ECONOMICS - THE PRESENT DANGER
leads to over-consumption (29
fact played next-to-no part in the opposition to WorkChoices. Even the
Left focussed on Howard’s personality or his ideology. The ACTU is
left with no explanation for Gillard’s Fairness as a different way of
organising capital and disorganising labour. Worst of all, the Left
grouplets missed the chance to revive an understanding of the laws of
capital among militants. The present upheaval offers a chance to repair
do not possess a magic wand for tracking the snakes-and-ladders of the
financial chaos of the past fifteen months. Nor do we have a solution up
our sleeves. Still less can
we predict where the market will be tomorrow, or the system rupture
we do know for sure is why such events are intrinsic to the expansion of
capital. The competition among capitals combines with pressure from
wage-slaves to drive each corporation to increase output. The resultant
increase in commodities must be sold if capitals are to profit from the
surplus value added by the workers. There’s the rub. The exploitative
nature of the system means that the workers must not get the full value
of our labour-time. The result is a gap between production and
has outlasted Marx’s expectations by coming up with ways to counter
the necessity of its over-production - war-making and mass marketing
built on consumer credit. In the employment relationship, capital
advances wages out of the money-capital it has accumulated from previous
exploitation. The sales effort introduced a twist on this process. The
worker is advanced money on the labour-time of years ahead, not days or
weeks. Wages are paid to let the wage-slaves buy the commodities we need
to reproduce our capacities to labour – food, shelter. By contrast,
loans are made to help those workers buy up the expanded commodities. In
the main, that credit is repaid with interest.
60 years of expanding household debts had reached the limit for those
who could afford to repay. As Robert Brenner put it, the affluent were
using their houses as ATMs by borrowing against their rising prices.
Hence, the financiers pushed beyond the boundaries of prudence towards
embracing those who had been denied loans even for household items, let
alone houses. (aka NINJAs – No Income, No Job or Assets) But needs
must. The risk, of course, was recognised. Slicing and shaving the loans
was going to limit the defaults to any one institution. Instead, it
spread them globally.
is the path between the class struggle and the sub-prime. To absorb
excess capacity, capital has added “over-consumption” to its
catalogue of solutions that spawns ever more problems.
the days to come, I shall pen further 500-word comments on the previous
points, and plenty more. Tomorrow, I shall return to the bail-out to
dispose of the chatter about its being socialist.
Meanwhile, the best short course is to spend three hours, pen in hand, with Marx’s Wage-Labour and Capital.
socialism (30 September)
the stupefaction induced by the “news”, that clarification perhaps
needs to start by pointing out that the “state” about which we speak
is every form of government apparatus, not just those known as States,
such as Queensland or California.]
let’s remind ourselves of what the state is with four aphoristic
this perspective, the bail-outs, the nationalisations and the guided
mergers are what the capitalist state has always existed to do. It has
either paid for the infrastructure projects needed to perpetuate the
expansion of capital, or provided tax breaks and other concessions. Also
to that end, the state wages wars and breaks strikes. The state is not
state remains, however, the site for all the conflicts between classes
and within them. Every temporary resolution of those disputes must pass
through the apparatuses of the state to appear as legitimate. This seal
of “law and order” means that the struggles that result in victories
for the working class are contained within government programs. The
welfare state, for instance, was never a transition beyond capitalism
but a means for controlling its gales of creative destruction. In
addition, much social welfare spending is a way of passing the costs of
reproducing labour power back onto those workers who cannot avoid the
PAYG tax regime.
clawing back of even those concessions has sown confusion around the
Left about the meaning of “private” and “public”. Private
schools are not private but tax-funded non-government businesses. The
government ones are not there to serve “the public” but to supply
corporate capital with employees skilled enough to add value. There has
been next-to-no privatisations in the recent past. What we have suffered
is the sell-out to corporates. In a rare instance of privatization,
Warwick Fairfax failed to reclaim the family newspaper chain in 1987.
The $700bn bail-out is a different form of privatisation, this time on
behalf of the conglomerates, with its success as doubtful.
Street will reveal its conversion to socialism once it has smashed the
bourgeois state and started building the dictatorship of the
Why pick on bankers? (1 October)
Why pick on bankers? (1 October)
addition, anti-Semitism taints the anti-banker rhetoric against The
Kingdom of Shylock. Excoriating Jews, such as Soros or Lehman
Brothers, for the evils of capitalism remains fool’s socialism.
let’s be clear: all capitalists are parasites, most are swindlers,
and, if financiers seem to be the worst that is because they pass around
the filthy lucre.
example, who is the biggest parasite - George Soros, Warren Buffett, or
Bill Gates? Soros speculates in currencies. Buffett invests in
everything from the Washington Post and Coca-Cola to insurance houses. Gates sits atop a
firm that makes computer software. They represent the spectrum of
capitalism. Soros ruined the lives of millions by trading monies
accumulated from the exploitation conducted by firms like those presided
over by Buffett and Gates.
call capitalists parasites is not to speak pejoratively. Indeed, it is a
statement of fact. As the personification of capital, capitalists
contribute nothing to the expansion of values. Of course, if a boss gets
down and dirty in the trench with a shovel, as Loui Grollo used to do,
he supplies a mite to his profits. But, in doing so, he has ceased to be
the personification of capital and become, for a couple of hours, the
embodiment of labour-time, alongside his employees.
question of what capitalists-qua-capitalists do for their money is so
embarrassing for the academic apologists of capitalism that the subject
has fallen out of sight. The English writer, Nassau Senior (1790-1864),
offered a once popular defence for profit as the reward for abstinence.
He contended that, instead of spending their money on champagne, the
capitalists deprived themselves of such pleasures to invest in the
expansion of values. Hence, they deserved to be rewarded for a negative
capability. Senior weakened his case for a contribution from the owners
by opposing any reduction in the working-day on the grounds that their
profits came from the “last hour”.
is not all theft. Capitalists, as a class, do not steal from their
workers. On the contrary, as Marx revealed, they pay for the full value
for the commodity – labour power – which the wage-slaves are
compelled to sell to them. The expropriation of surplus value begins
after that fair and equal exchange. Only then do bankers, lawyers and
accountants enter the equation. Some of the services they sell to the
other capitalists are essential to their survival. But every cent of
their bonuses and packages comes from the expropriated surplus value.
matter how much cash sticks to the fingers of financiers, that sum has
already been expropriated from wage-slaves by other capitalists. The
bankers would have nothing to cream off had other capitalists not taken
away the surplus value.
to lose a trillion. (2 October)
trillion is what Douglas Hofstader calls a Very Big Number, meaning that
we have no way of coping with so many zeros after the one
($1,000,000,000,000). Those Arabic symbols might as well be in Roman
numerals for all the use they are. According to Hofstader, the
newsreader might as well have said “zillions”, for all the
information that “trillion” conveys.
noughts add up to a sense of hopelessness. Therefore, the development of
the class struggle, or a retirement plan, requires that we deflate the
Very Big Numbers. The way of doing so is to puncture that non-doing
understand what it means to lose a wallet or a purse. We also know that
those objects almost certainly still exist somewhere. It’s just that
we cannot put our hands on them for the moment. One little difference is
that the trillion dollars no longer exist because - and this is the key
- they never did.
“value” put on each company’s stock is determined by the latest
bid price for one of its shares, multiplied by the number of shares
issued. The “value” of the entire stock market, in turn, is
calculated by multiplying the prices paid for the fraction of shares
traded each day by the total number of shares of all listed firms.
a homely contrast. In the first case, you have paid $300,000 of your
earnings into your industry super fund. The market plummets and you have
to retire on $200,000. You have indeed lost at least $100,000. Now,
consider this alternative. While you were buying $300,000 worth of
super, its realisable value went up to $600,000. Had you cashed it in,
you would have made $300,000. But, alack, the market collapsed before
you go grey-nomading so that you have to live off only $500,000. You
feel as if you have lost $100,000, although that is money you never paid
out. (OK, OK, there were also opportunity costs.)
many traders, the trillion dollar loss was also on paper. Of course,
there are some real losers, those who did not find a Greater Fool to buy
them out in time.
Monday, New York went down by a trillion, then, on Tuesday, it went back
up by $600bn. That bounce was not from the influx of $600bn of capital.
After all, the justification for the $700 billion bailout is that those
sums are not available.
that happened was that enough bargain-hunters bought just enough shares
at a marginally greater price than the day’s before so that when those
handful of bids were multiplied by all the shares, they added up to
everyone offered to sell all of their shares on either day, all the
stocks would be worthless. The bailout and nationalisations are to deter
investors from fleeing into bonds or gold. Should that happen, the aged
pension will be cut by $30.
McValue (3 October)
justify their multi-million dollar bonuses as rewards for “adding
value”. That phrase went feral among private equity merchants just as
their world began to implode in mid-2007.
what kind of value? To answer “the share price” makes a $90bn
takeover sound cheap, at least, aesthetically. Yet public affairs
consultants had succeeded in re-branding “price” as “value”, and
prestidigitation is replete with paradox. Three instances can be tracked
across three domains, first, economic theory, secondly, into
accountancy, and finally through stock-broking.
the 1870s, the jettisoning of “value” as a metaphysical concept was
the launching point for the Neo-Classical economists, the progenitors of
today’s orthodoxy. What mattered to them was not some intrinsic value
in a commodity, but its price as determined by supply and demand. Out
went Marx’s definition of value as congealed labour time, and in came
the marginal utility ability to determine the price of a cup of tea. To
reach this position, the neo-Classical turned their backs on Adam Smith.
in 1926, the neo-Ricardian Piero Sraffa showed that the Neo-Classicals
had been calculating capital and profit in terms of each other. For the
next fifty years, the brightest and the best of them tried to redeem
their premises. Failure led them to pretend that the circularity in
their algebra was merely “technical”.
above will surprise most economics graduates since the history of their
discipline is eschewed in many Australian universities as subversive.
Eternal truths have neither origins nor development: they simply are,
like the market.
accountants had no “technical” bolt hole. Their scholarly literature
was blotted with worries about which number to inscribe into the capital
goods column. Should they be entered at their historic cost? Or at the
cost of replacement? The oldest swindle for “adding value” was to
switch back and forth between these two criteria for pricing stock and
McBankers claim to “add” value, their accountants do need some
measure with which to quantify the performance bonuses. In the old days,
one basis could have been an increase in the price of a share in some
toll road; an alternative might have been the growth in the capitalised
value of that business.
the value-adders at McBank are no longer bound to either the past or the
present. Values at McBank are neither “historic” nor
“replacement”, but “futurist”. Executives who could not put a
number on their current debt, knew with certainty what the earnings from
that leverage would be several years hence.
promising bonuses for all, the McBankers have learnt from the mistakes
of the dot.com boomers whose share prices went stratospheric without
ever turning a cent of profit. The McValue-adders operate a new law of
value: dividends first, profits later.
points presented here become easier to follow after spending a few hours
with Marx’s Value, Price and
Profit. The advantages from so doing, instead of subjecting oneself
to more of the pap known as the “news”, is that we gain some
intellectual ballast to carry forward into every twist of the expansion
Market for futures (6 October)
dealers to their respective circles in hell tells us nothing about what
capitals must do to survive. So, instead of consulting the petty
parasites at the St James Ethics Centre, we have to ask how a trade in
futures can help the corporations that produce pork or plastics. In
finding the answer, we shall also glimpse how Wall Street learnt about
futures and derivatives from the Chicago commodity market, developing
since the 1860s.
point of capitalism is to end up with more money to re-invest than you
had when you started. Capital cannot expand merely by exploiting labour.
The surplus value that results from that relationship is useless until
the commodities in which it is embodied are sold. Nor is selling enough.
For instance, a corporation marketing roses has to sell its bunches
while they are fresh, otherwise, they are marked down and the sale price
will be less than the cost of production. Here is one way in which a
futures market helps capital. Instead of selling physical flowers in
spring, the corporation sells virtual flowers in winter. This deal means
sharing the profit with the traders and possibly accepting a lower
return than if the agribusiness had waited to see what price it could
get six months hence. The advantage is that the corporation is
guaranteed a predictable level of income.
now that that corporation has sold its future roses at a price which
delivers the average rate profit. Its managers’ worries are not over.
They still have to lay hands on that money in the shortest possible
time. Business is conducted on credit of thirty or more days. While
waiting for the income to wind its way back from tens of thousands of
florists, the growers depend on their banks. The longer it takes for the
sales money to arrive, the more interest the producers pay out of their
complicate matters, corporations plan their finances much more than
thirty days ahead. QANTAS orders a fleet of 797s in 2005 to take
delivery in 2009. The final cost for those aircraft fluctuates with the
turbulence of the global economy. Hence QANTAS buys “money” at a
future price. The traders allow it to bet against an unfavourable shift
in the terms of its contract, for example, as the exchange rate swings
up and down.
see how traders service capital is not to accept that those go-betweens
provide a social good. There are no “human” interests, only the
interests of specific classes. Within the capitalist class, those
interests are fractured between kinds of capitalists who cannibalise
each other for the largest possible slice of the surplus value from us
wage-slaves. Swindling and cheating each other remain the order of the
day for production as much as in low finance.
The housing question (7 October)
The housing question (7 October)
examples demonstrate the long-standing confusion of owning personal
property as capitalist. At the 1949 elections, the Minister for Post-War
Reconstruciton in the Chifley government, John Dedman, lost his seat
after declaring that the Labor Party was not interested in creating a
nation of small capitalists by promoting home-ownership. Sixties
radicals joked about becoming POMs - Property-Owning Marxists - when
they took out a mortgage. Both statements represent the triumph of
petty-bourgeois moralising over scientific analysis.
one’s own dwelling cannot make you any kind of capitalist, even if
that house is a penthouse in Dubai. In that case, you almost certainly
needed to have been a big capitalist to afford such an abode. More
significantly, paying for it could put an end to your being a capitalist
by soaking up all your funds for reinvestment.
the rest of us, rent is one of the socially necessary costs in the
reproduction of our labour power. We struggle to make sure that our
wages cover that outlay, along with food and clothing. If rents or
interest rates go up, so does the pressure on wages. Equally, if all the
workers in a labour market were to posses their own dwellings, employers
would strive to push down wages until the homeowners would be no better
off than those in the rental sector. The outcome, of course, depends on
the relative strengths of the contending classes.
1936, the South Australian government demonstrated this principle by
setting up the Housing Trust with low rents to reduce average wages in
order to attract manufacturing to the State.
head of Treasury and the Reserve Bank, Bernie Fraser, has never owned
his own house, arguing that it is more profitable to rent and to invest
his savings. High returns are more likely with his skills and contacts.
However, his exceptionalism underlines that homeownership is not the
first step to becoming a capitalist.
about the situation that more Australians have put themselves in lately
by buying into a rental property? In those cases, they benefit
indirectly from the values added elsewhere in the economy, making them
rentiers. Had they set up a small building firm, you would live off the
direct exploitation of their employees, and indirectly from the
purchasers, so that they become part-capitalist and part-rentier.
workers seek homeownership to escape the costs and disruption from
eviction. In addition, owning your own place has been insurance against
impoverishment in old age. Both reasons remain part of the socially
necessary costs of reproducing labour power. They are not shortcuts to
living off the labour power of others.
wrote a booklet The Housing
Question which should be on every re-reading list. However, the
sections dealing with ancient issues can be skipped by most readers.]
Globalisation (8 October)
Globalisation (8 October)
the other hand, the claim that globalisaion has rendered
nation-market-states redundant has taken as big a battering as the
Australian dollar. Who, if not nation-market-states, have been riding to
the rescue of the globalisers? Those financiers got their $700bn bailout
via the US imperium, not from the corporations that were supposed to
rule the world by themselves.
rung down from the big picture of a borderless – indeed, a “flat”
- world, we find that even the most powerful regional grouping, the
European Union, has fractured. Germany broke ranks to guarantee its
saving-bank deposits. At most, its oldest members are “sticking
became like an overcoat concealing a multitude of ignorances, many of
them willful. The globalisation pap could get traction because the Left
had submitted to the bourgeois phrase “nation-state”, which omits
the very practice - “market” - that capital needs is state
apparatuses to uphold. Hence, Marxist-Leninists need to argue in terms
of nation-market-states and imperial-market-states.
are there to preserve the interests of clusters of capitalists. Above
all, they exist to sustain class rule inside their own borders. To
repeat: the state organises capital and disorganises labour.
Mieskins Wood reminded us that capital needs the state in ways that
slavery and feudalism do not. Surplus value has to be realised in sales
from as widespread a market as possible, before the profits must make
their way back. Those pathways have to be policed against competitors
all nation-market-states are equal. Hence, globalisation has weakened
some of them, both within their home sphere of operations, and also in
relation to the empire-market-states, primarily, the US of A. However,
that hollowing out could not be allowed to go too far. The dangers were
as exposed during the 1997 Asian meltdown as that crisis unravelled the
IMF’s “tough-cop” packages of structural adjustment which had been
compelling governments to abandon swathes of social action, such as
health and education.
revolt against Indonesia’s Suharto precipitated a new stratagem from
the World Bank. The soft cop swung its checkbook behind building
“effective” states, meaning those that could control their
populations when they rose against the economic blows.
crisis has its contingent features. Globalisation is not one of them
since capitalism was born global in the Venetian and Dutch merchants, to
be weaned on the triangular trade of slaves and sugar/cotton from Africa
to North America and onto England. Nor is there anything new in global
reverberations from financial flops. For instance when bad loans in the
Argentine rocked Barings Brothers in 1889, the shockwaves hit Marvellous
Melbourne; gold bars had to be rushed from Paris to stabilise “The
City” of London.
the 1930s (9 October)
from two years in Toyko in April 1990, I waited for the bursting of its
real-estate and stock-market Bubbles to torpedo the world economy.
Instead, Japan’s technocrats navigated through a protracted
deflationary cycle by ignoring the advice of free-market economists to
deliver a short sharp shock of the kind with which Jeffrey Sachs was
harrowing post-Soviet Russia.
got Japan wrong, and not keen to join those commentators renowned for
predicting eight of the last three recessions, I stopped asking “When
will capitalism collapse?”, instead, pondering the question “Can
happens next will not be a replay of the 1930s. The first obvious
difference from the 1930s is that the world economy is now several times
larger. The force needed to stop its expansion will have to be that much
larger than it was around 1930-32. The momentum of the current system
might allow it to keep from stalling while growing at a lower rate.
to this increased in size is that the global order now has three
principal centers, Europe, North America and East Asia, against three
halves 80 years ago. In the last 15 years, the global economy has
sometimes got by on a single engine until at least one of the others
points of similarity with the 1920s remain. The first is that the Wall
Street Crash of October 1929 was a symptom of the depression, not its
cause. The flood of funds into the stock market had followed the drying
up of opportunities to gain average rates of return from investing in
the production of surplus value. One instance of this over-supply today
is that, were all the car plants in North America to close down, the
auto factories in the rest of the world would be able to roll out more
vehicles than there is credit to buy them (ie, “effective demand”).
Also like then, any tripwire will be in the financial sector because its
bubbles have resulted from the latest bout of excess manufacturing
capacity. The sub-prime crisis is not infecting the physical economy.
That is where it started.
top of these objective factors comes a psycho-sociological reason why
the triggers for another depression will not replicate October 1929. Too
many people are watching that possibility. Danger spots erupt wherever
no one with the power to act is looking. The cliché that those who
forget the past are condemned to repeat it forgets that those who are
fixated on a version of the past are condemned to be run down because
new things keep happening. That’s dialectics for you.
'19 October 1987' (10 October 2008)
'19 October 1987' (10 October 2008)
plunge had its source in the redemption of the US economy through
driving the less productive firms to the wall through an
appreciation of the US currency. That policy made imports cheaper and
exports harder to sell. Devastation created the rust-belt.
the start of Reagan’s second term in 1985, the purge had done its
work. US capital and its competitors both needed to wind back the value
of the dollar. On 22 September 1985, at the New York Plaza Hotel, the
“Plaza Accord”. The plan was to ease the dollar down by 10-12%.
Instead, it fell by around 50% against the Yen and the
thought experiment helps us to understand what happened next. You are
the Sumitomo Bank with investments in the US stocks and bonds. The
dollar loses a quarter of its value against the Yen. Instead of owning
100 units, Sumitomo now owns 75 units. All indications are that the
dollar will continue to slide. Do you leave money in New York and
Washington in the hope that the exchange rate will eventually move in
your favour? Or do you pull your investments out and taking the 25% drop
rather than risking a 50% loss?
Sumitomo is pondering what to do, so are all the other investment
houses. They are watching the exchange rate and each other. If you are
going to exit, you need to get out first to minimise the dangers from a
run on the dollar driving down the value of your investments even more.
flight from the dollar precipitated the plunge on Wall Street on
“Black Monday”, 19 October 1987. Catastrophe was averted when the
Bank of Japan and the Ministry of Finance instructed Japanese
institutions to bear the unbearable by carrying the losses to preserve
the global system.
medium-term consequence of being burned was to encourage smaller
investors to look closer to home, thereby feeding the real-estate and
stock-market bubbles which went wild until the early 1990. Thereafter,
Japanese capital entered into a deflationary cycle from which it still
has not escaped, with an interest rate of 0.5%, an effective minus.
longer-term outcome is that the Japanese were no longer in any position
to rescue global capital. Moreover, they were no longer the ones pouring
most savings into the USA. That place has been taken by the Mainland
Chinese. And that should make us very afraid. China’s financial sector
itself conceals an Everest of bad debt and has no guardians comparable
to Japan’s in 1987 to marshall financial resources.
Against the tide the declines, the Greenback has been appreciating. So far, so good. The worst case will be a falling US dollar with a collapse of US stocks. That combination will encourage overseas investors to cut and run. One impediment to that solution will be finding a better hole in which to hide. Buy gold
she blows? (11 October)
skim through the consequences leaves us with a pendant to the pivotal
question: if capitalism can indeed collapse, can it also rise again? To
approach an answer, we must look again at the 1930s. The conventional
belief is that Roosevelt’s New Deal rescued the US. In truth, the
downturn of 1937-8 was as steep as that at the start of the deflationary
cycle. What dragged the world out of depression was global war. That
gale of destruction lost some of its creative promise at Hiroshima.
earlier version was rejected by Crikey
in July 2007 as “too depressing”.)
A fiction on fictional capital (9 October)
A fiction on fictional capital (9 October)
extracted the following epigrams from her characters to form an opening