[Marxism] Why analyze the economic crisis

[S. Artesian]

I don't know at what point Mr. Liu and I agree about China's dollar 
reserves, unless it's the point that China is/was/will not replace the US as 
the linchpin of the global network of capitalism; that the dollar reserves 
are not "owned" by the Chinese government but are for the most part held as 
a type of "demand deposit"  for other banks, for international trading, 
etc.; or that China really cannot use those reserves as stimuli to jump 
start its rapidly contracting economy.    Actually, I only know of one 
position Mr. Liu and I share-- and that is the first one in the list-- that 
China is not about to replace the US.

Anyway,- it was Waistline who brought Mr. Liu's analysis of 1997 as a 
financial crisis into the picture, and I forget whether or not Matt agreed 
with that characterization-- of it as a financial crisis.  I do know that 
when I said "no, it was not a financial crisis.  It was the direct result of 
overinvestment, overcapacity leading to a declining rate of return," Matt 
thought I was arguing for, and confusing, the secular trend with the 
immediate eruption.  I was not arguing about the secular trend.  That was 
not the case in 1997.  That was not the case in 2007.

We need to go back a bit.  We can go back more than a bit.  We can see the 
period from app 1945-1969 or 1970 as the "postwar salad days" with high 
rates of growth and investment in US, Europe, Japan, and higher rates of 
growth than what would follow in those countries and in Latin America. 
Higher rates of growth do not preclude, at the same time, deferred 
investment in some areas, and asset debilitation.  Still growth rates in 
profit, and overall growth 1945-1970 beat the snot out of what followed. 
And what followed was a decline and the various attempts to offset that 
decline-- through, my best description is the famous 1973 double-whammy of 
OPEC induced oil price spikes and  Pinochet type attacks on labor.  These 
things are accompanied by obvious opposing forces-- but all the opposite 
reactions, like the Portuguese revolution,  have their root in 
overproduction, the overgrowth of the means of production beyond their 
ability to return a profit quickly enough to maintain capitalist 
reproduction.

This failure is the compressed identity of the conflict between the means 
and relations of production that Marx identifies as the herald of 
revolution, and that he also identifies as the historical limit to 
capitalism.

Through OPEC, and the flushing of petrodollars into the US, the recession of 
1974-1975 became the stagflation, which was really more overproduction, 
culminating in the second OPEC price spike and the Volcker  " World Interest 
Rate War Against the World" creating the lost decade for Latin America, and 
the leveraged buy out liquidation of assets in the US.  Waistline here is 
onto something, and something big, when he calls it-- profit without wealth, 
for what Reagan/Volcker/Thatcher did was to "restore" capitalism in all its 
zombie-vitality by transferring wealth up the social ladder, up the class 
struggle-- like an arsonist transfers wealth to the owner of the real estate 
from all those suckers who make up the great pool of the insured and 
uninsured.

And where did that get us-- well once again, with reduction of asset 
investment, with real declines in wages, with wealth transferred by tax hook 
and tax reduction crook, it got us into a mildly improved rate of profit, 
and.... then more overproduction,  particularly in oil, the bellweather, the 
coal mine for which all other capital is nothing but a canary.  And then 
what followed was a war.

Certainly there is more to this part than I enumerate here-- there is the 
Plaza Accord, putting the screws to Japan, driving it to shift dramatically 
its investment to the NIEs of Asia, and from there to China in a big way. 
There was the economic dragging to ground of the fSU through the collapse in 
oil prices and military spending... Still in all this, capital does what it 
does for itself, and to itself, regardless of the consumption capacity of 
the workers, the masses, the poor.  Capital is concerned with its 
accumulation and reproduction and the limits to those are in itself-- in its 
exchange with wage-labor-- not in the wage itself, but in the relation of 
the wage in the exchange with fixed, dead, labor.

Consumption itself is a product of this success in reproduction.... so much 
so that Marx is not the partisan of the LaSallean "iron law" of subsistence 
wages.  On the contrary, Marx knows quite well that under conditions of 
capitalist expansion, which Marx argued is independent of the wage-rate, 
but dependent upon the ratio, the exchange of living to dead labor, workers 
needs expand, the reproduction of the worker becomes more expansive, 
complicated, and even expensive, and in some cases allows for the worker to 
even save a little, create a small reserve.

So let's move forward-- to the recovery after 1992-- a recovery generated 
and manifested in real increases in capital spending, technological 
improvement, labor productivity in the US; real expansion in the NIEs of 
Asia where, yes urban migration and immigration are  enduring themes, just 
like profits, and just like profits experience a flow in the salad days, and 
another flow in the 70s, and yet another flow in the 80s under the impact of 
increasing industrial investment and disruption of village economies.

We get a recovery in the rate of profit.  We get capitalism US investing in 
industry, heavy and light, in the means of transportation and 
communication/information-- trucks and telephones being the measures of this 
expansion.

In Indonesia, Malaysia, So Korea, Taiwan, Thailand, and China you get fixed 
asset accumulation supported by record FDI flows.

And we get overproduction again.  A decline in the rate of return in 
industry despite the increasing consumption in the US, in the NIEs, in China 
and Brazil.

And there's more to that story-- as this is accompanied by the dismantling, 
physically, socially of the fSU-- the liquidation of its productive capacity 
and ripping off of its "usable assets"-- that is to say a small portion of 
its industrial capability--  literally a ripping off.

Nevertheless what capitalism does there, in both recovery, and 
deconstruction it does regardless of the consumption patterns of the 
society; it does what it does based on its internal "clock,"-- it's 
mechanism, its metabolism for the aggrandizement of labor.  And that clock, 
that metabolism is simply that in order to engage, aggrandize wage-labor, to 
expand itself as capital, it must continuously expel the ratio of wage-labor 
engaged in production.   Thus the more capital exchanges itself with 
wage-labor, the relatively less it exchanges itself with wage-labor and 
consequently while value expands, the ratio of the newly accreting value to 
the existing body of value declines.    And this has nothing to do with 
consumption.

Now that gets us to 1998 and the decline in the price of oil to $10/barrel--  
which was hell on our poor oil bourgeoisie who didn't really get to enjoy 
the double-digit profit rates of the post 1992 period like other 
manufacturers given their, the oil industries', incredible capital-heavy 
investment and production ratio.

The US rate of profit durin this period shows a peak, I think around 1997, a 
drop, and then a recovery around 1999 ( I think, doing this from memory--  
don't have all my notes here in Paris), getting  at, or near, or above the 
previous peak (maybe not above, see earlier note about notes) by 2000, when 
all starts to fall down.

Come 2001 and we're in recession again.  Come 2002, oil prices have declined 
some 30% to about $20/barrel, the ROI is in the crapper, and you just know 
we're going to war again in Iraq.  And in 2003 we do, and the economy starts 
to recover.

What are the components of this recovery?   Is it increased wages?  No. 
Wages remain below their 2000-2001 level for some time.   Is the rate of 
profit improved?  It sure is. First and foremost, capital expending is 
choked off.  Fixed asset replacement rates fall below 1 as depreciation, and 
actual physical consumption of fixed assets exceeds capital expenditures and 
fixed asset accumulation.   Another part of the recovery is depreciation of 
the dollar, decreasing the cost of US exports-- and US capital exports after 
2003 begin a pretty sizeable increase-- one that by 2005 or 2006 has US in 
2nd place (ahead of Germany)  on the hit parade of exporters, China being 
numero uno with a bullet.

And a funny thing happens, capital expenditures, and fixed asset 
replacement/accumulation resumes-- modestly, but by 2006 it is clear that 
amounts will top the amounts of 2000, as the rate of expenditures ramps 
up... And where does that get us?  Right here. To another peak in the rate 
of profit.  To the petroleum industry trying to goose the golden goose with 
a staggering run up in prices-- to the run up in prices for copper, zinc, 
soybeans, iron ore, all of which drop like shares in a British bank the day 
after Lehman Bros. files for protection.

Now interesting and interestinger is the role of the banks in the US in this 
period-- or rather the role of the financial institutions as the members of 
the Federal Reserve System play only part of the role here.  But... but with 
industry not expanding after 2001-- with capital expenditures held in close 
check,  industrial, manufacturing loan activities contracts and the 
[generic] banks focus on "asset-backed securitization," debt vehicles first 
unveiled/unleashed during the financial arson period of Reagan/Bush.  That's 
where the money was, for the banks-- in the wage stream-- in attacking the 
wage stream through debt vehicles--- not in lending to industry, since 
industry wasn't ordering from that menu.

But the source of all of this is not in consumption-- it is not in 
fictitious capital-- it is not in the overproduction of paper-- and it is 
not in the inability of migrant workers to pay their mortgages-- all asset 
securitization, all capital as capital works on AGGREGATES, not the 
particulars of an individual or several individuals.

Certainly there was theft, speculation, flipping of homes, shoddy credit 
investigation, generalized pressure to lend, lend, lend with rates so low--  
and we can term all of that a house of cards-- but a house of cards doesn't 
build itself, and it does not knock itself down-- something has to move--  
either the air or the ground.

And the ground in this case that moved is that ground that always move under 
capitalism-- it is its own historical limitation, its internal conflict 
between means and relations of production.

Yes, the entire thing boils itself down to class struggle.  Economics is 
nothing but concentrated history.  But all history as Marx shows time and 
again is nothing but the expanded social relation of production.

When we point to stagnating or declining real wages we need to link that not 
with underconsumption but with the organization of the means of production 
as capital, with capital's need for profit-- that the attack on workers 
wages, living standards is not because underconsumption somehow has led 
capitalism to an abyss, so that now it must attack even less consumption in 
order to... in order to what?  We need to link it to the entire notion of 
profit-- to capitalism's need for profit... because if the problem is 
underconsumption then the nearest social democrat will absolutely agree and 
say what we need is to "tame" capital, not replace it, to augment 
consumption, to give capital a social, human, face and dimension.

And how does that get done?  By feeding capital what it must consume in 
order to reconstitute its mechanism of accumulation-- feeding bodies into 
that great furnace of consumption called war.

Bet on it.  That's where this capitalism is going, and in a hurry.  And to a 
big one.

Sorry to go on and for the sketchy presentation.  Close to the best I can do 
given the short notice and short resources.