Commentary on Political Economy

Tuesday 5 July 2011



We will soon start a separate series of "Lectures on the Critique of Political Economy" that will set out systematically our new framework of analysis of the capitalist economy and society.

Note On Finanzkapital (Reply to Prof. Farmer at FT)
Just a brief comment to remind participants to this Forum that reforming the banking and financial sector will not remove “the root of all evil” – and as you know I identify that as the social antagonism that arises from the wage relation and the “value” that capital must “realize” in its “circulation” as “money-as-capital”, from M to M’ (meaning “profit”). In a nutshell, what this means is that the “dis-connection” between “profit” and “value” as a result of social antagonism will always result in “credit crises”.
Now, in an effort “to re-connect” the political link between “profit” (or money-as-capital”) and “value”, the State will, on one hand, intervene “to rescue” the financial system (through “easing” and reflation) and, on the other, seek “to enforce” the “value of existing money contracts or obligations” (in other words, of existing “debt obligations”) through measures of “austerity”. What is crucial to austerity or fiscal contraction is that it tends to remove purchasing power from working households because the State invests generally in labour-intensive and welfare sectors. This will reduce demand for consumption goods whilst existing unused productive capacity will not result in greater capital expenditure even at low inflation rates. Even the conventional financial framework envisaged by Bernanke-Gertler that I discussed below prescribes that following a financial crisis the only way to stimulate investment ("legitimate enterprise") is that the net worth of borrowers (reduced by the deflationary or contractionary pressures) will have to be restored through monetary easing and fiscal measures - certainly not by efforts by governments to "make whole" bondholders and financial institutions. Bluntly put, we need a transfer of wealth and income from lenders to borrowers.
So these are the real “horns of the dilemma” that Farmer’s pieces are trying to grab. Yet countries like Britain and Germany and France have opted for austerity! - With the complication that the euro is even appreciating and the PIGS... Well, if you read the recent FT Analysis column on Greece there is enough to want to make you scream. The situation there is absolutely alarming... And the ECB is tightening! God help us!

With any luck, the Fed will come to the rescue if the US recover and play the "locomotive" role whilst at the same time "compelling" Germany and China to expand domestic demand instead of engaging in "wage suppression" and "export subsidies" through the "savings channel". (Please see Michael Pettis's latest blog at on these matters.) But each step of the way, these essential measures will be opposed by those who wish to impose their "laws of economics" on us. One of those laws is that "contracts must be enforced and performed" - including bond-interest repayments. Even if we manage to "persuade" governments to engineer avoidance of these "obligations" (the Latin name for bonds, denoting a “moral” commitment; the German “Schuld” for debt means also “guilt”!), "bond vigilantes" would seek to impose "capital strikes" - but these could be avoided with a "determined" co-ordinated policy from Western capitalist governments.
The next difficulty could be "inflation" - because we must not forget that, once empowered, trade unions can be as "unreasonable" as any gang of capitalists - just take a look at that Analysis piece on Greece if you don't believe me! This is why ultimately a thoroughgoing "democratisation" of our society, preferably extending to all Western countries (the only place where capital can "reside" safely) is the answer. We can start with financial sector reform and with fiscal and monetary policy. In Europe, the rot starts in Germany with its capitalist elites and those economies closely integrated with the Modell Deutschland.
(I note that Axel Weber, having been "spiked" from his "king-in-waiting" at the ECB was moving first to Chicago University and then to head UBS - one more example, if any were needed, of the "collusion" between State authorities and academic establishments and then the banking establishment: ask Professor Farmer what this means in terms of "information asymmetries" of the "principal-agent" type!!)

No comments:

Post a Comment