Archive for the ‘Recession’ Category

Three Books on Marxist Political Economy (Pt 9)

August 14, 2017

Last month, we saw that Shaikh’s view of “modern money” as “pure fiat money” is essentially the same as the “MELT” theory of money. MELT stands for the monetary expression of labor time.

The MELT theory of value, money and price recognizes that embodied labor is the essence of value. To that extent, MELT is in agreement with both Ricardian and Marxist theories of value. However, advocates of MELT do not understand that value must have a value form where the value of a commodity is measured by the use value of another commodity.

Supporters of MELT claim that since the end of the gold standard capitalism has operated without a money commodity. Accordingly, prices of individual commodities can be above or below their values relative to the mass of commodities as a whole. However, by definition the prices of commodities taken as a whole can never be above or below their value.

Instead of the autocracy of gold, MELT value theory sees a democratic republic of commodities where, as far as the functions of money are concerned, one commodity is just as good as another. Under MELT’s democracy of commodities, all commodities are money and therefore no individual commodity is money.

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Germany and the U.S. Empire (Pt. 3)

December 6, 2015

*Special Statement*

I don’t normally comment on current events unless they are connected to economic events or theories of capitalist economic crises. However, the terrorist acts in Paris that led to the deaths of at least 130 civilians and the injuring of scores of others forces an exception.

I deplore the deaths of civilians in Paris whose only crime was enjoying a night of partying, drinking and music, a “crime” I have been guilty of myself. This follows the terrorist attack in Beirut and the apparent bombing of a Russian airliner that crashed in Egypt causing the deaths of 224 passengers. All these acts seem to be the work of supporters of the Islamic State, also called ISIS, ISIL and Daesh.

The media has shown much more concern about the mostly white Western European victims in Paris than they have for the victims on the Russian plane, not to speak of the victims of Islamic State terror attacks in the Muslim countries such as the recent attack in Beirut. But bad as the carnage caused by the terrorist acts organized or encouraged by the Islamic state have been, it pales before the much greater number of civilians that are being killed not only in Syria but in many other countries being attacked by U.S. imperialism and its satellites such has France.

Even if we count the nearly 3,000 people killed in the Twin Towers attack on September 11, 2001—also innocent bystanders whose only “crime” was showing up at work at the World Trade Center in New York that day—the total number of civilians killed by individual or small-group terrorist actions such as those carried out by the Islamic State or al-Qaeda is still dwarfed by the number of dead resulting from the terrorist war against terror waged by the U.S. government, Israel and the Empire’s imperialist satellite states against the peoples of the Muslim world and beyond. Are the lives of white Parisians more valuable than of “brown” Syrians, Iraqis or Palestinians? I say no! Black and Brown lives matter just as much!

It is also worth noting that the “war on terror” launched by George W. Bush and continued under President Obama has been joined with great enthusiasm by the French government. Paris is hoping the U.S. will allow France to once again become the colonial master in all but name of Syria.

The war on terror is itself being waged with terrorist methods. That is, the government of the U.S. and its satellites are using methods of warfare that in the past were associated with individual and small-group terrorist acts. One famous example is the assassination of Crown Prince Archduke Franz Ferdinand and his wife Sophie by Serbian nationalist terrorists in June 1914.

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 5)

September 13, 2015

Rudi Dornbusch predicts unending capitalist expansion

“The U.S. economy likely will not see a recession for years to come,” economist Rudi Dornbusch (1942-2001) wrote in 1998. “We don’t want one, we don’t need one, and, as we have the tools to keep the current expansion going, we won’t have one. This expansion will run forever.”

In the late 1990s, the Internet was making rapid progress. Fueled by various technologies including the digital computer, the transistor and electronic circuit board—the “computer on a chip”—and the GNU/Linux computer operating system, world communications were, and are, being revolutionized. And this technological revolution was no illusion.

For the first time, home computer users could connect to the Internet, which now featured its own graphical user interface called the World Wide Web. No longer was the Internet confined to text but would soon include audio and video files. With such a great technological revolution under way, many capitalist economists—and this was echoed by some Marxists as well—foresaw an era of never-ending capitalist expansion. The Clinton boom of the late 1990s was to be just the beginning.

During the Clinton administration, stocks soared on Wall Street while the rise in the NASDAQ stock index—which lists “high-tech” stocks—seemed to know no limit. Goldman-Sachs economist and financial analyst Abby Joseph Cohen’s (1952- ) predictions of continuing soaring stock market prices drew skepticism from many seasoned stock market veterans, yet she continued to be proved right. Until March 2000, that is. Then things began to go horribly wrong as the NASDAQ index sagged and then crashed.

“Her reputation was further damaged when she failed to foresee the great crash of 2008,” Wikipedia writes. “In December 2007, she predicted the S&P 500 index would rally to 1,675 in 2008. The S&P 500 traded as low as 741 by November 2008, 56% below her prediction. On March 8, 2008, Goldman Sachs announced that Abby Joseph Cohen was being replaced by David Kostin as the bank’s chief forecaster for the U.S. stock market.” Although Internet technology continued to make great strides and stock markets both crashed and soared, the world capitalist economy entered into a period of slow growth—interrupted by the the turn-of-the-century recession that included the NASDAQ crash that Cohen missed and then the much deeper “Great Recession.”

Indeed, the world economy has, since Dornbusch made his prediction of unending capitalist prosperity, seen the worst growth figures since the 1930s Depression. The situation has gotten so bad that some capitalist economists have revived the term “secular stagnation,” last widely used among economists in the late 1930s. What did Cohen and Dornbusch and so many others miss?

They were right about the technological revolution. They left out only one little thing: the contradictions of the capitalist mode of production. But perhaps we shouldn’t be too hard on them. Though both Dornbusch and Cohen were/are highly trained economists, they didn’t learn about the contradictions of capitalism in their university studies. It wasn’t part of their course work. For that, they would have had to turn to the work of Karl Marx, and that they apparently neglected to do.

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 4)

August 16, 2015

How gold production drives expansion of the market

Here I assume that gold bullion serves as money material unless I indicate otherwise.

In a previous post, I indicated that there cannot be an overproduction of gold in its role as money material. This has been more or less the received view among Marxist writers over the years.

However, in thinking about this question more carefully I think my earlier post was incorrect on this point. I was correct in stating that from the viewpoint of capitalists as a whole there cannot be “too much” gold as far as the realization of value of (non-gold) commodities is concerned. The more gold there is relative to the quantity of other commodities, everything else remaining equal, the easier it will be for industrial and commercial capitalists to sell their commodities at their prices of production and thus realize the surplus value contained in them in the form of profit.

But what is true for the non-gold producing capitalists is not true for the gold producing capitalists. Indeed, from the viewpoint of an individual industrial capitalist there can never be too much of the commodities produced by their suppliers. As a productive consumer, industrial capitalist A can hope for nothing better than that supplier industrial capitalist B overproduces as much as possible. When B overproduces, all other things remaining equal, A gets to pocket some of the surplus value contained in B’s commodities. But from B’s point of view, the overproduction of B’s commodity is an absolute disaster.

True, the (non)gold producing capitalists do not consume gold, insomuch as gold serves as money material as opposed to raw material. But it is absolutely essential for them that gold is produced in adequate quantities if the value, including the surplus value, contained in their commodities is to be realized.

Even if gold bullion played no role whatsoever as raw material, a certain level of gold production would still be necessary for capitalist expanded reproduction to proceed. And capitalism can only exist as expanded reproduction.

How much gold capitalism needs—with the development of the credit system, banking, clearing houses, and so on being given—depends on the level and vigor of expanded reproduction at a particular time. The greater the possibilities of exploiting wage labor and the higher the rate of surplus value and the potential rate of profit in value terms, the higher the level of gold production must be if the process of expanded capitalist production is to proceed unchecked.

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 3)

July 19, 2015

Secular stagnation and the Greek crisis

Many on the left have expressed acute disappointment that the Syriza government has agreed to accept more “austerity” in the wake of the No! vote of the Greek people. We must remember that the Syriza government is not a revolutionary socialist government—a dictatorship of the proletariat—and a socialist revolution is not, or rather is not yet, unfolding in Greece or anywhere else in Europe at the moment. The logic of the class struggle does point in the direction of a European socialist revolution, but we are not yet there. This blog will not attempt to lay out strategy and tactics for Greek revolutionaries during the present acute crisis.

Instead, I am interested in another question: Why is the “troika” so unreasonable in its dealings with the Syriza government? The government leaders have made it clear that they are determined to remain within the European Union and the Eurozone. Their program has always been quite modest—an end to the relentless austerity that has led to a depression worse in terms of both the unemployment rate and duration than the early 1930s super-crisis was in the United States or in Germany.

The super-crisis proper of the early 1930s lasted “only” three and a half years in the U.S. and Germany. The Greek crisis has lasted six years. A brief rise in the Greek GDP late last year had already given way to renewed recession before the crisis that shut down the Greek banking system for two weeks. The agreement between Syriza and the troika for still more austerity in exchange for loans that will enable the gradual reopening of the Greek banks threatens to further prolong the Greek slump.

It has been almost 50 years since the May-June 1968 General Strike in France. The French government of the day, headed by General Charles de Gaulle, largely conceded the economic demands of the strikers in order for the ruling class to hold on to power. The French government was prepared to do this through civil war if necessary. De Gaulle’s willingness to wage civil war to uphold capitalist rule combined with a willingness to make concessions in the economic sphere prevented a prolonged social and political crisis in France in 1968 of the type that is now unfolding in Greece. Why isn’t the troika, the de Gaulle of today, following the same policy for Greece that worked so well for de Gaulle and the French capitalists in 1968?

Last week, in a special post on Greece, I explained that behind the hard-line policies pursued by the troika lies the current “tightening” phase of the U.S. Federal Reserve Board monetary policy. This tightening phase is, in turn, rooted in the extraordinary policy of “quantitative easing” that the Fed followed in response to the near collapse of the U.S. banking system in the fall of 2008. But they could not continue this policy indefinitely without incurring a fatal crisis of the dollar system sooner or later.

As the quantity of U.S, dollars has begun to grow relatively more scarce than in the years of quantitative easing, there have been a few shocks—for example, the recent Chinese stock market panic. But for now, the crisis in Greece is the most dramatic. So in order to understand the deep roots of the Greek crisis and the troika response to it, we have to understand the causes of the crisis of 2008 and the quantitative easing it led to. The “Great Recession” itself was embedded in a more chronic problem of prolonged slowing economic growth that economist Larry Summers calls “secular stagnation.”

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 2)

June 21, 2015

Recently, I have been looking at Thomas Piketty’s book “Capital in the Twenty-First Century.” Piketty, a French bourgeois economist, created a sensation by pointing out that over the last 45 years a growing proportion of national income—wages plus surplus value in Marxist terms—has been going to profit at the expense of wages. Piketty is alarmed that if this trend isn’t reversed capitalism will be seriously destabilized.

The title of his book is, of course, inspired by Marx’s great work “Capital,” though it predictably rejects Marx’s anti-capitalist revolutionary conclusions. Naturally, I was interested in what Piketty had to say about Marx.

What I found striking was that Piketty did not understand Marx at all. The reason is that he views Marx through marginalist lenses. Essentially, Piketty treats Marx as a fellow marginalist. Marx’s theory of value and surplus value, so completely at odds with the marginalist theory of value and surplus value, is literally beyond Piketty’s comprehension.

In examining the current debate about “secular stagnation” among economists like Larry Summers and Ben Bernanke, we must never forget how deep the gulf between their economic theories and Marxism really is. This is true even when their terminology is similar. This month, I will contrast the theories of two economists of the 20th century, Joseph Schumpeter and John Maynard Keynes, regarding capitalist growth and stagnation. Both men were marginalists, even if not the most “orthodox” ones, and therefore had much more in common with each other than with Marx.

Next month, I will begin to contrast their views with Marx and the views I have been developing in this blog. (1) But before we reach the “Marxist mountains” we will have to slog through the plains of modern bourgeois economics. Only when we begin to ascend into the Marxist mountains will we be able to explore whether any of the ideas of Schumpeter can be integrated into Marxism. I have already dealt with Keynes quite extensively in this blog. (See, for example, six-part series beginning here.)

Joseph Schumpeter (1883-1950) was the most famous marginalist economist to deal with the question of technological changes, or “innovation,” under capitalism. Schumpeter was an Austrian economist in the sense he came from Austria, though he spent his last years in the United States as a professor at Harvard University. He was certainly influenced by the “Austrian economists” as well as other schools of post-classical bourgeois economics current in his day. Like the Austrian economists proper, Schumpeter preferred to communicate his ideas in natural language as opposed to mathematics.

Also like the Austrians, he was a hardcore supporter of capitalism, disliked “socialism”—proposals to reform capitalism in the interest of the workers—and was an opponent of the “Keynesian revolution” in bourgeois economic theory of the 1930s. He was what would be called today a “neo-liberal.” Like the Austrian economists proper, Schumpeter took a dim view of democracy, which he was convinced would inevitably lead to socialism. Yet he was a friend of Paul Sweezy and therefore had a certain influence on the Monthly Review school.

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Capitalist Economists Debate ‘Secular Stagnation’

May 24, 2015

A debate has broken out between economist Larry Summers (1954- ), who fears that the U.S. and world capitalist economies are stuck in an era of “secular stagnation” with no end in sight, and blogger Ben Bernanke (1953- ). Blogger Bernanke is, no less, the Ben Bernanke who headed the U.S. Federal Reserve Board between 2006 and 2014. Bernanke claims that the U.S. and world economies are simply dealing with lingering aftereffects of the 2007-2009 “Great Recession,” which broke out while he was head of the Federal Reserve System.

In effect, Bernanke is saying that there is nothing fundamentally wrong with capitalism and that healthy growth and “low unemployment and inflation” will return once the lingering aftereffects of the crisis are fully shaken off. Bernanke is, however, alarmed by the rapid growth of German exports and the growing share of the world market going to German industry.

Last year, we “celebrated” the 100th anniversary of the outbreak of World War I. Bernanke’s concerns show that the economic fault lines that led to both World War I and II have not disappeared. Instead, they have been joined by new ones as more countries have become industrialized. And the prolonged period of slow growth—and in some countries virtually no growth—that has followed the Great Recession is once again sharpening them. Competition both among individual capitalists and between capitalist countries is much sharper when world markets are growing slowly. World War I itself broke out when the early 20th-century “boom” was running out of steam, while World War II broke out after a decade of the Depression.

The debate between Summers and Bernanke on secular stagnation has been joined by other eminent U.S. economists such as Joseph Stiglitz (1943- ) and Brad DeLong (1960- ). Summers, Stiglitz and DeLong are Keynesian-leaning economists, while Bernanke, a Republican, leans more in the direction of “neoliberalism,” though like most U.S. policymakers, he is thoroughly pragmatic.

The debate began with Summers’ speech to the IMF’s Fourteenth Annual Research Conference in Honor of Stanley Fisher. Summers noted that the panic of 2008 was “an event that in the fall of 2008 and winter of 2009 … appeared, by most of the statistics—GDP, industrial production, employment, world trade, the stock market—worse than the fall of 1929 and the winter of 1930. …”

At the very least, this was a major defeat for “stabilization policies” that were supposed to iron out the capitalist industrial cycle and abolish panics. But the problem extends far beyond the 2008 panic itself.

“… in the four years since financial normalization,” Summers observed, “the share of adults who are working has not increased at all and GDP has fallen further and further behind potential, as we would have defined it in the fall of 2009.”

The highly misleading unemployment rate calculated by the U.S. Department of Labor notwithstanding, there has been a massive growth in long-term unemployment in the U.S. in the wake of the crisis, as shown by the declining percentage of the U.S. population actually working.

In the days before the “Keynesian revolution” in the 1930s, the “classical” neoclassical marginalist economists, whose theories still form the bedrock of the economics taught in U.S. universities, were willing to concede that some “outside shock” to the economic system (for example, a major policy blunder by the central bank or a major harvest failure) might occasionally create a severe recession and considerable amount of “involuntary unemployment.” But these learned economists insisted that since a “free market economy” naturally tends toward an equilibrium with full employment of both workers and machines, the capitalist system should quickly return to “full employment” if a severe recession occurs.

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David Harvey, Michael Roberts, Michael Heinrich and the Crisis Theory Debate

February 1, 2015

Recently David Harvey, the well-known writer on Marxist economics, criticized Marxist economics blogger Michael Roberts’ views on crisis theory. According to Harvey, Roberts has a “monocausal” crisis theory. What Harvey objects to is Roberts’ emphasis on Marx’s theory of the tendency of the rate of profit to fall (FRP for short) as the underlying cause of capitalist crises.

Harvey goes further than simply criticizing Roberts’ FRP-centered crisis theory. He says that he is skeptical that a tendency of the rate of profit to fall even exists. He indicates that he agrees with the views of the German Marxist economist Michael Heinrich on the invalidity of Marx’s theory of the falling rate of profit. Heinrich’s views are developed in “An Introduction of the Three Volumes of Karl Marx’s Capital” (Monthly Review Press, 2004). He elaborated them in this article.

In this work, Heinrich tries to demonstrate that Marx himself in the final years of his life moved away from his own theory of the tendency of the rate of profit to fall. Heinrich holds that an examination of Marx’s manuscripts that form the basis of Volume III of “Capital” show that Marx had moved toward a theory of crises centered on credit. Heinrich accuses Frederick Engels of editing the manuscripts in such a way as to hide Marx’s alleged movement away from an FRP-centered theory of crises to a credit-centered theory of crises.

In his defense of the falling rate of profit school from the criticism leveled by Harvey, Roberts makes an indirect reference to this blog: “… recently, one Marxist economist from the overproduction school called me a monomaniac in my attachment to Marx’s law of profitability as the main/underlying cause of capitalist crises (see Mike Treen, national director of the New Zealand Unite Union, at the annual conference of the socialist organization Fightback, held in Wellington, May 31-June 1, 2014, and a seminar hosted by Socialist Aotearoa in Auckland in November 10, 2014”

Mike Treen, a New Zealand Marxist, is indeed an organizer of the New Zealand trade union Unite (not to be confused with the U.S. trade union of a similar name, UNITE HERE, which also organizes fast food and other low-wage workers). The “overproduction school” Roberts refers to is actually the position of this blog, of which Mike is an editor.

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Russia, Oil, the ‘Strong Dollar’ and the Economic Conjuncture

January 11, 2015

A major feature of the current global economic conjuncture is the financial-economic crisis that has hit Russia.

On Dec. 16, 2014, the central bank of the Russian Federation raised its benchmark interest rate to 17 percent from 10.5 percent. This is a far cry from the zero to .25 percent the U.S. Federal Reserve System maintains for its key interest rate, the federal funds rate. During 2014, the Russian ruble fell 45 percent against the U.S. dollar, while the Russian central bank sold some $80 billion of its foreign reserves in an attempt to halt the fall.

By raising its benchmark interest rate to 17 percent, the Russian central bank hopes to stem the bleeding of its reserves while checking the ruble’s decline. The catch is that such a dramatic and sudden rise in interest rates is almost certain to plunge the Russian economy into recession in 2015, with rising unemployment. As demand contracts within the home market, Russian businesses will be forced to sell more of their national production on the world market and import less of the production of other countries, causing a decline in Russia’s standard of living. Eventually, the balance of trade will swing back in Russia’s favor but on the backs of the Russian working class and other Russian working people.

The current financial-economic crisis in Russia is made worse by the sanctions the U.S. and its West European satellites have imposed on Russia. These sanctions are in response to Russia’s defensive move in the Crimean Peninsula. Responding to widespread demands within Crimea in the wake of the seizure of power by far-right anti-Russian forces in Kiev in February 2014, Russia agreed to allow Crimea to rejoin the Russia Federation. The crisis in Ukraine, which at times reached the level of civil war during 2014, resulted from the U.S.-supported neo-liberal/fascist coup after months of right-wing demonstrations in Kiev.

The coup government has severely restricted civil liberties in Ukraine, forcing Ukrainian working-class parties underground while re-orienting the Ukrainian economy towards Western Europe. In addition, Ukraine has all but in name joined NATO, the main military wing of the U.S. imperialist world empire. Kiev hopes to make its NATO membership official at the earliest possible date.

Rising tension between the U.S. empire and Russia

The move by the U.S. empire to draw Ukraine into its military and economic domain has increased tension between Russia and the U.S. to its highest level since the restoration of capitalism in Russia a quarter of a century ago.

The imperialist media and certain people on the left have pictured present-day Russia as a virtual “second coming” of Nazi Germany. Russia, it is claimed, attacked Ukraine without provocation. As a result, a resurgent Russia is now threatening virtually all the countries of eastern and central Europe and ultimately “the West” itself. Unless something is done to check Putin’s “aggression,” it is claimed by imperialist propagandists, there is a danger of all of Europe falling under the Kremlin’s domination.

Other people on the left have drawn a quite different conclusion. They argue that far from a resurgent Russian imperialism, the U.S. and its European satellites have launched a new “cold war” against Russia.

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World War I—Its Causes and Consequences (Pt 4)

October 19, 2014

Could it happen again?

This August marked the 100th anniversary of the outbreak of World War I. Could it happen again? Before exploring this question, I should review how the world has changed since those European summer days of a century ago.

I have already examined in this blog the changes in imperialism—the underlying cause of the “Great War”—over the last hundred years. But before I explore the question of whether something like the Great War could happen again, I should briefly summarize these changes.

The main powers in Europe

At the start of 1914, there were a number of independent imperialist “powers,” as they were called, that were in economic, political and, as events were soon to demonstrate, military competition with one another. In Europe, the main powers were Britain, Germany, France, Russia and Austria.

Britain had been for the preceding century—since the defeat of Napoleon—the most powerful country in the world. Britain’s military power was largely naval. As the British chauvinists put it, Britannia ruled the waves. It was naval power that held the English empire—“where the sun never set”—together. In turn, British naval power was made possible by its highly advanced—for the time—industry.

France, which had been Britain’s primary rival in the world war that followed the French Revolution, was a significant imperialist power in its own right. It had a large empire in Africa, Indochina and elsewhere. Its industrialization, however, had always lagged behind that of Great Britain.

As a result, large amounts of idle money capital tended to pile up in France compared to the situation in the more dynamic capitalist countries. Since the French capitalists converted a relatively smaller amount of their money capital into industrial capital, a relatively larger amount was converted into loan capital—finance capital. Much of this capital was loaned abroad, especially in Russia.

By the beginning of the 20th century, however, France was no longer Britain’s most important rival within Europe. Germany, due to its rapid industrialization, had replaced France in that role. In Germany, capitalist production based on the latest technology was developing fast. Because its industrialization had come later than Britain or France’s—Germany wasn’t even unified as a country until the 1870s—Germany had relatively few colonies.

However, unlike the case in France and increasingly Britain, the German capitalists tended to quickly convert the money capital that passed through their hands into productive capital—both constant and variable. Therefore, finance capital developed somewhat differently in Germany than it did in Britain and France. In Germany, there was a need to mobilize every spare penny and place it in the hands of the industrial capitalists. As a result, Germany’s banking system was ultra-modern, with both commercial and investment banking centralized in a small number of huge “universal banks.”

This stood in contrast to the older British and to a large extent even the U.S. pattern, where commercial and investment banking were conducted by separate companies. The biggest of the German universal banks was the Deutsch Bank, which remains to this day Germany’s most powerful bank.

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