Matty_UK
18th March 2009, 16:47
Interested to see how the OI'ers respond to this article I've just written:
Karl Marx and The Credit Crunch
There is a popular joke in Russia that goes something like this: “Two economists meet. The one asks the other, ‘do you know what’s happening?’ The other replies, ‘well, hold on and I’ll explain it to you.’ ‘No, no,’ says the first, ‘explaining it isn’t hard — I’m an economist too, you know. No, what I’m asking is: do you understand it?’” Not necassarilly the pinnacle of hilarity, but when it comes to that thing we’re all sick of hearing about – the credit crunch – it sounds awfully familiar. Like how the medieval church invented mysteries about itself to give it’s authority a sacred air, so economists hide behind a veneer of pseudo-scientific jargon which burps “We know what we’re talking about! Honest!”
The standard explanation presented in the media is that banks gave out loans to people - primarily to buy their houses - without considering their capacity to pay them back, so long as they had a mortgage. However, the more people borrowed, the more house prices went up, and so the more aspiring home-owners had to borrow. Financial institutions the world over converted these loans into assets exchangeable on the world market, like normal shares, and speculators began to sell this debt to one another, making trillions of dollars; the golden eggs of the debt goose. Eventually, the poorest in society who could not pay back their loans began to be evicted so the houses could be sold to a more reliable borrower; but with all these houses coming onto the market, prices went down and the whole bubble - which depended on rising house prices so speculators could buy low and sell high - popped with a bang so loud it’s echo was heard through the corridors of history itself as banks went bust and could no longer lend.
Ridiculous, isn’t it? A child could see that this hare-brained scheme would come to no good end, yet somehow finance capitalists, our lords and masters supposedly deserving of their obscene wealth and power by virtue of diligence and intelligence, were taken by surprise. Politicians explain this through feigned populist outrage at the irresponsibility of greedy bankers, and many join the establishment left in denouncing the evils of a vaguely defined “deregulation,” and call for greater state role in managing the economy.
However, it’s a myth that the state ever left management of the economy. The explosion of debt (350% of US GNP in mid 2008, compared to just over 200% before the Great Depression) was, in fact, state-sponsored. It was the state who reduced the lending rates of banks, with the conscious intent of releasing unprecedented levels of credit into the economy. How else are we to understand that in 2001, with the US entering a recession, George Bush told Americans to “be good patriots – consume”? Getting people to spend beyond their means was official state policy in the developed world.
Why such madness?
Rewind back to 1867. A book called “Capital” penned by a fellow known as Karl Marx became an accidental bestseller when the business community mistook it for a guide on how to accumulate such capital, and were shocked indeed to discover it was actually a critique of capitalist society, famously prophesising it’s demise.
One of Marx’s (many) key points in this titan of a book is that there is a tendency for the rate of profit to decline, paradoxically caused by technological progress. Driven by the need to produce cheaper commodities than his competitors, the capitalist invests in technological innovation; however, despite providing a temporary advantage over rivals, these innovations soon become generalised across the sector and with less labour involved in production the commodities become devalued, and the capitalist finds himself getting a poorer return on investments. This is why manufacturing in the US, which once accounted for 50% of domestic profits, now accounts for 15%; however due to such innovation in production, actual manufacturing output has increased and it is only employment and the profit rate that has dropped! This is a clear cut demonstration of the validity of Marx’s theory.
A second key point is that of overproduction. It is impossible for everything produced by capitalism to be consumed. Let’s imagine a worker provides a service that has a market value of £1200 a month. For a capitalist to make profit, he might leech off, say, £400 of that for himself and pay his employee £800. But due to the imperative of competition, £250 of that must be invested in company capital; therefore, even combined the capitalist and worker cannot buy back everything produced. This is why in the age of imperialism capitalism conquered the globe, creating new markets everywhere to sell off its surplus and prevent deflation and unemployment. As Cecil Rhodes, chief architect of British imperialism put it;
“I was in the East End of London yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for ‘bread’, ‘bread’, and on my way home I pondered over the scene and became more than ever convinced of the importance of imperialism…My cherished idea is a solution for the social problem ,i.e., in order to save the 40 million inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands for settling the surplus population, to provide new market for the goods produced in the factories and the mines. The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialists.”
With the globe already completely straddled by capitalism, how can this surplus be gotten rid of? You guessed right. Create an artificial market through credit. This artificial market allows capitalists to sell their commodities, and then re-invest in production, which in turn requires a further expansion of credit…and so on. This is why debt has been accumulating at a faster and faster pace since the mid 50s.
This is the secret of the credit crunch; it was unavoidable. With a lack of productive avenues to invest in, the capitalist has spent the last 2 or 3 decades seeking to make money through a series of bubbles based only on rising prices and not on socially useful investment; the stock market bubble, the real estate bubble, the dotcom bubble, the housing and credit bubble. Now, 5 times more money circulates the stock exchange than production. The growth of the financial sector is something predicted by Marx to happen in the twilight of capitalist society; it is a means of making money whilst skipping past the production of commodities, ever less profitable a means of offloading the surplus of capital generated by overproduction, and so in the US financial profits increased from 15% of all profits in the 60s to 40% by 2005. Because the financial sector provides few people with jobs, and profits are rarely invested in places that do create jobs for the above reason, we’ve seen stagnation in employment and wages. The average increase of employment at the end of the 9 recessions before the 2001 recession was 11.9%; after 2001 it was 3.5%, but taking into account the increase of part-time work over full-time there was actually even less labour participation. In addition to that, as a consequence of poorer job opportunities our generation has been kept in education and out the jobs market for as long as possible, pursuing degrees for jobs that don’t require them purely because fewer jobs means we must now be more competitive. Real wages, too, have been stagnating or declining and are now lower than in the 1970s, with the typical family increasing their number of jobs and working hours per household if they can.
When the “Big Picture” is described like this, it all begins to make a lot more sense, but now it seems even more ridiculous. People are losing their homes, being thrown into poverty because there is too much being produced. There is no housing shortage, no scarcity of goods; au contraire, it is exactly the reverse of this that has caused the crisis. And things will only get worse.
The history of human progress is a history of gradually liberating ourselves from tedious work so we can pursue loftier goals. Ancient Greece and Ancient Rome achieved such a high level of culture not because they were exceptional people, but because as a society of slave-owners (only possible when the invention of agriculture could guarantee that one person could produce for more than just himself) their citizens did not have to work as such, and could devote their time to art, science, philosophy. Capitalism, too, has through technological advancement brought us out of the fields and given us some free time that we may spend consuming the capitalist’s commodities and services. However, it has now brought too much technological progress for it to handle; we are dependant on selling ourselves to a capitalist firm, but there is simply not enough work to ensure a living for everyone. Millions are being excreted out as human waste from a system dedicated solely to private profit. In the US, already, tent cities have emerged where people are going back to living off the land. For those of us lucky enough to find employment, falling profit rates will force capitalist firms to decrease our wages and benefits so that they may survive against their competitors. The future is bleak.
In “The Communist Manifesto” Marx likens the capitalist to a wizard who has concocted grand spells that have spun out of his control and he can no longer master. And indeed, after over 2 centuries of enchanting us with his powers, this warlock has developed an arrogance bordering on the psychotic. So enamoured with his own glory, he cannot comprehend that he has unwittingly summoned the forces of darkness and is unwilling to tame his creation, so infatuated he is with it – in short, he has become a monster.
We must seize control of and tame his creation ourselves. Under capitalism, “overproduction”-a phenomena which ought to be an absurdity-results in firms closing down, halting production and casting their workforce out onto the streets. In the Great Depression, while 7 million Americans died of starvation, agribusiness intentionally destroyed rather than giving away it’s “surplus” livestock and disposed of milk on a grand scale simply to raise prices and profits. Likewise, in the early stages of the current crisis, people are losing their homes simply so prices can rise yet again. And, with no major new markets to create elsewhere in the world and the impossibility of having a healthy economy based on manufacturing (and with the rise of online stores who don‘t need to employ many staff and are most likely to survive the crisis, the service sector will also decrease dramatically in size; many believe the service sector to have grown but in fact it employs less people than in the 70s. What has happened is the centralisation and proletarianisation of a sector which was once made up mostly of self-employed and family businesses) it is likely that the economy will “recover” simply by having house prices rise once more, except now with a permanently high unemployment rate and wages pushed down across the board to counter the falling profit rate, and an increased frequency of economic crises.
The only solution is the abolition of waged labour. We must seize control of productive apparatus and use it’s full potential to distribute, rather than sell, the social product. The lack of jobs should not mean unemployment, but rather we should share out work that needs to be done making less work for all; what’s more, we can abolish the need for work that only needs to be done in capitalism. PR and marketing, finance and accountancy, can be done away with entirely, and in a democratically controlled economy we could be free to automate as many boring jobs as we see fit rather than investing in third world labour intensive production which Capitalism now finds the more profitable option. This is the final step in liberating ourselves from tedious work, started by the Greeks; capitalism is already beginning to take us halfway there, but under capitalism freedom from work means starvation and poverty. We carry on our shoulders the task of ushering in a new chapter in the history of man, and the dawn of true civilisation; where each of us can focus on science, philosophy, literature, music, sport, horticulture and the performing arts. Imagine if our cities were no longer glorified shopping malls, but instead festive centres of the community where we can indulge in the higher pleasures. Imagine if expensive nightclubs and bars would be replaced simply with public buildings where we could freely associate as we please. Imagine if instead of careers we had a succession of community projects and the continual nurturing of our creative self expression and individuality, and where schools are no longer competitions for the best jobs where the main thing many of us learn is how to conform and bow our heads to every authority, but are instead various workshops where we could pick and choose to learn the skills necessary to our lives. Imagine a society which teaches us to love ourselves, and to love one another, with an intensity matched only by the ferocity of the revolution we need.
Karl Marx and The Credit Crunch
There is a popular joke in Russia that goes something like this: “Two economists meet. The one asks the other, ‘do you know what’s happening?’ The other replies, ‘well, hold on and I’ll explain it to you.’ ‘No, no,’ says the first, ‘explaining it isn’t hard — I’m an economist too, you know. No, what I’m asking is: do you understand it?’” Not necassarilly the pinnacle of hilarity, but when it comes to that thing we’re all sick of hearing about – the credit crunch – it sounds awfully familiar. Like how the medieval church invented mysteries about itself to give it’s authority a sacred air, so economists hide behind a veneer of pseudo-scientific jargon which burps “We know what we’re talking about! Honest!”
The standard explanation presented in the media is that banks gave out loans to people - primarily to buy their houses - without considering their capacity to pay them back, so long as they had a mortgage. However, the more people borrowed, the more house prices went up, and so the more aspiring home-owners had to borrow. Financial institutions the world over converted these loans into assets exchangeable on the world market, like normal shares, and speculators began to sell this debt to one another, making trillions of dollars; the golden eggs of the debt goose. Eventually, the poorest in society who could not pay back their loans began to be evicted so the houses could be sold to a more reliable borrower; but with all these houses coming onto the market, prices went down and the whole bubble - which depended on rising house prices so speculators could buy low and sell high - popped with a bang so loud it’s echo was heard through the corridors of history itself as banks went bust and could no longer lend.
Ridiculous, isn’t it? A child could see that this hare-brained scheme would come to no good end, yet somehow finance capitalists, our lords and masters supposedly deserving of their obscene wealth and power by virtue of diligence and intelligence, were taken by surprise. Politicians explain this through feigned populist outrage at the irresponsibility of greedy bankers, and many join the establishment left in denouncing the evils of a vaguely defined “deregulation,” and call for greater state role in managing the economy.
However, it’s a myth that the state ever left management of the economy. The explosion of debt (350% of US GNP in mid 2008, compared to just over 200% before the Great Depression) was, in fact, state-sponsored. It was the state who reduced the lending rates of banks, with the conscious intent of releasing unprecedented levels of credit into the economy. How else are we to understand that in 2001, with the US entering a recession, George Bush told Americans to “be good patriots – consume”? Getting people to spend beyond their means was official state policy in the developed world.
Why such madness?
Rewind back to 1867. A book called “Capital” penned by a fellow known as Karl Marx became an accidental bestseller when the business community mistook it for a guide on how to accumulate such capital, and were shocked indeed to discover it was actually a critique of capitalist society, famously prophesising it’s demise.
One of Marx’s (many) key points in this titan of a book is that there is a tendency for the rate of profit to decline, paradoxically caused by technological progress. Driven by the need to produce cheaper commodities than his competitors, the capitalist invests in technological innovation; however, despite providing a temporary advantage over rivals, these innovations soon become generalised across the sector and with less labour involved in production the commodities become devalued, and the capitalist finds himself getting a poorer return on investments. This is why manufacturing in the US, which once accounted for 50% of domestic profits, now accounts for 15%; however due to such innovation in production, actual manufacturing output has increased and it is only employment and the profit rate that has dropped! This is a clear cut demonstration of the validity of Marx’s theory.
A second key point is that of overproduction. It is impossible for everything produced by capitalism to be consumed. Let’s imagine a worker provides a service that has a market value of £1200 a month. For a capitalist to make profit, he might leech off, say, £400 of that for himself and pay his employee £800. But due to the imperative of competition, £250 of that must be invested in company capital; therefore, even combined the capitalist and worker cannot buy back everything produced. This is why in the age of imperialism capitalism conquered the globe, creating new markets everywhere to sell off its surplus and prevent deflation and unemployment. As Cecil Rhodes, chief architect of British imperialism put it;
“I was in the East End of London yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for ‘bread’, ‘bread’, and on my way home I pondered over the scene and became more than ever convinced of the importance of imperialism…My cherished idea is a solution for the social problem ,i.e., in order to save the 40 million inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands for settling the surplus population, to provide new market for the goods produced in the factories and the mines. The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialists.”
With the globe already completely straddled by capitalism, how can this surplus be gotten rid of? You guessed right. Create an artificial market through credit. This artificial market allows capitalists to sell their commodities, and then re-invest in production, which in turn requires a further expansion of credit…and so on. This is why debt has been accumulating at a faster and faster pace since the mid 50s.
This is the secret of the credit crunch; it was unavoidable. With a lack of productive avenues to invest in, the capitalist has spent the last 2 or 3 decades seeking to make money through a series of bubbles based only on rising prices and not on socially useful investment; the stock market bubble, the real estate bubble, the dotcom bubble, the housing and credit bubble. Now, 5 times more money circulates the stock exchange than production. The growth of the financial sector is something predicted by Marx to happen in the twilight of capitalist society; it is a means of making money whilst skipping past the production of commodities, ever less profitable a means of offloading the surplus of capital generated by overproduction, and so in the US financial profits increased from 15% of all profits in the 60s to 40% by 2005. Because the financial sector provides few people with jobs, and profits are rarely invested in places that do create jobs for the above reason, we’ve seen stagnation in employment and wages. The average increase of employment at the end of the 9 recessions before the 2001 recession was 11.9%; after 2001 it was 3.5%, but taking into account the increase of part-time work over full-time there was actually even less labour participation. In addition to that, as a consequence of poorer job opportunities our generation has been kept in education and out the jobs market for as long as possible, pursuing degrees for jobs that don’t require them purely because fewer jobs means we must now be more competitive. Real wages, too, have been stagnating or declining and are now lower than in the 1970s, with the typical family increasing their number of jobs and working hours per household if they can.
When the “Big Picture” is described like this, it all begins to make a lot more sense, but now it seems even more ridiculous. People are losing their homes, being thrown into poverty because there is too much being produced. There is no housing shortage, no scarcity of goods; au contraire, it is exactly the reverse of this that has caused the crisis. And things will only get worse.
The history of human progress is a history of gradually liberating ourselves from tedious work so we can pursue loftier goals. Ancient Greece and Ancient Rome achieved such a high level of culture not because they were exceptional people, but because as a society of slave-owners (only possible when the invention of agriculture could guarantee that one person could produce for more than just himself) their citizens did not have to work as such, and could devote their time to art, science, philosophy. Capitalism, too, has through technological advancement brought us out of the fields and given us some free time that we may spend consuming the capitalist’s commodities and services. However, it has now brought too much technological progress for it to handle; we are dependant on selling ourselves to a capitalist firm, but there is simply not enough work to ensure a living for everyone. Millions are being excreted out as human waste from a system dedicated solely to private profit. In the US, already, tent cities have emerged where people are going back to living off the land. For those of us lucky enough to find employment, falling profit rates will force capitalist firms to decrease our wages and benefits so that they may survive against their competitors. The future is bleak.
In “The Communist Manifesto” Marx likens the capitalist to a wizard who has concocted grand spells that have spun out of his control and he can no longer master. And indeed, after over 2 centuries of enchanting us with his powers, this warlock has developed an arrogance bordering on the psychotic. So enamoured with his own glory, he cannot comprehend that he has unwittingly summoned the forces of darkness and is unwilling to tame his creation, so infatuated he is with it – in short, he has become a monster.
We must seize control of and tame his creation ourselves. Under capitalism, “overproduction”-a phenomena which ought to be an absurdity-results in firms closing down, halting production and casting their workforce out onto the streets. In the Great Depression, while 7 million Americans died of starvation, agribusiness intentionally destroyed rather than giving away it’s “surplus” livestock and disposed of milk on a grand scale simply to raise prices and profits. Likewise, in the early stages of the current crisis, people are losing their homes simply so prices can rise yet again. And, with no major new markets to create elsewhere in the world and the impossibility of having a healthy economy based on manufacturing (and with the rise of online stores who don‘t need to employ many staff and are most likely to survive the crisis, the service sector will also decrease dramatically in size; many believe the service sector to have grown but in fact it employs less people than in the 70s. What has happened is the centralisation and proletarianisation of a sector which was once made up mostly of self-employed and family businesses) it is likely that the economy will “recover” simply by having house prices rise once more, except now with a permanently high unemployment rate and wages pushed down across the board to counter the falling profit rate, and an increased frequency of economic crises.
The only solution is the abolition of waged labour. We must seize control of productive apparatus and use it’s full potential to distribute, rather than sell, the social product. The lack of jobs should not mean unemployment, but rather we should share out work that needs to be done making less work for all; what’s more, we can abolish the need for work that only needs to be done in capitalism. PR and marketing, finance and accountancy, can be done away with entirely, and in a democratically controlled economy we could be free to automate as many boring jobs as we see fit rather than investing in third world labour intensive production which Capitalism now finds the more profitable option. This is the final step in liberating ourselves from tedious work, started by the Greeks; capitalism is already beginning to take us halfway there, but under capitalism freedom from work means starvation and poverty. We carry on our shoulders the task of ushering in a new chapter in the history of man, and the dawn of true civilisation; where each of us can focus on science, philosophy, literature, music, sport, horticulture and the performing arts. Imagine if our cities were no longer glorified shopping malls, but instead festive centres of the community where we can indulge in the higher pleasures. Imagine if expensive nightclubs and bars would be replaced simply with public buildings where we could freely associate as we please. Imagine if instead of careers we had a succession of community projects and the continual nurturing of our creative self expression and individuality, and where schools are no longer competitions for the best jobs where the main thing many of us learn is how to conform and bow our heads to every authority, but are instead various workshops where we could pick and choose to learn the skills necessary to our lives. Imagine a society which teaches us to love ourselves, and to love one another, with an intensity matched only by the ferocity of the revolution we need.