Tag Archives: capitalism

Is Capitalism in crisis?

One of my correspondents recently alerted me to a review of David Harvey’s book, The Enigma of Capital, and the crises of capitalism. I’ve not seen the book, but if the review is a faithful description, the book seems to be well worth reading.

I’m not inclined to frame my analyses and prescriptions in terms of competing ideologies because that leads to immediate resistance by the true believers on one side or another. Rather, we need to encourage people to think outside of their comfortable boxes by pointing out implicit assumptions and evident dysfunctions, and suggesting structural as well as policy changes that show promise of providing better outcomes.

Of course, what constitutes a better outcome will always be a point of disagreement based on the fundamental values, attitudes, and beliefs that different segments of society hold dear (e.g., the 1% vs the 99% that the Occupy movement has been highlighting). Besides that, our desires and expectations must ultimately adjust to the reality of our planetary limits to physical growth.

Based on the review, the points that I may agree or disagree with Harvey about are inserted in red in the review below.

The Enigma of Capital, and the crises of capitalism, By David Harvey

Review by Andrew Gamble

Friday, 30 April 2010

Andrew Mellon, the US Treasury Secretary during the Great Crash of 1929 and one of America’s richest men, observed that in a crisis assets return to their rightful owners. Nothing much has changed. As the present crisis has mutated from a banking crisis to a fiscal crisis and a sovereign debt crisis, bonuses continue to be paid, while the people of Greece and Iceland suffer huge cuts in jobs and services.

As the head of Citibank helpfully pointed out, “Countries cannot disappear. You always know where to find them.” Once the bubbles are burst, expectations about asset values are dashed, optimism gives way to despair, and wealth is ruthlessly redistributed. Capitalism survives by purging itself of debt and loading the costs of adjustment on the weak and the poor.

[I agree, but something needs to be said about HOW it purges itself of debt. We’ve seen very clearly in this latest cycle how the capitalists have come away whole by pushing the debt off onto the public sector by means of government bailouts. That has cause severe fiscal (budgetary) problems for governments, which now are pressured to cut spending. That is where the weak and the poor (including the “middle class”) get fleeced and sacrificed because the cuts are typically made in social spending and programs that promote the common good.]

For David Harvey, this is the latest of the great structural crises which have punctuated the development of capitalism and which signify that major limits have been reached to further growth. Crises on this view are inherent in capitalism itself, and the means by which it renews itself. Only a periodic clear-out of debt and unproductive activities creates the basis for a further leap forward.

Harvey is less interested in the detail of how the 2007-8 crisis unfolded than in understanding it as a manifestation of how capitalism works. Over the last two decades, he has become a leading exponent of classical Marxist political economy, his work known for its exceptional clarity and for integrating spatial categories into the theory of capital accumulation.

Capitalism in the last 200 years has proved itself by far the most dynamic and productive economic system known to history, but the wealth comes at a price, both for human beings and increasingly for the natural environment.

Periodically, capitalism over-expands and overshoots, encountering limits it cannot immediately transcend. This is a system which must keep expanding by at least 3 per cent a year. What drives it is the hope of profit, and this impulse comes to shape all social relations as well as nature. During booms, capital accumulates very fast, but the amount of surplus generated becomes harder and harder to absorb. The investments that have been made in the boom fix capital in all sorts of ways, in buildings, cities, regions and countries, as well as in labour forces and ways of organising production.

After a time many of these past investments no longer yield a high return and sometimes no return at all. This is what precipitates the crisis. It may take the form of a profits squeeze, caused by militant labour wresting gains from capital, or by factors depressing the rate of profit, or by too little demand. Harvey argues that the present crisis is particularly hard to resolve because it comes after a long period in which real incomes in the US have stagnated, while the wealth of the property-owning elite has soared.

The gap between what labour was earning and what it would spend was covered by credit. The average debt of per household, including mortgage repayments, was $40,000 in 1980. By 2007 it was $130,000. Getting this debt down and restarting the economy is a huge task.

[I too have been preaching that the limits to growth have been reached, and yes, however one might choose to characterize an economic system (capitalist, socialist, or otherwise), there must be a periodic “clear[ing]-out of debt and unproductive activities,” for the system to maintain its vitality, but not necessarily to make way for further growth.

I’m wondering if Harvey’s book adequately explains the phenomenon of “expansion and overshoot,” and whether or not that would also occur under his conception of a alternative non-Capitalist system. I’m also wondering about the basis for his statement that, “This is a system which must keep expanding by at least 3 per cent a year.” I’ve seen estimates that run closer to 6%. My own belief is that the proximate driver of continual economic growth is the compounding of interest that is a fundamental feature of our global monetary system, and that the surplus that is created by the economy goes largely into capital concentration and profit-seeking reinvestment, rather than to increased and more equitable consumption. Thus, we see starvation and want amidst plenty.]

Harvey is pessimistic that growth can be restarted without the infliction of quite unimaginable hardships on the many of the world’s poorest people. Capitalism survives by socialising losses and distributing gains to private hands. Harvey devotes a large part of his argument to show how this is done through the close ties of the state and finance. He calls it the state-finance nexus.

[Yes, this is an increasingly obvious point. I’m glad to see that Harvey is highlighting the “state-finance nexus.” I trace that back to the founding of the Bank of England in 1694, which established the pattern of central banking and government-banking collusion that has since spread around the world and culminated in a rather monolithic regime. But there are cracks beginning to form.]

This is not a conspiracy: both sides of the relationship need one another and support one another. There are frictions and conflicts, but in the end they work together because this is the only system anyone knows or thinks can be made to work. Michael Bloomberg, as Mayor of New York, commissioned a report which declared that excessive regulation in the US was threatening the future of the financial sector in New York.

The financial crash of 2008 destroyed the credibility of the financial growth model put in place after the last great capitalist crisis in the 1970s. It has also, as Harvey notes, put a question-mark over the continuance of US hegemony, because of the shift in the balance of the global economy towards the rising powers of India and China.

He thinks that the accumulated rigidities over the last cycle have become so great that only a very fundamental restructuring can restore the basis for renewed economic growth. But the pressure for an early return to business as usual are very great, threatening an early return of credit and debt as the only way to fuel the economy, and the eruption of another crisis in a few years.

Harvey argues that each major capitalist crisis has been worse than the last one, and more difficult to surmount. He accepts that capitalism, with all its resilience and inventiveness, is quite capable of overcoming this crisis too; but he is sceptical, and believes that this is the moment that a revived anti-capitalist movement can seize the opportunity to put forward a realistic alternative to capitalism as a way of organising the economy.

[Yes, it is evident that each successive cycle is more extreme than the last. The financial system based on interest-bearing debt is shaking itself apart.

It seems odd that he attributes “resilience and inventiveness” to capitalism. These are human qualities that might thrive in a variety of circumstances. The question is how, specifically, to support them. ]

This is perhaps where the argument is least convincing. The anti-capitalist left is fragmented and not particularly numerous. Radical political responses during previous capitalist crises have often favoured the right. The rise of China and India, both of which have continued to grow through the recession, suggests that the fundamental shift in the balance of the global economy is only just beginning, and if it continues is likely to provide huge potential for growth and absorption of surplus, provided certain political conditions are met.

This will not be easy but is certainly possible. Marx thought that no social order ever perishes before all the productive forces for which there is room in it have developed. On the evidence Harvey himself provides, capitalism still has a long way to go before that is the case, and no gravediggers are in sight.

[What are the physical limits to the application of those “productive forces?” It is evident that the masses of India and China cannot possibly achieve the levels of consumption and way of living that have prevailed in the West. The emphasis must shift from capital accumulation and increasing consumption to more equitable distribution and better quality of life for all.]

But this book is a welcome addition to the literature on the crisis. It provides a lucid and penetrating account of how the power of capital shapes our world, and sets out the case for a new radicalism and a vision of alternatives. What we need, he argues, is not just a new world but a new communism, following the failure of the old – although he does accept ruefully that using “communist” as a political label may not bring instant success in the United States.

[I guess we will need to read the book to see what Harvey has to propose in making the “case for a new radicalism and a vision of alternatives.”]

Andrew Gamble is Professor of Politics at the University of Cambridge and author of ‘The Spectre at the Feast’ (Palgrave Macmillan)

[Annotated comments by Thomas H. Greco, Jr.]

A 93 year old French war hero’s call to (non-violent) arms

A January 3 article (The little red book that swept France) in one of Britain’s leading newspapers tells of the phenomenal success of a small book written recently by a 93 year-old war hero which urges people to resist the “insolent, selfish power of money and markets.”

Here are a few excerpts:

“They dare to tell us that the State can no longer afford policies to support its citizens,” Mr Hessel says. “But how can money be lacking … when the production of wealth has enormously increased since the Liberation (of France), at a time when Europe was ruined? The only explanation is that the power of money … has never been so great or so insolent or so selfish and that its servants are placed in the highest reaches of the State.”

“I would like everyone – everyone of us – to find his or her own reason to cry out. That is a precious gift. When something makes you want to cry out, as I cried out against Nazism, you become a militant, tough and committed. You become part of the great stream of history … and this stream leads us towards more justice and more freedom but not the uncontrolled freedom of the fox in the hen-house.”

It is high time that ethics, justice and a sustainable balance prevailed…”

I hope the book (Indignez vous! (Cry out!)) will soon be available in English.

Capitalism-A Love Story

That’s the title of Michael Moore’s latest film.

If I were intent on finding fault with it, I might say that the film understates the case, or that there are huge gaps in the story it tells. But I prefer to focus on what the film is rather than what it isn’t. This film is, quite simply, a masterpiece; Moore’s best film ever. Every American, indeed, everyone in the world, should see it. It should be translated into every language in the world. It should be the focus of study groups, and stimulate community action across the country. –t.h.g.

The Worsening Debt Crisis – An Interview With Michael Hudson

Michael Hudson is a very astute observer of economics, finance, politics, and history.
When he speaks everyone should pay attention.

I strongly recommend that anyone who wishes to understand, not just economics and finance, but our general socio-political predicament should read his entire interview.

I agree with his statement that “The economy has reached its debt limit and is entering its insolvency phase. We are not in a cycle but the end of an era. The old world of debt pyramiding to a fraudulent degree cannot be restored.

He says “the only basis for borrowing more is to inflate the price of real estate that is being pledged as collateral for mortgage refinancing.” That was the reason for the banks creating the real estate bubble in the first place, to provide a basis for lending ever more credit (debt-money) into circulation.

The political debt-money system contains a debt and growth imperative because of the compound interest that is attached to loans. To keep the game going there are two choices, expand debt by lending to the government sector (by running budget deficits), or expand debt by lending to the private sector (liberal lending to enable people to buy whatever (real estate, stocks and other securities, commodities, education (student loans), cars and other stuff, what else?)). When incomes are not sufficient for the debt burden to be carried, defaults occur. Defaults can be denied and deferred by various tricks — e.g., refinancing to reduce payments by extending length of repayment. When a financial institution has such extreme cash flow problems as to be unable to continue denial, the government will come in with a bailout plan that leaves the taxpayer to foot the bill. Now, it becomes the public sector’s turn to carry the expanding debt burden.

I am in full agreement with Hudson’s claim that, “It is pure hypocrisy for Wall Street’s Hank Paulson to claim that all this is being done to “help home owners.” They are vehicles off whom to make money, not the beneficiaries. They are at the bottom of an increasingly carnivorous and extractive financial food chain.”
The parasitic nature of the system becomes ever more evident. Either the host becomes increasingly sick and eventually dies, taking the parasites with it to the grave, or the host will act on the increasingly strong signals of malaise and find a way to expel the parasites or keep them in check. Nature shows us that co-existence is a possibility but only if the parasites are held within certain bounds. The New Deal of FDR was a temporary expedient to do just that. One could argue that FDR saved Capitalism.

Hudson clearly states what I have been trying to get across to people: “What people still view as an economic democracy is turning into a financial oligarchy. Politicians are looking for campaign support mainly from this oligarchy because that is where the money is. So they talk about a happy-face economy to appeal to American optimism, while being quite pragmatic in knowing who to serve if they want to get ahead and not be blackballed.”

So don’t expect Obama to do much different.

Hudson correctly observes that “financial interests have replaced the government as society’s new central planners.”
They control politics and everything else. – t.h.g.