Thursday, 4 August 2011

A Quick Summary of the Critique of Mishkin

To help those friends coming to grips with the review of Mishkin's "asymmetric information" (AI) explanation of the financial crisis, let me quickly summarise the arguments. Asymmetric information cannot explain capitalist "crises" because if they were due "merely" to the fact that different investors (lenders and borrowers) had different access to "information" about their proposed investments, then these "asymmetries" could be easily "resolved" simply by organising more "transparent" or "symmetrical" flow of "information".

Instead, as Mishkin himself comes to intuit but either does not see or does not wish to admit, the "asymmetry" in access to "information" is due to the "antagonism" of capitalist social relations where "investments" can be "profitable" only when capitalists face workers (all of us) in the workplace - which now extends to nearly the entire reproduction of "the society of capital".

Because capitalists (especially lenders, that is, banks) wish to avoid this "antagonism" but still make a "profit", they "lend" their capital to "borrowers" (entrepreneurs) who "promise" lenders (banks) that their "interest" on the loans will be repaid together with the principal!

When this "repayment" gets harder because of "antagonism", the so-called "asymmetry" becomes harder, so that the "collective capitalist" has to intervene by "regulating or supervising" the flow of investments - either directly by taking over control of production and investment, or indirectly by targeting things like inflation, money supply, other "investment conditions".

What is happening right now is that this "speculative behaviour" (the massive avoidance of antagonism in the workplace by capital) has resulted in huge destruction of capital (mark to market, collapsed asset prices) so that the State had to intervene to guarantee the repayment of "interest".

But now the State is indebted to such an extent that it is not possible "to repay" loans to "private" capitalists, so that either the State defaults overtly or else does so covertly (through inflation and negative real interest rates through "quantitative easing" and other money-printing). I hope this helps. Other "theoretical" pieces on this site will make the analysis clearer as you go. Cheers.

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