Commentary on Political Economy

Monday 3 October 2011

Theories of Overproduction and Underconsumption - Bernanke Comments Continued

Perhaps the most important "lesson and implication" to be drawn from Bernanke's revealing speech that we have been dissecting here (with good reason, given the powerful insights it contains from one of the most perceptive and decent proponents of world capitalism) is that the "growth" of so-called "emerging market economies" over the last twenty years has been the result of the sheer horizontal expansion of capitalist investment originating in the Western "advanced" capitalist countries at the expense of the growing populations of those "emerging" countries that have quite simply (disarmingly) only adopted Western technologies straight from the "tool-box" of Western capitalism so as to be better able to exploit their own "resources" (population, society, land, environment) to drive down real wage costs in the West. And this, what we know as "the Great Moderation", worked until recently when finally the "profits" that originated in the "emerging" capitalist countries could no longer be re-ploughed "profitably" in the West or in the periphery - with the resulting financial crisis that we know.

Bernanke seems to think that a simple "re-alignment" of currencies and capital flows - and therefore of the "burden of adjustment" - between capitalist countries the world over (core and periphery) may be sufficient to re-start, to re-invigorate the capitalist regime of exploitation toward its "relative" mode: - that is to say, a mode of capitalist exploitation that trades off better living standards for workers in return for higher productivity and profits. The reason behind this proposal is that Western capitalist investments have hit a barrier of profitability in that profitability has been declining steadily since the spread of what we have called “the New Deal Settlement” through the Marshall Plan in Europe and Japan after World War Two.

This conspicuous and utterly undeniable decline is too well-documented and widely accepted even by the most orthodox economists (recall, apart from Keynes’s perception of the problem, John Hicks’s decadentist notion of the “Labour Standard”, Hyman Minsky’s “instability hypothesis”, Joseph Schumpeter’s prophecy of the inevitable decline of capitalist elites – and so on) to deserve much discussion in this note. The dramatic rise of State deficits in the US, Japan and Western Europe has reflected precisely this inability of capitalist industry to remain “profitable” without the added “politically-generated” demand coming from government institutions that needed to secure the profitability of “private” capital whilst maintaining social and political stability through infrastructure and transfer investments that secured the reproduction of the society of capital.

What State budget deficits entailed and still engender is the inability of private capitalists to command social labour directly, so that the “legitimacy” of capitalist social relations can be maintained only through the “government-political” absorption of social consumption (or “aggregate demand”) by the State because this, once again, was the only way in which “private enterprise” could be maintained as a pure “mythology” just as the capitalist social relations of production (the wage relation) became utterly and absolutely incompatible with the “private” claims of capitalists on the social wealth that is being produced!

Put in simpler terms, the decline of the “profitability” of private capital investments – of private command by dead labour over living labour – had to be replaced by an ever-expanding politically-controlled role in the capitalist economy by the State in order to ensure the continued “validity” of capitalist social relations of production, of the wage relation, in the society of capital. The obvious result was the burgeoning growth of budget deficits and public debt that we saw in the 1970s and 1980s.

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