[R-G] [BillTottenWeblog] Postscript to "The Financialization of Capital and the Crisis"

[Bill Totten]

by John Bellamy Foster

Monthly Review (April 2008)


Six months ago the United States was already deep in a financial crisis
 -  the roots of which were explained in this article.   Yet, the
conditions now are several orders of magnitude worse and are affecting
the entire world.  We are clearly in the midst of one of the great
crises in the history of capitalism.  More than a mere financial panic,
what is taking place is a major devaluation of capital of still
undetermined dimensions.  Marx explained that capital was invariably
over-extended in a boom and that in the crisis that followed a part of
that capital was devalued, enabling the rest to return to profitability
and to the process of accumulation and expansion.  However, we are now
to some extent in uncharted territory: a phase of monopoly-finance
capital that is in many ways unprecedented.  Even at the time of the
Great Depression of the 1930s, Keynes explained that after a crisis
modern capitalism might return to profitability without a return to full
employment, full utilization of existing capacity, and strong growth.
Our experience of the last half-century has shown that capitalism at its
core was able to avoid stagnation only by vast military expenditures
and, when that proved insufficient, by an enormous inflation of asset
values and speculation, ie "financialization".  This growth multiplied
by the boom psychology on the way up (the "wealth effect") turned out to
also have a contracting multiplier effect on the way down.  These
factors help to explain why the economic crisis in the real economy is
so severe at present, and why there is no chance of an immediate
restarting of the growth process.

Many people first woke up to the seriousness of the crisis only on
September 18 2008, when US Secretary of Treasury Henry Paulson told
Congress that the US financial sector was within days of a complete
meltdown and that a $700 billion bailout for the banks was urgently
needed.  Since then (and indeed even before) vast amounts of government
dollars have been poured into the financial structure (all told the
financial exposure of the US government alone in the entire crisis has
exceeded $5 trillion at this writing), including direct injection of
capital into major banks and partial nationalizations {1}.  Yet, still
there is little sign of the crisis abating.  Insolvency is spreading
through the economy from consumers to banks, to non-financial firms,
back to consumers, in a vicious cycle.  The fact that the economy in
recent decades was being lifted mainly by financialization makes the
problem all that much more severe.

The entire world economy is now affected.  Already one economy in the
European sphere itself  -  Iceland  -  has experienced a meltdown,
requiring rescue from outside, and some have called Iceland the "canary
in the coalmine".  Over this last neoliberal epoch, the United States
and its European allies have forced upon the entire globe a model of the
free flow of capital across borders.  The result today is the free flow
of catastrophe.  Only by the imposition, first, of capital controls and
the establishment, second, of non-market based "South-South" cooperation
can "emerging" economies avoid becoming the worse victims of the crash.

In these dire economic circumstances we should of course be careful not
to fall into an exaggerated frame of mind.  It is important to remember
that a breakdown of capitalism as a whole will not occur by mere
economics alone.  Given time to work things out on its own terms the
system will no doubt recover  -  though a full recovery could be many
years away, if possible at all.

The real historical issue before us is to what extent the world's
population is willing to wait for this crisis to be resolved on
capitalist terms, so that the whole irrational process of exploitation
and boom and bust can gain steam again  -  or whether they shall decide
to insert themselves into the process to say Enough!  It is this
political insertion from below that the powers that be most fear.  From
their Olympian position at the top of the system they know perhaps
better than anyone else that the conditions exist for the possible
renewal of socialism on a global scale.  Capitalism has reached its
limits as a progressive force and its famous "creative destruction" has
turned into a destructive creativity in which both the world's people
and the planet are now in jeopardy.  Indeed, for the world's population
and the earth taken a whole there is today no real alternative  -  to
socialism.

_____

1  "Government's Leap into Banking Has Its Perils", New York Times
(October 18 2008).


John Bellamy Foster is editor of Monthly Review and professor of
sociology at the University of Oregon.  This postscript was written for
the Portuguese translation of "The Financialization of Capital and the
Crisis" that will appear in Revista Outubro, Brazil.

http://mrzine.monthlyreview.org/foster251008p.html


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