactions, etc. and attributed their properties or the social properties they produce/enact to a particular object or activity. In relation to the commodity, in Chapter One, Marx calls this fetishism – a “definite social relation among men” which “assumes the fantastic form of a relation among things”. But men are things too – and our labouring activity can also fetishistically be granted properties that are in reality produced by a larger set of social relations. I think the labour theory of value can best be understood in these terms.

Now clearly this kind of ‘fetishism’ is less pervasive, in capitalism, than commodity fetishism; and there’s a whole lot of other stuff that really ought to be said, expanded on, or qualified. But the usual excuses. More to follow, eventually, hopefully.

November 12, 2008

Labour Theory of Value: Interim Report (Part 2)

Filed under: Economics, Marx, NP — duncan @ 4:23 pm

Okay.  Here’s my current favourite passage in Capital:

“It is the extraction of this surplus-value that forms the immediate process of production, and this faces no other barriers than those just mentioned.  As soon as the amount of surplus labour it has proved possible to extort has been objectified in commodities, the surplus-value has been produced.  But this production of surplus-value is only the first act in the capitalist production process, and its completion only brings to an end the immediate production process itself.  Capital has absorbed a given amount of unpaid labour.  With the development of this process as expressed in the fall in the profit rate, the mass of surplus-value thus produced swells to monstrous proportions.  Now comes the second act in the process.  The total mass of commodities, the total product, must be sold, both that portion which replaces constant and variable capital and that which represents surplus-value.  If this does not happen, or happens only partly, or only at prices that are less than the price of production, then although the worker is certainly exploited, his exploitation is not realized as such for the capitalist and may even not involve any realization of the surplus-value extracted, or only a partial realization; indeed, it may even mean a partial or complete loss of his capital.  The conditions for immediate exploitation and for realization of that exploitation are not identical.  Not only are they separate in time and space, they are also separate in theory.”  (Vol. III, p. 352)

I’m not sure I’m in a position to expand on this adequately now – but this passage strikes me as articulating the central equivocation in Capital.  The issue is – what is the relation between the “immediate production” and the “realization” of value?  According to this schema, value can be ‘produced’ that is never realized – and, indeed, the ‘production’ of non-realized value is central to the capitalist system.  Does not this lack of ‘realization’ of value that’s been (immediately) ‘produced’ reflect back on, expand, and in a sense transform the concept of ‘production’?  Indeed, isn’t this the heart of Marx’s argument – not just his argument about the systemic contradictions that produce crises, but also his argument about the coercive power of capitalist social relations to enforce the exploitations of capitalist production?  And doesn’t this stand in marked tension with the ‘standard’ labour theory of value, which I was complaining about in my last post?  If I were going to offer an interpretation of Capital – which I’m not, any time soon, because I’ve still got a whole lot of Marx still to ingest – I think I’d probably take my bearings from this passage, and others like it.

Labour Theory of Value: Interim Report (Part 1)

Filed under: Economics, Marx — duncan @ 1:21 pm

Okay – I’m classifying this stuff as way stronger than ‘hunch’, but still quite a bit weaker than ‘I can cash this out in a 100,000 word monograph’. From the top:

1) The Labour Theory of Value, as (I think) it’s generally understood, is wrong. (Which requires a bit of elaboration, so)

– It’s not totally clear to me what ‘the Labour Theory of Value as generally understood actually is. I think there are probably a few different sets of ideas that can be referred to as the LTV. Let’s say the basic one is something along the lines of: you’ve got your human beings. When human beings work, when they labour, as well manipulating and transforming physical objects (or the minds of impressionable young folk; or computer code; or whatever) they also confer onto those objects (or whatever) a social property – value. According to the LTV, labour is the source of all value. Now I’m not totally clear on how formulations like this are generally understood – but this picture seems to me to be prima facie implausible. How is value understood to be transmitted from labourer to product, or understood to be created in the manipulation or creation of the product? The LTV, in this form, seems to be to be powerfully counter intuitive.

– Now I don’t think adherents of the LTV believe that the value created by labour is simple market price. Rather, there’s understood to be a complex relationship between price and value, such that value in some sense regulates price, but that price can and often does massively deviate from value. This removes some of the prima facie implausibility; but it seems to me just to push the implausibility back a step. I’m not sure exactly how value is generally taken to regulate price [because a) I’m pretty ignorant of the literature; and b) what little I’ve read strikes me as obscure] – but assuming there’s some causal relation such that value regulates price, and assuming that value is ultimately understood to be created entirely by labour, you’re still left with the question – what exactly is being created or transmitted in the labouring process (and what is the mechanism of that creation or transmission?) Labour in > prices out. How?

– The simplest way of understanding this would be that human activity creates some sort of mana (???) or immaterial substance (??), ‘value’, which is embedded in the products of labour (and which can then be transmitted from those products to other products through the mediation of further labour). But this seems, again, implausible. It seems metaphysically implausible (why are we positing such a substance, even if we call it a social substance rather than a metaphysical one?), and it also seems empirically implausible. It seems like a familiar empirical fact that lots of commodities that don’t involve much labour in their production sell for high prices – or are regarded as very valuable. Whereas lots of commodities that involve heaps of labour sell very cheaply and are regarded as relatively valueless. Obviously this isn’t true all the time; but there seem to be pervasive enough counter-examples to throw what seems to be the LTV into some doubt.

– [Plus how exactly would labour inputs determine price? People buying products don’t know how much labour has gone into producing them; the people selling them need not either. And even if everyone does know the relevant labour inputs, why would this influence exchange values? If the influence is taken to be indirect, what would the causal mechanism of this indirect influence be? I can’t think of a plausible causal chain, here, that transmits labour inputs into prices, even as a general trend or in aggregate.]

– If I understand right, many adherents of the LTV don’t argue that the LTV is true at any micrological level (even as a long-term trend), but argue that it is true for the system as a whole. Which again, removes some prima facie implausbility, but again seems to me simply to push the implausibility back a step. Put aside as irrelevant the fact that it only makes limited sense to talk about prices in aggregate. (Because it does make sense to talk about, say, the rate of profit in aggregate, and that kind of thing is where the LTV is taken as having descriptive / explanatory power.) I still don’t see why say the ratio between constant and variable capital (or, in orthodox economics’ terms, between capital and labour) should influence the rate of profit (= the amount of value created relative to money spent). The question is still – what’s the causal mechanism here?

– [For what it’s worth, I’ve been in intermittent attendance at the Historical Materialism conference; on Sunday Geert Reuten presented an interesting paper (cowritten with Peter Thomas) about the shift in Marx’s discussion of the falling rate of profit between the Grundrisse and Capital. Basically (if I understood right) Reuten was talking about a shift (in Marx’s thought) from the falling rate of profit as a long term trend, with an eventual apocalyptic conclusion for capitalism, to a cyclical account that sees crises as providing capitalists, or capital, with the opportunity to recalibrate the capital-labour relation in a way that re-establishes a more substantial rate of profit. As far as I can tell, the implication of this latter argument (though Reuten didn’t I think discuss this) is that the falling rate of profit shouldn’t be understood as a long-term trend, and that therefore the changing organic composition of capital is not the major factor in the establishment of the profit rate. But that’s probably by-the-by.]

– Anyway, upshot is I just don’t see how the labour theory of value can provide an adequate account of the determination of prices, micrologically, in aggregate, or in the short or long term.

More to follow in subsequent posts.

October 20, 2008

Working Definition of Capitalism

Filed under: Economics, Keynes, Marx, NP, Politics, Social Theory, Vitiated by Ignorance — duncan @ 5:29 pm

I’m feeling a bit behind in economics stuff. So I thought I’d throw up a working definition of capitalism, open to wholesale revision if necessary, of course.

Say that capitalism has two main features.

1) Blind accumulation / consumption.

Capitalism is a system of economic and social organisation oriented toward production as an end in itself. Clearly the ‘profit motive’ is important here. But the ‘profit motive’ is only one of the more important of the various group or individual inclinations created by and sustaining a system oriented to production for its own sake. It’s a secondary question what is produced, and why – which is why Marx talks about people being subordinated to the processes of production, rather than the other way around. Another useful touchstone here is Keynes, in The Economic Consequences of the Peace.

The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a society where wealth was divided equitably. The railways of the world, which that age built as a monument to posterity, were, not less than the pyramids of Egypt, the work of labour which was not free to consume in immediate enjoyment the full equivalent of its efforts.

Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the labouring classes accepted from ignorance or powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority, and the well-established order of society into accepting, a situation in which they could call their own very little of the cake that they and nature and the capitalists were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. The duty of ‘saving’ became nine-tenths of virtue and the growth of the cake the object of true religion. There grew round the non-consumption of the cake all those instincts of puritanism which in other ages has withdrawn itself from the world and has neglected the arts of production as well as those of enjoyment. And so the cake increased; but to what end was not clearly contemplated.

Another good touchstone here would be Weber on the Protestant Ethic, but it’s a while since I read it. And thinking of Weber, an important point of divergence from Keynes in this passage, I think, should be his analogy with religion. Depending on our understanding of religion, this may be fine – but it’s important to register, I think, that a general social inclination towards blind accumulation need not be produced by any individual or group faith in or orientation towards that end. We ourselves don’t need to believe in the virtues of blind accumulation in order for our actions to part of a social-economic system oriented towards it.

Another question here is what we mean by ‘production’. Capitalism counts certain behaviours as productive and others as non-productive. Indeed, there’s a two-fold division – between those activities that supposedly fall entirely outside the capitalist system of production (say, much of family life), and those in some sense non-productive activities that are universally acknowledged as central (e.g. finance). Not sure I’ve got anywhere to go with this just yet. But worth noting, I think, that lots of stuff that’s supposedly external to capitalism even in the former sense is no doubt important to the reproduction of the social forms that everyone acknowledges as capitalistic.

More should be said on all this, obviously, but moving on…

2) A system of production oriented around wage labour.

This is altogether shakier than #1, I think. Clearly slavery has played and continues to play a profoundly important role in capitalist accumulation. Nevertheless, the reason Marx gives labour such an important role in his economic & political writings isn’t just that he’s participating in and trying to foster a political movement of the working class; and isn’t just because labour as a transhistorical activity is essential to any production at all. Marx also sees wage labour as an essential feature of the capitalist system. (c.f. Diane Elson on The Value Theory of Labour.) My historical knowledge is more than a little shaky – but I think it’s probably fair to see capitalism proper emerging alongside the social upheavals that created a large-scale market in wage labour.


Probably worth noting, however, that we don’t necessarily need to find an essence of capitalism in order to, like, talk about or oppose it. It’s worth at least thinking about what such an essence might be, however, since lots of the central features of capitalism that we want to fucking abolish – e.g. massive exploitation – clearly aren’t specific to capitalism (even if capitalism’s specific forms of exploitation are). Also, contrariwise, because if we have an inaccurate sense of what’s essential to the capitalist system, we may direct our critiques and action against political or social forms that capitalism (and its regimes of exploitation) can operate perfectly well without.

Or it may be unhelpful even to think in these terms, I’m not sure.

[As will become customary, the ‘NP’ tag means that this stuff is… erm… in dialogue with Rough Theory. NP has a couple posts about Diane Elson’s essay here, for instance.]

October 13, 2008

Between Totality and Individualism

Filed under: Economics, NP, Politics — duncan @ 4:21 pm

Good old economic individualism: I’m sure I read somewhere in Krugman’s textbook (he’s won the Nobel Prize, you know) that economists have nothing to say about the origin of individual preferences. Contrariwise, your Hegelian Marxists will bang on and on about the need to understand capitalism from the perspective of the totality. Here’s Marx in Volume III: “The distinctions between rates of surplus-value in different countries and hence between the different national levels of exploitation of labour are completely outside the scope of our present investigation. The object of this Part is simply to present the way in which a general rate of profit is arrived at within one particular country.” Why is a country the unit of analysis, here? When your Marxy social theorists talk about the forces present in a society, how is the limit and cohesiveness of a ‘society’ determined? There’s a big problem with the sort of Lukacsian stuff oriented toward a general (hypostatised) social entity, which has, apparently, powers of agency. (I’ve also been reading Postone.) How the fuck is the identity and nature of this social being determined – is it just a Durkheimian social apriori big blob of jelly, floating around, influencing individual actions? Obviously some kind of ‘social’ needs to be posited if you’re not going to end up with wacked up monadic individualism – but a lot of the political-economic stuff I’m looking at seems to alternate between either wacked-up monads or frankly mystical Hegelian-Durkheimian hypostatisation of ‘Society’. It’s enough to turn you Thatcherite.

Take the present ‘financial’ crisis. Boring repetition: the root cause is the decline of US power. Your post-war Pax Americana was a system or set of systems principally oriented toward the appropriation of the ‘developing’ world’s resources. At some basic level, this is all backed up by military power. But of course power and influence work in a multitude of mysterious ways – the system runs on its own; the set of personal and institutional orientations that have their quote-unquote ‘objective’ basis in the threat and reality of violence are monstrously powerful in their own right. The thirty-year credit boom just ended was, in a way, the system continuing to operate toward this end as the ‘objective’ grounding for it ebbed away. So you’ve got a situation where the dollar is acting as the world’s reserve currency, because the US is the biggest of the too-big-to-fail economic entities we hear so much about, and yet the dollar’s supposed rock-solid stability is used to ground the massive indebtedness of the apparent exploiters to the apparently exploited. [and yes yes I know fine.]

Point is that in, say, the Great Depression, the different social forces at work in capitalism ground against each other to undermine the general orientation of the system: blind accumulation / consumption. This kind of thing can’t be understood from the perspective of ‘totality’ – because ‘totality’ (or the Durkheimian ‘social’) can’t provide adequate resources to describe such conflicting or contradictory movements. But neither can these movements be understood from the perspective of individualism – because one needs to take account of social and institutional inclinations and inertia that can’t be placed in the black box of individual preference. You don’t have individual preference on the one hand, and then the system within which individual preferences operate, on the other. Not as in the individuals, states and markets model of economic textbooks – but not as in the Durkheimian distinction between a hypostatised society providing conditions of possibility of social thought or action, and individuals operating within it, either. The social conditions of possibility and the choices that are made within them are ‘ontologically’ the same, if that makes any sense at all. And we need to hold this thought, while also being able to think about social activities that can’t be understood while focussing simply on the micrological. At one level this is trivially obvious. But I find it troublesome.

Newsnight’s economics editor, Paul Mason, has a blog that’s well worth reading. He’s a solid lefty – according to Amazon, he’s written a book about the global labour movement called ‘Live Working or Die Fighting’ (!) – and in this post I think he’s perhaps being a little optimistic. Still:

“My thesis is, now, competition is effectively over. These banks were competing with each other at the margins – churning customers to get people onto more lucrative deals, encouraging credit-card swapping, bombarding us with ads designed to generate specific business etc.

Any state-backed bank that does this will be greeted with howls of protest by the others and some customers…

Once the wing public realises these companies are being run in part in the public interest there will be an avalanche of campaigns: over small business interest rates, over rip off lending practices, over offshoring. The banks, in other words, will be required to show some social responsibility towards their actual customers…

When my grandfather’s colliery was nationalised they stood there and watched the flag go up, got in the cage and hacked away at the same coal on the same wages etc. Only crazy radicals believed there ought to be some actual change in the way the pits were run. This is a very 21st century nationalisation: the first in the age of info-capitalism. I have no way of predicting what its social or economic outcome will be, because there is nothing in the manifestos, think tanks, books, speeches of any of the main parties to indicate what they might do.”

To be honest, I’ll be pleased if the politicians manage a transition to a multi-polar world without killing us all. But if they’re going to be transforming it anyway, it’d be nice to get a banking system oriented towards something other than profit. Fat fucking chance – but possibly worth making some noise over.

Placeholder Post

Filed under: Economics, Politics, Vitiated by Ignorance — duncan @ 12:45 am

I don’t think I’m going to get a proper post up this evening, what with not knowing hardly nothing – but that won’t stop me making gloomy sounds. The synchronised plan the eurozone leaders are busy announcing obviously fails to address the fundamentals of the crisis. So does Brown’s plan, in the UK. You can’t borrow your way out of debt, as my bank manager keeps telling me. The real-economy problem is that ‘developed’ countries have been consuming resources far beyond their objective ability to appropriate them – and this appropriation has been funded by debts with the countries the resources are supposedly ‘appropriated’ from. Until that global imbalance[1] is addressed, by a massive realignment of economic and political power, things are going to be in ‘oh shit’ territory. (Things may be in ‘oh shit’ territory afterwards too, of course – but that’s a separate thing.) Sobering reading for tonight, then, is this post over at EconoSpeak.

“A change in sentiment on the dollar, if it occurs, will be sudden, unexpected and massive. An outflow of funds would stop the Fed/Treasury strategy in its tracks and mark the end of any meaningful program to restore financial markets. No one knows what the tipping point could be, or even whether the most enlightened policy can avert it.”

Since a change in sentiment on the dollar seems (to me) to be a condition of the establishment of a new global economic system, this fact doesn’t bode well. There’s no particular reason why all aspects of a structural realignment of capitalism around a geopolitical order yet to be established need to happen at the same time. It’s possible, I guess, that the current system can be shored up in the short term while longer-term adjustments… play themselves out. But since the current bailout plans seem to be a continuation, by other means, of the very economic policies and capital-movements that produced the disaster, I find it hard to believe that they’re going to solve anything. My prediction: next week will bring bad news for everyone except Fred Goodwin’s family.

More to follow sooner or later, though.

[1] Don’t really like the resonances of ‘imbalance’, which sometimes implies some sort of movement towards perfect economic equilibirum, but fuck it, the word’s still fine.

UPDATE: Hmmm. Stock markets rally, systemic collapse averted, Gordon Brown sainted, fluffy bunnies become the new global currency. I should make predictions more often.

September 25, 2008

The Financial Crisis

Filed under: Economics, Politics, Vitiated by Ignorance — duncan @ 9:51 pm

Okay. So I think it’s clear enough that I don’t know what I’m talking about. But even though the blog is, yes, still dormant, it seems shameful not to post anything at all on the financial crisis. Major apologies for ignorance & incomprehension. This incredibly confused stuff is all coming out of newspaper-skimming and blog-glancing. But so:

First aspect of crisis: Panic in the financial markets. Nobody trusts anybody; nobody will lend to anybody. Collapse of public fact. Made possible by. 1) Deregulation. (See below.) 2) Hideously complex and complexly interlinked financial assets. (Nobody really knows where the ‘bad debt’ is.) Plus you’ve got all sorts of vast financial institutions that aren’t investing from any kind of semi-solid capital base (say, bank deposits), but are relying rather on short-term interbank lending. Domino effect, positive feedback loops, etc. (Plus everything’s leveraged to the gills). Deregulation to blame for all this.

Domino effect prompted, obviously, by specific bad debt = subprime mortgages. Flogged dead horse, this. Banks lying to borrowers about seductive but extortionate deals; borrowers lying to banks about whether they have money, etc. Deregulation to blame here also.

Subprime mortgage fiasco symptom of larger problem. Crisis aspect the second: recent U.S. consumer spending fuelled by debt. Middle and working class wages stagnant for thirty years; breaking of the back of labour; long-term retreat / collapse of left; victory to capital in the capital-labour conflict. Economic growth nonetheless still fuelled by increasing consumption. Gap between consumers’ income and expenditure plugged by household debt. Debt has to be repaid, and can’t be repaid without decline in expenditure. Unsustainable growth. (Enables a massive transfer of resources to the capitalist class.) (Roger‘s been talking about all this for years.)

Credit bubble made possible at a domestic level by Fed policy – interest rates kept low; value lost in internet bubble’s collapse recreated in housing bubble. Vast credit boom sustaining domestic expenditure itself sustained by US borrowing from overseas. Dollar = world’s reserve currency, so US able to run eye-boggling external debt.

Crisis aspect the third, then. Burgeoning external debt corresponds with decline in credibility of US as debtor. Postwar credit boom backed by dollar as reserve currency; dollar as reserve currency backed by US hegemony. Rise of China, India, Russia, developing nations all over, producing now-very-advanced transition to multi-polar geopolitical order.

All this is, I hope (???), passably adequate, as horrible crude summary. The post-war order has worked to appropriate the resources of the ‘developing’ world, based on a system of free trade oriented towards and underwritten by American power. The conveyor belt of resources from poor world to rich is maintained by the power-sodden ‘price mechanism’ – the products (and labour) of the poor priced cheap, the products (and labour) of the rich priced high: exchange of equal values = massive appropriation.

As US hegemony falters, expenditure comes to rely on borrowing from overseas. Within the US economy, comparable movement of resources from the working- and middle- to the ruling classes also comes to based, from the eighties onward, on the extension of credit. The deregulation that permits massive debt expansion is also part of the market fundamentalism that justifies and underwrites the global system of free market exploitaiton. [Apologies for so much boiler-plate stuff. There’s some content here, I think, beneath the confusion.]

Three interlinked failures of the economic system, then. 1) Just general shadiness of deregulated financial markets, which make panics, and corresponding liquidity-collapses, more likely and more severe. 2) But panic’s based on the fact that it’s not possible to appropriate indefinitely income that only exists through borrowing. Solvency, not just liquidity, failure. 3) And all this based on a more general failure of globalised markets, in an era of waning American power, to supply quite enough resources to the developed world, given growth requirements. The financial sector is, by definition, non-productive. If it’s going to keep making people money, there has to be a corresponding growth in the real economy. US production ain’t all that; and the global trade system isn’t supplying enough stuff to sustain expansionist greed. I think. (?????)

Plus, you know, crises are just a feature of capitalism. Wages are depressed by the capitalist drive to profit – which means demand is reduced, because no one can fucking buy anything – which means a crisis of overproduction. Since the long-term depression of wages has been ‘masked’ by the credit bubble, its only when the bubble bursts that the crisis hits, and the ‘real’ redistribution takes place. That redistribution is currently being managed by the US elite, obviously – but it also involves systemic change, as the capitalist institutions that enabled the appropriation are threatened or destroyed by its effects. We’re in the middle of a major structural transformation – and there’s little thought going into how it’s managed – what kind of capitalism ‘we’ (whether Bushites or the all-but-non-existent left) want to see, after the death of neoliberalism.

The calamitous Paulson plan is calamitous for various reasons. No fucking oversight to speak of. Absolutely no attempt to limit executive pay-packets. But above all, obviously, the fact that it’s a simple redistribution from the taxpayer to Wall Street. As Calculated Risk says: “The plan only limits the Treasury to “$700,000,000,000 outstanding at any one time”, so the total purchases can exceed $700 billion. In fact, every time the Treasury sells some securities, they will probably plow the net proceeds back into more troubled assets until the entire $700 billion is gone.” Paul Krugman has been banging the drum over what price ‘troubled assets’ will be bought at. If they’re bought at market value, there’s no injection of capital; financial trading may be kick-started, but there’s no end to the insolvency crisis. If, on the other hand, ‘troubled’ assets are bought at above market value, it’s just a giveaway (with corresponding theft). And this is a problem not only because it’s obscene, but also because we’re in a crisis driven, in part, by lack of demand due to wage-depression – so transferring money from consumers to financial institutions = extra-bad. Paulson, Bernanke et al are obviously working for Wall Street – but the logic of the system is such that individual capitalists get rich by destroying their means of exploitation.

The Chris Dodd alternative proposal would (if I understand right?), give the newly-created government entity (the ‘bad bank’) conditional shares in any firms from which bad assets are bought. Value of shares = 125% of the losses incurred from resale of assets. Recent news reports seem to claim that Paulson et al have accepted something like this – which I’ll believe when I see.

Point remains: there’s a frightening lack of vision in response to the implosion of capitalism’s current form. Just to be clear: it’s absolutely not worth crowing over former-fat cats getting pissed at the Slug and Lettuce. They’ll all have smart jobs in whatever new order emerges. Capitalism reproduces itself through crises – question is: what’s next. Obviously, nationalisation is back on the policy agenda.

But underlying story = a historic moment in the decline of US power. The Pax Americana was, of course, only pax if you ignored the countless violences that maintained it. But the last time a superpower lost its ability to appropriate the world’s resources through laissez-faire trade, we had two world wars, separated by a great depression. Economists tell us that free trade stops wars. In fact, of course, decisive military dominance enables ‘free’ trade.

The two big questions rasied by all this are, then:

What kind of new capitalist system will be born from this restructuration?

How will it relate to a new multi-polar world?

[Subsidiary question: How many of us will die in the coming wars for resources, as the idea that free trade binds us all together in a Fukuyamian paradise of mutually non-coercive recognition and exchange goes the way of Hegel’s Prussian state?]

[Bonus marks: how hard can it really be to develop a credible alternative to the dominant ideology, so that when that ideology collapses under the strain of its system’s contradictions, something more human is ready to take the stage? This crisis has been a disaster for the left.]

[I should really edit, expand, and perhaps then supress, all of this. But the BBC says agreement’s been reached about the US bailout plan – so I’ll post it now before all of the above is rendered obsolete. Serious serious apologies for incredibly weak knowledge & analysis. Not to mention typos, etc. * sigh *]

September 20, 2008

To err is human…

Filed under: Economics, Politics, Sarcasm — duncan @ 10:59 am

From today’s FT leader:

“Naturally, the need for such a government-sponsored rescue is annoying.  Taxpayers may well wish for the imposition of a special tax on recipients of what have turned out, retrospectively, to be unearned dividends and unjustified salaries.  But demanding such a pay-back is infeasible.  The pragmatic thing to do is let bygones be bygones…”

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