FromSubprimeToSlump

From Subprime to Slump?

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  The classic Marxist position is that both an expansion and a contraction in
  capitalist economies are needed for the accumulation of capital. In the
  expansion phase, a new technology is adopted and the first comers make a lot of
  money, wages are bid up, and the prices of goods fall. In the US, a classic
  expansion of this nature took place, for example, after the Second World War.
  War production had decreed the introduction of new technology, workers had
  organised unions to demand higher wages and (briefly) to ascend to a middle
  class lifestyle. The jobs they held, by the way, had medical coverage, pensions
  plans, and secure employment until pensions kicked in. That world is now gone
  forever.

  Going back a few years, again for the American case, the Great Depression
  (1929-1939) was a classic contraction. Banks failed by the thousands,
  industries closed, something like 25 percent of the workforce was without jobs,
  and (this is the interesting part) prices of everything fell through the floor.
  This was the classic deflationary crisis, i.e the sort of crisis that had
  characterised capitalist development from the beginning. In Marxist theory, the
  importance of deflationary crises is that fictitious capital (largely overbid
  stock prices) is destroyed, larger and more efficient capitalists gobble up the
  little ones thus laying the ground for the introduction of new technology, and
  (most important) the working class is disciplined for the next round of
  production.

  Both the expansion and the contraction phase are necessary for more and more
  capital to be accumulated, so Marxists call this process the ¿cycle of capital
  accumulation'. In the classic Marxian doctrine, the downturns are caused in two
  ways. The small ones are caused by marked instability between the industries
  that produce consumer goods and those that produce capital goods (Capital
  Vol.II). The big ones are caused by a long run tendency of the rate of profit
  of capitalist enterprise to fall.

  The rate of profit falls as technological innovations spread throughout
  industry. The first comers have already become rich, but when the whole sector
  adopts a new technology (say, steam power to replace water power), profits are
  eventually competed away. This is at the macro level. At the level of the firm,
  Marx argued (Capital Vol.III), the change in the labour to capital ratio in
  favour of capital diminishes the amount of living labour time that the
  capitalist accumulates. Then, since living labour is the source of all economic
  value, the rate of profit tends to fall.

  The picture presented by Marx may seem counter-intuitive, but if you look at
  the world today you will see the results of this process that are, once again,
  manifesting themselves. Now capital has fled the highly industrialised regions
  of Europe and North America to be applied in China, Vietnam, and other
  relatively backward economies. Why? Because, of course, this is where the
  capitalist gets to accumulate most prodigiously the source of all surplus value
  which is human labour time.

  How, then, did the present US and world crisis begin this time around, and will
  it continue in an inflationary or deflationary context? Let's close with this.
  As the rate of profit declines in the older sectors of capitalist enterprise,
  the so-called ¿financialisation' of the economy begins. The older metropolitan
  regions no longer export goods to the rest of the world. They now export
  capital. 

  [...]

  This is pretty funny. The US is the largest debtor nation on the planet as we
  speak, but its financial geniuses (until lately) have been ¿lending' through
  the World Bank and the International Monetary Fund. How do they do this? Well,
  it can only happen in a world in which the international reserve currency
  (currently the US dollar) is created by simply saying that it exists.
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