Posts Tagged ‘credit’

Three Books on Marxist Political Economy (Pt 5)

April 23, 2017

Shaikh’s wrong theory of interest rates

“The interest rate is the price of finance,” Shaikh writes at the beginning of Chapter 10, “Competition, Finance, and Interest Rates.” Shaikh treats the rate of interest as fluctuating around the price of production of the “provision of finance.” Late in Chapter 10, Shaikh indicates he was confused on this subject in the 1970s and the early 1980s but brought to his current views by the Sraffrian-neo-Ricardian Italian economist Carlo Panico. Is this the correct approach to ascertaining what actually determines the rate(s) of interest? I believe it is not.

Do interest rates really fluctuate around a “price” of the provision of finance the way market prices fluctuate around prices of production? Strictly speaking, price is the value of one commodity measured in terms of the use value of the commodity that serves as the universal equivalent—money. According to this definition, interest rates are not prices at all.

It is true that we often use price in a looser sense. For example, we talk about the prices of securities that are in reality legal documents that entitle their owners to flows of income. Another example is the price of unimproved land whose owners hold titles to flows of ground rent. It would be absurd to talk about the price of production of unimproved land if only because unimproved land is a form of wealth produced by nature and not by human labor.

Some other ‘non-price’ prices

Another example of a price that is not a real price is the dollar “price” of gold. This very important economic variable is not really a price at all but instead measures the amount of gold that a dollar represents at any moment. Other examples of “non-price” prices are the “price” of one currency in terms of another—exchange rates—and the price of politicians.

Read more …

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.

Read more …

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.”

Read more …

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 http://links.org.au/node/4156).”

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.

Read more …

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.

Read more …

World War I—Its Causes and Consequences (pt 2)

August 24, 2014

Wars rarely turn out the way their initiators expect. In our own time, we can point to many examples. George W. Bush and Tony Blair, when they ordered the invasion of Iraq on March 19, 2003, believed that the U.S.-British forces would defeat Iraq’s armed forces—weakened by years of sanctions, continued military attacks, and forced unilateral disarmament—within weeks with hardly any casualties on the side of the invaders. It would then be “mission accomplished.”

But now in August 2014—100 years to the month since the outbreak of the “Great War”—the U.S. has resumed bombing Iraq as the government it created crumbles. The reason this government is failing is that virtually no Iraqi wants to fight and die for it. Why should an Iraqi fight for a foreign-imposed government?

Nor should we forget the war against Afghanistan launched by the Washington war-makers in October 2001 against the Taliban government, which had no modern armed forces, only a militia. Within weeks, U.S. media were writing about that most unequal war in the past tense. But now, 13 years later, the U.S. is still struggling to find a way to exit that war without the return of the Taliban to power. That war didn’t turn out as the Washington war-makers expected either.

Nor has the air war fought by U.S-NATO against Libya in 2011 turned out the way the Obama administration, which launched that war, expected. And the same will probably be true of the most recent war—if it can even be called a war—launched by Israel, with at least the tacit support of the U.S., against the people of tiny Gaza, which has no army, air force or navy.

This August marks not only the 100th anniversary of the beginning of World War I but also the 50th anniversary of the infamous Gulf of Tonkin Incident. If we were to believe the U.S. propaganda of the time, (North) Vietnam’s tiny navy attacked without any provocation the mightiest navy the world had ever seen! This “incident” occurred—or rather didn’t occur—on August 2, 1964, just two days short of the 50th anniversary of the start of the “Great War.”

The U.S. Congress used this faked incident to grant the Johnson administration cart blanche to wage war against Vietnam, which the administration took full advantage of by launching a series of bombing raids on the Democratic Republic of Vietnam that August. This gave way to a steady air bombardment of (North) Vietnam—the South had been subject to steady U.S. bombardment for the preceding five years—the following year after Johnson won re-election as the “peace candidate.”

While the Washington war-makers succeeded in killing millions of Vietnamese people and doing incalculable damage to the environment with Agent Orange and other forms of environmental warfare, in the end the war against Vietnam did not turn out the way the war-makers in the White House, the Pentagon and Congress expected. For example, the renaming of Saigon Ho Chi Minh City was probably not part of Washington’s war plans.

Nor did the war against Korea, which is usually seen as beginning in June 1950 but really began when Washington occupied the southern part of Korea in 1945, turn out exactly as the Washington war-makers intended, though they succeeded in killing millions of Korean people and left no multistory building standing in the northern part of the country.

The rule that wars seldom turn out the way those who start them expect was certainly true of the general European war that began exactly a century ago. To the generation that actually fought, it was known as the “Great War” or “the World War,” ”the war to make the world safe for democracy,” or, most ironic of all, “the war to end all wars.” But as a result of unintended consequences of the war, it had to undergo a name change. It was renamed World War I, a mere prelude to the even greater bloodbath of World War II.

‘Before the leaves fall’

When the general European war commenced on August 4, 1914, each warring imperialist power was convinced that it would be a short war and that it would emerge victorious. Or as was said, the war would be over “before the leaves fall.”

Read more …

Change of Guard at the Fed, the Specter of ‘Secular Stagnation,’ and Some Questions of Monetary Theory

December 22, 2013

Ben Bernanke will not seek a third term as chairperson of the Federal Reserve Board of Governors – “the Fed.” President Obama has nominated, and the U.S. Senate is expected to formally approve, economist Janet Yellen as his successor. The Federal Reserve Board is a government body that controls the operation of the U.S Federal Reserve System.

“The Fed” lies at the heart of the U.S. central banking system, which under the dollar standard is in effect the central bank of the entire world.

A professional central banker

Janet Yellen is currently vice-chairperson of the Federal Reserve Board. She has also served as an economics professor at the University of California at Berkeley and chaired President Bill Clinton’s Council of Economic advisers. She headed the Federal Reserve Bank of San Francisco from 2004 to 2010, one of the 12 Federal Reserve Banks within the Federal Reserve System. If there is such a thing as a professional central banker, Yellen is it.

Yellen will be the first woman to serve as head of the Federal Reserve Board and will hold the most powerful position within the U.S. government ever held by a woman. Yellen’s appointment therefore reflects gains for women’s equality that have been made since the modern women’s liberation movement began around 1969.

Like other social movements that emerged out of the 1960s radicalization, the modern women’s liberation movement began on the radical left. The very name of the movement was inspired by the name of the main resistance organization fighting U.S. imperialism in Vietnam – the National Liberation Front. However, as a veteran bourgeois economist and a long-time major policymaker in the U.S. government, Yellen would not be expected to have much sympathy for the 20th-century revolutions and movements that made her appointment even a remote possibility.

Significantly, Yellen was appointed only after Lawrence Summers, considered like Yellen a major (bourgeois) economist and said to be the favorite of the Obama administration to succeed Bernanke, announced his withdrawal from contention. Summers became notorious when as president of Harvard University he expressed the opinion that women are not well represented in engineering and the sciences because of mental limitations rooted in biology.

Summers was obliged to resign as president of Harvard, and his anti-woman remarks undoubtedly played a role in his failure to win enough support to be appointed Fed chairman. In addition, Summers attacked the African American Professor Cornell West for his work on Black culture and his alleged “grade inflation,” causing West to leave Harvard. This hardly made Summers popular in the African American community. His nomination would therefore have produced serious strains in the Democratic Coalition, so Summers was obliged to withdraw.

Ben Bernanke like Yellen is considered a distinguished (bourgeois) economist. He had devoted his professional life to exploring the causes of the Great Depression, much like Yellen has. Essentially, Bernanke attempted to prove that the Depression was caused by faulty policies of the Federal Reserve System and the government, and not by contradictions inherent in capitalist production – such as, for example, periodic crises of overproduction. Bernanke denied that overproduction was the cause of the Depression.

Like Milton Friedman, Bernanke blamed the Depression on the failure of the Federal Reserve System to prevent a contraction of money and credit. Bernanke put the emphasis on credit, while Friedman put the emphasis on the money supply. Blaming crises on currency and credit, according to Marx, is the most shallow and superficial crisis theory of all.

Read more …

Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 4

September 29, 2013

Heinrich on crises—some background

A century ago, a discussion occurred in the Second International about the “disproportionate production” theory of crisis. This theory holds that crises arise because of disproportions between the various branches of industry, especially between what Marx called Department I, which produces the means of production, and Department II, which produces the means of personal consumption.

This led to speculation on the part of some Social Democrats that the growing cartelization of industry would be able to limit and eventually eliminate the crisis-breeding disproportions. This could, these Social Democrats speculated, give birth to a crisis-free capitalism, at least in theory. The revisionist wing of the International, led by such figures as Eduard Bernstein—the original revisionist—put its hopes in just such a development.

Assuming a rising organic composition of capital, Department I will grow faster than Department II. The Ukrainian economist and moderate socialist Mikhail Tugan-Baranovsky (1865-1919), who was influenced by Marxism, claimed there was no limit to the ability of capitalism to develop the productive forces as long as the proper relationship between Department I and Department II is maintained. The more capitalist industry grew and the organic composition of capital rose the more the industrial capitalists would be selling to their fellow industrial capitalists and relatively less “wage-goods” to the workers.

Tugan-Baranovsky held that capitalism would therefore never break down economically. Socialism, if it came at all, would have to come because it is a morally superior system, not because it is an economic necessity. This put Tugan-Baranovsky sharply at odds with the “world-view Marxists” of the time, who stressed that socialism would replace capitalism because socialism becomes an economic necessity once a certain level of economic development is reached.

Read more …

Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 3

September 1, 2013

In this month’s post, I will take a look at Heinrich’s views on value, money and price. As regular readers of this blog should realize by now, the theory of value, money and price has big implications for crisis theory.

As we have seen, present-day crisis theory is divided into two main camps. One camp emphasizes the production of surplus value. This school—largely inspired by the work of Polish-born economist Henryk Grossman, and whose most distinguished present-day leader is Professor Andrew Kliman of Pace University—holds that the basic cause of crises is that periodically an insufficient amount of surplus value is produced. The result is a rate of profit too low for the capitalists to maintain a level of investment sufficient to prevent a crisis.

From the viewpoint of this school, a lack of demand is a secondary effect of the crisis but by no means the cause. If the capitalists find a way to increase the production of surplus value sufficiently, investment will rise and demand problems will go away. Heinrich, who claims there is no tendency of the rate of profit to fall, is therefore anathema to this tendency of Marxist thought.

The other main school of crisis theory puts the emphasis on the problem of the realization of surplus value. This tendency is dominated by the Monthly Review school, named after the magazine founded by U.S. Marxist economist Paul Sweezy and now led by Monthly Review editor John Bellamy Foster.

The Monthly Review school roots the tendency toward crises/stagnation not in the production of surplus value like the Grossman-Kliman school but rather in the realization of surplus value. The analysis of this school is based largely on the work of the purely bourgeois English economist John Maynard Keynes, the moderate Polish-born socialist economist Michael Kalecki, and the radical U.S. Marxist economist Paul Sweezy.

Kalecki’s views on markets were similar to those of Keynes. Indeed, it is often said that Kalecki invented “Keynesian theory” independently and prior to Keynes himself—with one exception. Kalecki, like the rest of the Monthly Review school, puts great emphasis on what he called the “degree of monopoly.” In contrast, Keynes completely ignored the problem of monopoly.

Needed, a Marxist law of markets

A real theory of the market is necessary, in my opinion, for a complete theory of crises. Engels indicated in his work “Socialism, Utopian and Scientific” that under capitalism the growth of the market is governed by “quite different laws” than govern the growth of production, and that the laws governing the growth of the market operate “far less energetically” than the laws that govern the growth of production. The result is the crises of overproduction that in the long run keep the growth of production within the limits of the market.

This, however, is not a complete crisis theory, because Engels did not explain exactly what the laws are that govern the growth of the market. Unfortunately, leaving aside hints found in Marx’s writings, Marxists—with the exception of Paul Sweezy—have largely ignored the laws that govern the growth of the market. This, I think, would be a legitimate criticism of what Heinrich calls “world view Marxism.” As a result, the theory of what does govern the growth of the market has been left to the anti-Marxist Keynes, the questionably Marxist Kalecki and the strongly Keynes- and Kalecki-influenced Sweezy.

Read more …

Economic Stagnation, Mass Unemployment, Budget Deficits and the Industrial Cycle

February 17, 2013

A few months ago I had dinner with a some friends from the old days. One of them expressed the view that the current economic situation of prolonged economic stagnation, continuing mass unemployment, and falling real wages represented a fundamental change in the workings of the capitalist system. He asked what is behind this change? This a good question and is worth examining in a non-trivial way.

A month or so ago the media, which had been painting a picture of a steadily improving economy, was startled when the U.S. government announced that its first estimate showed that the fourth-quarter GDP declined at an annual rate of .01 percent. Though slight, this would be a decline nonetheless.

Those economists who make a business of guessing the U.S. government’s GDP estimate expected an annualized rate of growth of 1.5 percent for the fourth quarter (of 2012). This would represent a historically low rate of growth, but growth nonetheless.

The media has been working hard to create an impression of a recovery that is at last gaining momentum. Therefore, if we are to believe the capitalist press, a “new era” of lasting prosperity is on the way. This latest “new era” will be fully assured if only the Obama administration and both Democrats and Republicans can settle their differences on the need to bring the current deficit in the finances of the U.S. federal government under control.

This is to be done by some combination of “entitlement cuts” for the working and middle classes and very modest tax increases for the rich. With the tax question settled by the New Year’s Day agreement, the only question now is how deep the entitlement cuts will be, spending on the military and “national security” being largely untouchable.

Thrown somewhat off balance by the estimated fourth-quarter GDP decline, the economists, bourgeois journalists and Wall Street brokerage houses—ever eager to paint the U.S. economy in glowing terms in order to sell stocks to middle-class savers—explained that “special factors” were behind the slight fall in the estimated GDP, not a new recession.

Read more …