The Theory of Market Equillibrium and the Global Crisis of Capitalism; Part One A great deal of energy had been dissipated by bourgeois apologists to deny the inherent contradictions of capitalism and the latters inevitable tendency towards crises. The most common form of this denial is the so-called Says Law, which denies the possibility of a general glut or overproduction under capitalism. According to this law, supply necessarily equals demand; it states that individuals supply products only with the intention to buy different products; this inseparability of supply and demand makes overproduction impossible. Marx had always treated Say and his thesis with outmost contempt. But it was not only Marx who attacked this denialist equillibriationist theory; even from among the ranks of bourgeois economists, significant voices had always raised objection against Says Law. The first was Sismondi and was joined much later by Keynes. Despite these objections, however, free market fundamentalism remained a dominant trend within bourgeois political economists circles. This was especially true during the era of neoclassical counterrevolution of 1980s. This revival of the most vulgar and reactionary bourgeois ideas was prepared by the post-War boom and consolidated by the collapse Stalinism in Russia and restoration of capitalism in China. Then the global crisis of capitalism broke out in 2008. Even market fundamentalists were forced by the crisis to admit the insoluble contradictions of capitalism. This was what The Economist, an unapologetic mouthpiece of imperialism wrote in an article titled The inevitability of instability : THE frequency and severity of financial crises suggest that they are an inevitable part of capitalism........A fundamental instability results from the mismatch between the assets banks hold (long-term loans) and their liabilities, in the form of short-term deposits. As Mr Prates comments, “No regulation will ever be able to change this reality, unless a law is passed, for instance, setting the reserve requirements at 100% and prohibiting leverage.” The Paper continued: Mr Prates also quotes the economist J.K. Galbraith: “All crises have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment.” Lord Turner makes the same argument. Debt is useful, in theory, if it allows business to accumulate capital or consumers to smooth their consumption over their lives. In practice, however, debt is used to finance the purchase of existing assets, leading to bubbles. He cites an estimate that only 15% of British bank lending is used for capital investment. Individuals may use credit as a means of financing consumption in excess of their income, as was the case with American homeowners in the past decade. This process is self-reinforcing: easier credit drives up asset prices, which makes banks confident and leads them to lend more. These credit cycles lead to greater volumes in the financial markets, as assets are traded back and forth. Banks end up with an awful lot of claims on each other, a development which added to the panic in 2008. It is hard to see how this extra trading benefits the economy; it certainly does not ensure that asset prices stay in line with economic fundamentals. In a world of (mostly) floating exchange rates, cross-border capital flows add to the problem. Countries are no longer constrained by their trade deficits, at least in the short term; a current-account deficit can be financed with capital flows which help to inflate an asset bubble (the Irish and Spanish housing booms, for example). The Economist article listed out a number of inherent contradictions within capitalism that inevitably lead to crises. The contradictions include the one: 1. between assets (long term loans) and liabilities (short term deposits) of banks 2. between rising consumer credits and sticky wages 3. between a nations trade balance and capital flow. The issue of leveraging and bubbles (using debt to buy assets thus pushing the latters price up and thus increading the debtors credit-worthiness leading to further debt accumulation and asset price inflation ad infinitum) was also raised. While all these contradictions are true and define contemporary capitalism, the paper does not go to the very root of all these contradictions. The fundamental contradiction under capitalism is this: modern forces of production exist in two forms that are antagostic to each other; as socialized productive forces (socialized labour and centralized means of production) and as private property of capitalists. In as far as modern productive forces are in their socialized form, they know no limits; but these unlimited socialized forces of production are forced under capitalism into a straightjacket of private ownership; this conflict is constantly being overcomed through crises of overproduction only to be recreated at a higher more devastating level. Let us go over the contradictions listed by The Economist article above in the light of this penetrating Marxist insight. 1. Long term bank loans versus short term deposits By issuing long term bank loans and allowing transactions beyond the limits of the supply of money and deposits, bankers and their capital are pushing capitalism beyond the limits of private ownership and making production and exchange acquire more of a social than private character. In other words, through long term loans, modern productive forces are pushing the capitalists, against and irrespective of their own will, beyond the limits of private ownership. But short term depositors will assert their right to private ownership leading to a conflict between social and private forms of productive forces; between long term loans and short term deposits leading to crises. 2. Rising consumer credit versus sticky wages Wages are sticky and consumption of masses correspondingly curtailed because the workers do not own what they produce i.e. because of private ownership of means of production. Consumer credit temporarily overcomes this barrier of private ownership by allowing workers to consume beyond their wages thus making consumption a social process overseen by the banks and credit institutions. But the fact that wages can never rise high enough to make credit consumption unnecessary, thanks to overriding law of profit under capitalism, and because credit has to be eventually paid, a conflict and crisis like the subprime mortgage crisis in America inevitably develops. 3. National trade balance versus capital flows The same relationship and conflict between credit institutions and consumers is reflected at a higher level between the so-called creditor and debtor nations and multinational corporations. This is the basis of the global character of the current crisis. Let us conclude this part with what Marx and Engels wrote more than 160 years ago: Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. For many a decade past the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity —the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.~Communist Manifesto 1848 To be Continued....
Posted on: Wed, 12 Mar 2014 05:36:06 +0000
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