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The global financial crisis of 2008 is truly a milestone event. No other since the crash of 1929, and subsequent great depression, has shown so clearly that the capitalist economy, despite its solid façade, can unravel very quickly and collapse. No other has illustrated so clearly the absurdity, the obsolescence, of letting the needs of capital accumulation determine humankind’s fate. The sudden panic of capital owners, the sudden disappearance of trillions of dollars, the great difficulties with which the governments of the world have wrestled to get a grip on the situation, cannot but have a great impact on the consciousness of the working population, which now will see its living conditions substantially deteriorate for no other reason than that human needs are subservient to the needs of capital.
Too much can be produced too cheaply so that massive layoffs, wage and benefit cuts, attacks on the environment in order to further reduce costs, etc., must be imposed so that capital, abstract value, can grow again; because that is the real, determinant, purpose of the capitalist economy.
Although a total collapse is unlikely in the short term, this event marks the beginning of a period of protracted crisis, from which there will be no escape. There will be temporary recoveries but not a new boom period. Either the crisis will run its course, which means allowing depression and war to destroy so much value that the conditions for profitable expansion can be purportedly restored, or a global revolution, and the abolition of value production will occur.
By the time you read this, you will have read or heard countless explanations of this crisis, most of which blame it on capitalist greed, bad management and Anglo-American “neo-liberalism.” Such “analyses” come mostly from the left of the capitalist spectrum. The right struggled to say anything coherent at all about the mess, and at times even parroted the left (as when John McCain railed against “Wall Street greed”). It’s clear that at times like this, the left becomes very important for capital. A critique of unfettered free market-capitalism and of the stupidity of giving tax cuts to billionaires is the only narrative left open, if blaming the capitalist system itself is to be avoided. It’s not capitalism but bad capitalists that have caused the problem, the left is essentially saying. The system can be saved through more regulation.
But while capitalist greed is permanent, capitalist crisis is not. While the bourgeois consensus has now nimbly shifted from “neo-liberalism” to “neo-Keynesianism” (in truth, Keynesianism, as it is commonly understood - state-intervention in the economy and deficit-spending - has never gone away) and yesterday’s guru Greenspan was heaped with scorn and left making mea culpas on TV for having kept interest rates kept too low for too long, thereby allowing the US housing bubble, and its extension to Europe and other parts of the world, to swell, it is conveniently forgotten that this housing bubble, and the consumption it fueled, played an essential role in keeping the global economy humming over the past two decades.
IP predicted this crisis, but we were far from the only ones. Even some bourgeois economists saw it coming from afar. You don’t have to be a Marxist to understand that, when financial assets appreciate at a breakneck pace while there is no corresponding growth of the underlying value created in production, the exchange value of these assets will fall. Its fictitious character will at some point be revealed. The current recession is not caused by the financial panic; rather, it was the other way around: the economic downturn burst the financial bubble. The question is why, despite today’s tremendous productivity, the growth of value fell so short of what the credit expansion required. Or, to turn this around, why this financial expansion occurred in seeming indifference to the much slower pace of real economic growth. To these questions, the best answer bourgeois commentators can come up with is “human failure”: greed, sloppiness, stupidity, shortsightedness…which with better leaders, and with more oversight and regulation, will be cured…It’s not the system that’s at fault… The system pays them well to say just that.
And they may well believe it. Only Marx’s analysis of the value form and its immanent tendencies, allows us to answer the above questions.
Globalization, made possible by information-technology and the restructuring of the world economy following the end of the cold war, did give capitalism a new lease on life after the post-World War II boom ended in the 1970’s. Some say that the impressive expansion of the world economy since then was only caused by an expansion of credit, by an accumulation of debt. If that were true, the crash would have come much sooner. The credit expansion was indeed disproportionate, but the fact that it could go on for so long needs to be explained. This would not have been possible without a real expansion of value creation; “of productivity,” some would say, “resulting from technological innovation.” But if that is all there was to it, why are we in such a deep crisis? They do not see that a general rise of productivity not only means that more goods are being created, but also that these goods are made with ever less labor and that, the more surplus labor is already taken from that labor, the more difficult it becomes to squeeze more out of it. An acceleration of the general rate of productivity growth resulting from technological innovation tends to make the value of what is produced fall below the value of the capital advanced for its production. That threatens the very purpose of the economy: capital accumulation.
The expansion of real value creation took place because the rate of exploitation of labor power increased. Globalization not only made the capitalist world market more unified and thus wider and more efficient, but it also restructured production on a global assembly line, shifting an ever growing part of industrial production to what used to be backward areas that had barely participated in the global market. In this way, capital not only could expand the exploitation of cheap labor power but also, because of its very mobility, discourage working class resistance to exploitation everywhere, despite the falling value (labour time) of wages.
Moreover, globalization accelerated a redistribution of value in the market place. In the global economy, the most developed capitals, with the fastest rate of technological innovation and productivity growth, have a competitive advantage that allows them to sell their goods at a price above their value. In other words, much of the value they realize, is not really in their products, they get it on the global market.
Globalization therefore created huge profits in the most developed parts of the world, which encouraged capitalization under the assumption that their growth would continue unabated. But, as technological innovation spreads and generalizes, the quantity of labor, and thus of surplus value, in commodities also falls. Globalization was eating away at the roots of the expansion of profits. What became decisive to obtain then, more than ever, was access to, and dominance of, markets. Many companies, from shoes to semi-conductors, began to spend more on marketing than on production.
It was the hope of capitalism’s apologists that globalization would generate its own expanding market. And indeed, to some extent it did just that, the multiplier effect enriched and expanded the size of middle-income strata in many parts of the world. That too, encouraged a credit-expansion on the assumption of its continuation. However, the limit to the expansion of the market, generated by globalization, was revealed in the Asian crisis ten years ago. It showed that much of the profit resulting from exploitation in low wage countries could not profitably be reinvested in those countries.
The same issue arises today. Some are saying that countries such as India and China have made a lot of money through globalization. At the same time, the needs are great there. Why don’t they invest their surpluses in the expansion of their domestic market, which could stimulate the whole world economy? Yes, there are huge amounts of capital in places like India and China, and there are hundreds of millions of small peasants and land workers, and unemployed there, who possess nothing. But they have nothing that Chinese and Indian capital owners want, not even their labor power, unless it can be used to make goods for another, foreign, market.
The Asian financial crisis, which spread to Latin America and Russia, showed that the expansion of the domestic market in the countries recently embraced by globalization is strictly dependent on the expansion of their foreign markets. It also showed that deflation increasingly becomes the hallmark of the economic picture. The implosion of financial bubbles, the sharp devaluations and falling prices during and after the Asian chain event announced the return to center stage of capitalism’s insurmountable economic contradictions. In a context in which just about everywhere both the labor force and the means can be available to make almost anything very cheaply, over-accumulation, and thus prices falling below their value, becomes inevitable. This touches the weakest competitors with the least access to the global market first. The twin, contradictions, each reinforcing the other, of capitalism’s incapacity to generate a market that keeps pace with the expansion of its productive capacity, and the tendency of the value of what it produces to fall, first attack their profits and wages. So owners of capital in the weaker countries, confronted by the limitations of reinvesting their profits at home and by the danger of devaluations, increasingly moved their savings to where they would be safer in a deflation wave. In 2004, according to the figures of the Morgan Stanley bank, 80 % of the net-savings of the world were flowing to the US.
And there, it was more than welcome. The US, through its foreign policy, the projection of its military power, but also through its stable political system, now adorned with the friendly face of Barack Obama, is cultivating its status as the safe haven for capital. Even the implosion of the dot-com bubble in 2000, with its trillions of evaporated fortunes, hardly interrupted the stream of capital. A pattern had developed: the US economy lived, every year a bit more, beyond its means, buying more than selling, paying by printing more dollars, backed by public debt notes bought by the countries who sell more to it than they buy from it. Neither side can withdraw from this relationship. A swing to protectionism would plunge the US in depression, but the loss of the American market would be equally devastating for China and Japan.
At the same time, the profits made in the developed countries sought a safe haven where they could maintain and expand their value. After the dot-com-implosion revealed that the value of high tech companies was wildly overrated and with many traditional sectors such as automakers suffering from overcapacity, where could they go? The combined demand of international capital for safety pushed up the price of all assets in the US, and to a lesser extent elsewhere, that are part of “the hoard”: the part of capital that is not directly engaged in creating new value, but that is kept in reserve to move in or out of the productive process, depending on the profits, and the promise of profits. The rising demand for them in turn pushed up their prices. Their fast rate of appreciation attracted more capital, which again raised their prices and so on. The fundamental reason why financial assets expanded so much faster than the real economy is that the demand for them is unlimited while the demand for all other commodities is not. In a context of global overcapacity and a growing deflationary tendency, the effective demand for cars, computers or any other commodity is severely limited, but the demand for financial capital is not, because while “ … all commodities are perishable money; losing their value if they are not sold, money is the imperishable commodity.” (1)
The financial sector in the US and beyond was all too happy to accommodate this thirst for assets in which value could be “safely” parked, through the creation of all sorts of new financial commodities. The appreciation resulting from the rising demand for them seemingly confirmed that they lived up to their safe haven promise. As in all pyramid schemes, it was essential to keep that demand rising. The policies of the US, under Democratic as well as Republican administrations, were aimed at just that. The feeding of the housing bubble played an essential role in this. The increased “equity” in property values was used to underpin the exponential rise in both consumer and business debt that kept up global demand and kept deflation at bay in the most developed parts of the world economy. But to keep the demand for property values rising, the financial sector had to take increasingly desperate measures, such as sub-prime loans to buyers without means. Although it was clear from the onset that such loans would never be paid back and would be subject to default in the first downturn, there was no alternative to feeding the bubble.
Globalization expanded value creation but value can only remain value if it continues to valorize. Capital that does not mobilize, directly or indirectly, productive forces for the creation of new value, is bound to devalorize. This crisis shows that there is too much value requiring valorization, that the value of assets in which profits sought refuge is fictitious. But if the illusion had not been there, where would these profits have found refuge? The housing bubble postponed the crisis, if only for a few years.
Tens of trillions of dollars, euros, and other currencies, have disappeared since this credit crisis began and it’s far from over. This is terrible for those who lost them, but for the conditions of accumulation of capital this is, in itself, beneficial: less capitals crowd each other out, some big ones enrich themselves by swallowing the smaller ones at a bargain price, costs (oil, wages) are falling. But this isn’t enough to stop the unraveling. It can only be stopped (temporarily) when a massive creation of new debt backed by the lender of the last resort -- the state – props up the debt-saddled financial system and interest rates are lowered. So the crisis of fictitious capital is “solved”… by the creation of new fictitious capital. To the trillions spent to save the financial system will be added trillions in spending to contain the recession and prevent deflation from spreading to the strongest countries. The approval of Fed-Chairman Bernanke to an Obama-type stimulus program shortly before the elections already indicated where we’re heading. The left will clamor for a new “New Deal,” but “stagflation” – the combination of stagnation and dangerously rising inflation that brought the world economy to the brink of collapse in the 1970’s -- would be its best possible outcome. However, there will be increasing public spending to fight deflation. There will be a more direct intervention of the state, more state capitalism. But in the end, nothing will have changed: more debt will be created to counter-act the devalorization of old debt.
This will move the problem from confidence in banks and other financial enterprises to confidence in the lender of last resort, the state. In many countries that are in the grip of deflation, this confidence is already shredded. But in stronger countries, with big financial reserves, such as Japan and the US, the anchor and guardian of the global system, it is strengthened, at least in the short term, as capital seeks refuge from the uncertainty of the financial storms in state-backed securities. Thus, the demand for US treasury notes rose, despite its low yield, and so did the dollar. But in the somewhat longer term, as state debts swell to ever more enormous proportions, this confidence will become increasingly fragile. The capacity of the concerted action of governments to stop a collective run for the exit and thus prevent a collapse will become more doubtful, as the quantity of debt-notes and other money sloshing around will increasingly dwarf their combined financial reserves. The crisis will return and will likely make the present one look like child’s play.
Sander November 6, 2008
The present financial crisis, with its threats to the existing international banking and credit system, and the underlying economic crisis, the global crisis of over- accumulation, which is its basis, is the greatest challenge to the functioning of world capital since the early 1930’s. Given the gravity of this crisis, the current recession will most likely be a very deep and protracted one, striking all sectors of the global economy.
Its impact on the working class will be devastating, leading to a vast increase in unemployment as the economy contracts, both in the advanced capitalist countries and in the emerging economies, lower wages as well as significant cuts in the “social wage” and pensions, together with the loss of homes due to foreclosures, which hits the working class especially hard. Yet this is no “death crisis” of capitalism; it will bring no automatic collapse, the expectation of which is a significant barrier to revolutionary struggle and to the development of the consciousness of the collective worker. Capital possesses enormous resources, economic, political, and ideological, upon which it can draw. One such resource is to blame the crisis on the greed of the bankers and capitalists, to focus anger on “Wall Street,” and its agents whose avarice has supposedly brought this crisis upon us. From the US and Germany, to Russia and China, that ideological campaign has already begun. It is important, then, to recognize – as Marx insisted -- that the capitalist is simply the functionary or executor of capital, and not the responsible agent of the economic processes to which he or she responds: For Marx, “… individuals are dealt with only insofar as they are the personifications of economic categories, the bearers [Träger] of particular class relations and interests.” (1) The executor or functionary of capital, the capitalist class, acts consciously, but without an understanding of the complex of networks and interests that it personifies, without a full understanding of the exchange mechanism, and the objective or real abstraction in which value is incarnated. As Marx pithily said, “they do not know it, but they do it.” It is capital and the logic of the value form that has produced this crisis, and not the capitalists, and their cupidity or stupidity. And any “solution” short of the abolition of value production will only prepare the way for new and even more devastating crises. Within the confines of capitalism and the value form, we can expect a provisional end to the policies of neo-liberalism and deregulation that were ushered in by Thatcher and Reagan in the 1980’s. As the steps already taken by capital to respond to the credit freeze and the need to re-capitalize the banking system indicate, regulation will now become the mantra of the most powerful elements of the capitalist class. It is not just left-liberalism and Social Democracy which now rejects neo-liberalism, and which seeks to save capitalism through regulation and Keynesianism. In its lead article this October, the New Left Review sees promise in “financial regime change,” and holds out the prospect that more scope for government regulation of the financial system “may give the new regime that emerges from the current upheavals greater stability than its predecessor.” (2) That is surely the aim of capital, though it ignores the fact that this is not just a financial crisis; it is rather a global crisis of the value form and its insurmountable contradictions. Moreover, an end to policies of deregulation does not mean an end to globalization, which is separable from neo-liberalism, though it was the latter that historically made possible the former. For the moment, the time to dismantle the policies and institutions of globalization – the WTO, the IMF, the World Bank, the OECD, -- and with it a robust populism of the left or right, has not yet come. (3) Indeed, capital, for the moment, needs to reinforce the bonds of globalization: the advanced capitals, the EU, Japan, the US, need the markets of the emerging economies (China, India, South East Asia, Brazil) if the slackening of domestic demand, even with lower interest rates, is to be offset, and the emerging economies need the open markets of the advanced capitals to prevent a collapse of their own newly industrializing economies. Moreover, deflationary tendencies in the periphery of world capital, and ever cheaper wages there, will lower the wage bill in the advanced capitals, by keeping the flow of cheap consumer goods coming in the midst of unemployment and declining wages in those sectors of world capital. The most intelligent functionaries of capital, from the US to China understand this. Just as they understand the need of capital to further degrade the natural environment in its unceasing quest for surplus-value, in its determination to reduce the costs of variable capital as it seeks to raise its rate of profit, a process that the present economic crisis will exacerbate, as the conversion of left liberals and even some of the left to an expansion of offshore drilling for oil and the building of nuclear reactors makes abundantly clear.
Those very “needs” of capital, mired in a deepening economic crisis, are a significant reason why, even before the credit crunch this past September, leading sectors of the capitalist class in the US had already made it clear that it preferred a Democrat to a Republican as president; that it preferred Obama to McCain. The future of American imperialism was one reason: Bush’s unilateral foreign policy had proven an obstacle to the support of allies in policing the world and its global economy. Bogged down in Iraq, incapable of making progress in bringing about an end to the Israeli-Palestinian conflict, the debacle in Lebanon, where Syrian influence was growing, the danger of unilateral American moves against Iran, the need to increase troops in Afghanistan, and the task of restoring some kind of order in Pakistan and preventing its descent into civil war, all made some kind of “intelligent” imperialism, to replace the discredited Bush doctrine, an imperative need. It was precisely Obama who was made to order to be the functionary of such an intelligent imperialism, of the sort represented by Zbigniew Brezinski or Colin Powell, though the replacement of Donald Rumsfeld by Robert Gates as American Secretary of Defense had already signaled the beginnings of such a shift by the Bush administration. The financial and economic crises, and the moves already undertaken by Secretary of the Treasury Henry Paulson, and the Fed Chairman, Ben Bernanke, signaled the need for capital to reverse the course towards deregulation of financial markets, and engage in robust Keynesian economic policies to reflate the economy, without sacrificing the “gains” for capitalism made possible by globalization. The ideological commitment of much of the Republican Party to lower taxes, Reaganomics, and opposition to the Paulson plans for re-capitalizing the banks, all made it clear that in the present situation, Obama, and a Democratic Congress, was a better choice to implement the economic policies that capital required than McCain. While the exact course of the economic crisis cannot be predicted, it would seem that Obama and the Democrats are best suited to wear the mask of capital at the present time; indeed, Obama’s capacity to mobilize popular support for “change” is one reason why that is the case. Should the policies of an Obama administration fail, should popular discontent significantly rise, populist movements of the left or right will probably grow. In such a case, the right-wing of the Republican Party, with an anti-Washington, anti-Wall Street, ideology, and calls for anti-immigrant legislation and protectionist economic policies, may well resonate with both the middle class and elements of the working class too (as will similar calls in the EU countries too). But for the moment, capital has the functionaries it needs in charge of both the executive and legislative branches of the American republic; functionaries who can best assure the kind of international cooperation that the continuation of American hegemony requires.
While capital needs the best functionaries to assure its continuation, it also requires something else: the ability to control the population, to guarantee its hegemony over the collective worker, which entails an ability to mold the human population as subjects. One facet of the shift from the formal to the real domination of capital is a concomitant shift from a reliance on force or coercion to control the working class to a reliance on its capacity to ideologically shape the human “material” that it needs to control; to shape humankind as a certain kind of subject. We are not speaking of simple mystifications, tricks, by which the working class is induced to accept the rule of capital. Rather it is a matter of profoundly shaping and re-shaping the very culture, needs, psychology and anthropology, of the human being; its subjectification. The value form is not some kind of coat that humankind can simply take off when the weather changes, certainly not in the epoch of the real domination of capital, where its rule, cultural, economic, and political, becomes totalitarian. Theodor Adorno added to Marx’s concept of the rising organic composition of capital, the concept that the “organic composition of man” is growing: “Only when the process that begins with the metamorphosis of labour-power into a commodity has permeated men through and through and objectified each of their impulses as formally commensurable variations of the exchange relationship, is it possible for life to reproduce itself under the prevailing relations of production.” (4) Adorno’s rising organic composition of man grasps the immanent tendency of capital in its phase of real domination to extend the changes in the technical composition of capital, the relation of dead to living labor, into the very constitution of the worker: his needs, her affects, his vision of the world, her perceptual universe. While Adorno may have captured one of the immanent tendencies of capitalism in its phase of real domination, we believe that his vision of the rising organic composition of man is too pessimistic; that it virtually forecloses any possibility of revolutionary struggle or the development of class consciousness on the part of the collective worker. We do not want to underestimate the capacity of capital to subjectify the population that it rules; its successes have been historically compelling. Indeed, the power of nationalism, in both left and right forms, and the recrudescence of religious ideologies, which have quite literally re-shaped a considerable portion of humankind, are a warning to those who might underestimate this power of capital, and the extent to which the exchange relationship has penetrated most aspects of human existence. (5) However, it also seems to us, that there are counter-tendencies to capital’s power to bring about the subjectification that it needs and wants; counter-tendencies inherent in the value form itself and its laws of motion. Capital has not succeeded in expunging the collective memories of humankind’s struggles against exploitation, embedded in the history of every culture and social order, and especially the struggles of the working class, memories that the very globalization of capitalism spreads universally; memories that can be re-actualized, particularly in an era of crisis. Moreover, one of the means that capital must wield in order to escape its downward economic spiral is to accelerate the development of the productive forces, including especially the productive force of humankind, of the collective worker. That requires the creativity and innovation on the part of workers, without which scientific and technological stagnation will prevail. On the one hand, capitalism needs the creativity and innovation provided by the collective worker in order assure its own economic bases, the competitiveness of capital entities; on the other hand, that creativity and innovation has the potential to escape the control of capital, to extricate itself from the prevailing modes of science and technology integrally linked to the law of value, to re-animate the very tendencies to resistance and rebellion that capital seeks to expunge from creativity and innovation, but that may be inherent in it.
There is no inevitability of communism attendant on a devastating economic crisis - the 1930’s should have demonstrated that - and the real domination of capital has proceeded over the course of the past eight decades. Revolutionaries will not shout “here’s to the crisis,” aware as they are that crisis does not necessarily result in revolution, that it causes enormous suffering for the working class, and can lead to ever-greater “barbarism,” to xenophobia, war, and genocide. The crisis itself is inevitable; its outcome is not. One effect of the present crisis will be to shatter the “normalcy” of economic growth, of faith in the benefits of the prevailing science and technology. To the questions that arise as the processes of normalization breakdown, capital will try to provide its own answers. Yet none of those “answers” can resolve the necessity that lies at the heart of the value form, that “… its production moves in contradictions which are constantly overcome but just as constantly posited. The universality towards which it irresistibly strives encounters barriers in its own nature, which will, at a certain stage in its development, allow it to be recognized as being itself the greatest barrier to this tendency, and hence will drive towards its own suspension. … Ricardo and his entire school never understood the really modern crises, in which this contradiction of capital discharges itself in great thunderstorms which increasingly threaten it as the foundation of society and of production itself.” (6) The task of revolutionaries is to show where the horrific logic of the value form leads, in this epoch of social retrogression, to provide different answers to the questions that are beginning to be asked, to intervene in all the cracks that open up in the edifice of capitalist normalcy; to devote themselves to the work of that old mole of revolution, and to the possibility of creating a human community.
Mac Intosh
November 7, 2008
NOTES
1. Karl Marx, Capital: A Critique of Political Economy, Volume One, Preface to the First Edition, Penguin Books, p. 92.
2. Robert Wade, “Financial Regime Change?” in New Left Review, 53, September-October 2008.
3. Recent proposals of President Sarkozy in France to use the partial nationalization of key firms to protect them from foreign takeovers, especially by foreign government-owned sovereign funds, is indicative of the kinds of protectionist moves that a deepening economic crisis may provoke.
4. Theodor Adorno, Minima Moralia: Reflections from Damaged Life, # 147, NLB, p. 229.
5. This should serve as a warning to the growing number of theorists for whom the changes in the organization of capitalism over the past several decades, and the growth of what many designate, mistakenly in our view, as “immaterial labor,” is indicative of the overcoming of the law of value within capitalist society. Quite the contrary, those very developments indicate the continued existence of the domination of the value form in capitalism today, even as its perpetuation has become an obstacle to the growth of real wealth. As Marx pointed out, the very historical trajectory of capitalism has transformed the law of value from an historical condition for the creation of real wealth into a barrier to such creation: “The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of the general powers of the human head. With that, production based on exchange value breaks down ….” (Karl Marx, Grundrisse: Foundations of the Critique of Political Economy (Rough Draft), Penguin Books, p. 705. That is to say, any link between capitalism and human progress, any “progressive” role for capitalism, has ceased, even as the penetration of the value form into the life of humankind has grown.
6. Karl Marx, Grundrisse: Foundations of the Critique of Political Economy (Rough Draft), pp. 410-411.