For Monday 17 August – underconsumption and wage squeeze

At the 17 August reading group meeting we will discuss underconsumption and wage squeeze in relation to crisis.

Reading

Marx on capitalist crisis: notes from Brisbane Workers Liberty Study Course

Section 5. “Underconsumption” - plus references Capital Vol 3 chapter 30 and Capital Vol 2 Chapter 20. The quote in the crisis notes is from – Simple Reproduction Part 1 IV. Exchange within Department II. Necessities of Life and Articles of Luxury

Section 6. “Wage squeeze” - plus references Capital volume 1 chapter 25

It is definitely worth making the effort to read as much as you can manage from the Capital references. They add a lot of insight to the topics, and sometimes point to what empirical data would help to decide if Marx’s argument stands up to the evidence.

Note on the “need for destruction of capacity” argument

Robert Brenner and others argue that:
(a) The root of this crisis is a long-term failure to restore profitability after it sagged in the late 1960s and early 1970s;
(b) What is needed to restore profitability is, above all, destruction of capital (of capacity).
The argument gets plausibility from the fact that in the depths of a crisis, the more successful capitalists, the ones who will survive, are able to buy up machines and premises, and grab markets previously held by their competitors, cheaply.
That tends to increase the rate of profit.
But it does not at all follow that the greater the destruction or devaluation of capital, the stronger the ensuing recovery. I fear that the “Marxist” argument here may be only a “Marxist” re-facing of the hard-line free-market argument that crises should be allowed to run as deep as they “spontaneously” go; that no-one can or should try to second-guess the spontaneous self-healing mechanisms of the market.
(a) For each capitalist, other capitalists are not only (possibly) competitors. The other capitalists, and their employees, also represent markets – buyers for the first capitalist’s products.
If the first capitalist sees lots of other capitalists going bust, that is not only, for him, a slackening of competition and a chance to buy stuff and gain new markets cheaply. It is also a decline in his market. In that way, it slows recovery.
(b) It may also slow recovery by slowing the demand for fresh equipment. Even the capitalists who survive may be reluctant to invest in new equipment if they can buy up older equipment which is not so good but on offer at a price which still makes it a best buy.
(c) Empirically, it is by no means necessarily the case that deep crises are followed by smart recoveries.
(d) Empirically, also, the argument that profitability was still lagging before the current crisis is dubious. There is much argument to be had about precise measures of profitability. For now, let us note that Andrew Glyn’s book “Capitalism Unleashed”, for example, a good and careful collection of a lot of empirical data, finds profit rates after tax in US non-financial corporations to be recovered by 2004 to the highest levels since 1950 except for a short peak in the 1960s.
(e) Empirically, yet again, it is dubious that there has been chronic overcapacity since the early 1970s. Capacity utilisation figures in the USA have been low in some periods, including the last decade, but there has been no marked long-term decline. Brenner seems to fend off this fact by considering relatively buoyant capacity utilisation figures to reflect “artificial” stimulation of demand. But on what basis is some demand “artificial”, and other not? Isn’t this argument also a tacit accommodation to the hard-line free-market thesis that demand “should” be whatever it will be if the market is left to its own devices as far as possible, and any variation is “artificial” and harmful?

Monday 6 July 09 Turnover and credit

At our next reading group meeting we will discuss the next parts of Marx on capitalist crisis: notes from Brisbane Workers Liberty Study Course

Sections 3. Turnover of fixed capital (ref. Capital Vol. 2 mainly Chapter 8 and Chapter 9) and

Section 4. Credit (ref. Capital Vol. 3 mainly Chapter 30.

Over-production

Marx Theories of Surplus Value

“This explanation of over-production in one field by underproduction in another field therefore means merely that if production were proportionate, there would be no over-production. The same could be said if demand and supply corresponded to each other, or if all spheres provided equal opportunities for capitalist production and its expansion—division of labour, machinery, export to distant markets etc., mass production, i.e., if all countries which traded with one another possessed the same capacity for production (and indeed for different and complementary production). Thus over-production takes place because all these pious wishes are not fulfilled. Or, in even more abstract form: There would be no over-production in one place, if overproduction took place to the same extent everywhere. But there is not enough capital to over-produce so universally, and therefore there is partial over-production.”

The destruction of capital

Marx, Theories of Surplus Value

“When speaking of the destruction of capital through crises, one must distinguish between two factors. In so far as the reproduction process is checked and the labour-process is restricted or in some instances is completely stopped, real capital is destroyed. Machinery which is not used is not capital. Labour which is not exploited is equivalent to lost production. Raw material which lies unused is no capital. Buildings (also newly built machinery) which are either unused or remain unfinished, commodities which rot in warehouses— all this is destruction of capital. All this means that the process of reproduction is checked and that the existing means of production are not really used as means of production, are not put into operation. Thus their use-value and their exchange-value go to the devil. Secondly, however, the destruction of capital through crises means the depreciation of values which prevents them from later renewing their reproduction process as capital on the same scale. This is the ruinous effect of the fall in the prices of commodities. It does not cause the destruction of any use-values. What one loses, the other gains. Values used as capital are prevented from acting again as capital in the hands of the same person. The old capitalists go bankrupt. If the value of the commodities from whose sale a capitalist reproduces his capital was equal to £ 12,000, of which say £ 2,000 were profit, and their price falls to £ 6,000, then the capitalist can neither meet his contracted obligations nor, even if he had none, could he, with the £ 6,000 restart his business on the former scale, for the commodity prices have risen once more to the level of their cost-prices. In this way, £ 6,000 has been destroyed, although the buyer of these commodities, because he has acquired them at half their cost-price, can go ahead very well once business livens up again, and may even have made a profit. A large part of the nominal capital of the society, i.e., of the exchange-value of the existing capital, is once for all destroyed, although this very destruction, since it does not affect the use-value, may very much expedite the new reproduction. This is also the period during which moneyed interest enriches itself at the cost of industrial interest. As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.”

The driving motive of capitalist production

“It must never be forgotten, that in capitalist production what matters is not the immediate use-value but the exchange-value and, in particular, the expansion of surplus-value. This is the driving motive of capitalist production, and it is a pretty conception that—in order to reason away the contradictions of capitalist production—abstracts from its very basis and depicts it as a production aiming at the direct satisfaction of the consumption of the producers.” Marx Theories of Surplus Value Vol II Ch XVII

This is not specific to crisis. I put it here as a record of the kind of insights Marx offers, in which he reconceptualises and renames the appearance of capitalism for what it really is. So – to find and relate meaningful examples, specific instances that can generate recognition of this, and other aspects of capitalism, that more people will understand and integrate a critique of capitalism into their daily outlook on the world…

Next reading group – Monday 15 June

Marx on capitalist crisis

Having looked at a number of articles on the current crisis, we have decided to go back to Marxist theory of crisis, taking as a starting point:
Marx on capitalist crisis: notes from Brisbane Workers’ Liberty study course (2000), edited and rearranged.
These notes reference Marx’s Capital (link is to Vol 1), Theories of surplus value and Grundrisse - the relevant sections of which may alse be read. As the notes are dense and the ideas are complex, we will read in sections. For 15 June we have chosen to read sections 1 and 2 of the notes, dealing with money vs commodities, and “from the possibilities of crisis to the fact of crisis”. Most of the original Marx referred to can be found on the Marx Internet Archive.

Reading session Monday 25 May

The next session is 7pm Monday 25 May.

We will continue with these readings from April.

LAPAVITSAS, Costas

The debacle of financialised capitalism (Jan 09)

A new sort of financial crisis (April 08

MOSLEY, Fred

The bondholders and the taxpayers (Jan 09)

Long trends of profit (March 08)

PANITCH, Leo

The chain broke at its weakest link (Jan 09)

The crisis depends on the fightback (April 08

PETRAS, James

World Depression: Regional Wars and the Decline of the US Empire, Part I (March 09)
and Part 2 (April 09)

Leo PANITCH

Leo PANITCH 

The chain broke at its weakest link (Jan 09)

The crisis depends on the fightback (April 08)

Panitch makes two main points in these articles.

1. “I don’t think that US hegemony has waned”
2. “social-democratisation” of globalisation is underway. 

 US hegemony

The US is still the strongest economy.

The US is the only global military power.

Panitch makes the point that world capitalism need the US as a financial centre – New York, and US banks operating out of London.

Capitalism needs the US dollar as a pseudo world currency which no other currency can replace as the “most stable store of value in a highly volatile capitalist world”.

Because of this the US deficit can be sustained for a long time and the US will continue to play a major role in global capitalism.

 

‘Social democratisation’ of globalisation

Increased governmental intervention and even nationalisation of financial institutions and possibly nationalisation of manufacturing firms like GM. But this is not like the social democratic push of post 1945.

The current push for increased government intervention in the economy is more like a social-neo liberalism than social democratic intervention. Continuationof neo-liberal policies of:

Privatisation of public services; relatively liberal trade, financial and investment  regimes; regressive taxation such as VAT/GST; central bank independence geared to restraining inflation.

Intervention for the purpose solely of safeguarding the health of the profit system.

Working class indebtedness

“People tend to overlook the extent to which, even though real wages have not increased, or not by much, since the 1970’s, living standards for workers in the advanced capitalist world have gone up. They’ve gone up primarily through those workers becoming more integrated into finance.”

He asks whether advanced capitalism has reached its limit here. This is the breaking of the ‘weakest link’. The sub-prime crash.

Questions

Panitch: “If derivatives play the central role they do, as Dick Bryan explains, in hedging risk, there is a question whether the financial crisis will affect trade in the long run.”

 Why does Panitch poses this as a question?

According to the Australian newspaper on 18 October 2008:

“The world financial system is leveraged beyond comprehension. It is estimated that between $US500 trillion ($732 trillion) and $US700 trillion worth of derivatives are outstanding.”

“Compare this with the total economic activity (GDP) of the world, which is about $US50 trillion..”

 The trillions of ‘fictitious value’ will need to be paid for, written off or otherwise dealt with sooner rather than later. If companies can’t borrow because banks won’t/can’t lend there must surely be an impact on production and trade.

Panitch poses questions about whether the balance of class forces will alter as a result of the current crisis. Whether the working class will push from below.  At present there is not much evidence of that.

On another Blog Andrew Kliman points out that world capitalism has not really recovered from the 1970’s crisis:

“Thus there have been persistent debt crises, and these will continue until:

(a) sufficient capital is destroyed (in value terms and physically) to once again make investment truly profitable – the present crisis may well end up being this moment, or

(b) there’s such a panic (“liquidity lock,” as a Fed official recently called it) that lending stops and the economy crashes, ushering in chaos or fascism or warlordism or whatever, or

(c) capitalism is replaced by a new human, socialist society.”

 

Can advanced capitalism find a way to re-integrate into indebtedness those workers who are the victims of the financial crash? Will the internal dynamic of the economies of China and India be enough to pull capitalism out of the world recession any time soon? Ditto for the various bailouts to corporations, banks and the cash splashes to the population in general. Will it be enough considering the trillions of value which needs still to be accounted for?

Petras on World Depression

The pair of articles by Petras (World Depression – Part I and Part II) is different from the others we are reading for Session 2 the in the following ways:

• Petras has a go at connecting the dots between developments in different parts of the world, in the creation of the conditions for the crisis. So for example he refutes the “de-industrialisation” proposition applying to the world economy, pointing out that the location of industrial production has shifted (from USA, UK – to the BRICs although he doesn’t use that term).

• He (therefore?) attributes less significance to “financialisation” . (I am trying to work out if “financialisation” might have delayed the inevitable crisis because it created additional circuits for capital that hid the declining rate of profit for longer?)

• The under-lying cause of the crisis in Petras view is “over-accumulation” – i.e. a declining rate of profit, and a lack of new avenues for capital to invest at a higher rate of profit, because of the impoverishment of exploited labour which denies a market for potential new investments. (This seems to be a reasonable but non-specific explanation)

• His lense is more “anti-imperialist” than anti-capitalist, in that where he points to solutions the implicit actor is the nation rather than the working-class (a lot of writing in the passive voice, or generalised unspecific actors) and he makes recurrent references to the problem of production for export at the expense of domestic/ internal markets.

• The bailouts of the banks, which are clearly a form of “socialising the losses” are described by Petras as “nationalisation”, and he deliberately opposes proposing nationalisation of banks but instead posits that “the entire paper economy needs to be dismantled in order to free the productive forces from the shackles and constraints of unproductive capitalists and their entourage.”

• His solutions otherwise centre on local market stimulation and redistribution of wealth, both in Asia and Latin America, and – in the USA by a “rebalancing” of the economy which “means creating demand…via direct state-ownership and long-term, large scale investment in the production of goods and services.”

• He says that no economic recovery is possible for capitalism. (See conclusion on China). In this sense he fits into a left tradition – every current problem is insoluble by capitalism (since 1960s at least) – but then capitalism solves many problems (except problems of exploitation and subordination of labour, and gross inequalities), in some sense (creating others on the way…) and survives.

• Petras account of the decline of working class weight is a combination of power of globalised and diversified capital, and collaboration with it by labour leaders. (WL account is that the WC was actually defeated in critical battles in the 1980s). He sounds indifferent if not hostile to any existing working class organizations, on the grounds that their role is collaborationist.

• The scope of Petras articles is broader than the others, and he has a lot more political issues in his articles, which depicts Petras “world-view” more explicitly than the other writers, so there is more to say of a less “economic” nature about Petras.

• There is no mention of what agency might be able to carry out his broad ranging solution (beyond a sweeping reference to “popular democratic control”) and might be persuaded to do this, no account of the political and industrial prospects for rebuilding working class strength –the absence of which is notable particularly because of the broad scope his articles cover.