There must be some kind of way
out of here,
Said the Joker
to the Thief.
There's too much confusion,
I can't get no relief.
Businessmen they
drink my wine,
Plowmen dig my earth.
No-one of them
along the line
Knows what any of it is worth.
No reason to get excited,
The Thief he kindly spoke.
There must be many among us
Who think that life is but a joke.
But you and I, we've been through that,
And this is not our fate.
So let us not speak falsely now,
The hour is getting late!
- Bob Dylan, All Along the Watch Tower.
out of here,
Said the Joker
to the Thief.
There's too much confusion,
I can't get no relief.
Businessmen they
drink my wine,
Plowmen dig my earth.
No-one of them
along the line
Knows what any of it is worth.
No reason to get excited,
The Thief he kindly spoke.
There must be many among us
Who think that life is but a joke.
But you and I, we've been through that,
And this is not our fate.
So let us not speak falsely now,
The hour is getting late!
- Bob Dylan, All Along the Watch Tower.
The phrase,
“There is method in the madness” is supposed to indicate that behaviour that is
seemingly irrational can, in certain circumstances, display a “method” that is apparently
paradoxical to the irrationality of the behaviour. The obvious intent of this
phrase is to indicate that method is inconsistent with madness because
methodical behaviour is, by its very “methodicity” or “predictability”, at
least rational in this regard, whereas irrational behaviour, by its very “irrationality”,
is inconsistent and therefore unpredictable. This does not mean, of course,
that methodical behaviour cannot be irrational or that rational behaviour cannot be
methodical. But the overriding understanding is that method and rationality go
hand in hand, whereas irrationality is almost always unmethodical.
What we are
witnessing in the latest developments of capitalist economics and society are
the most irrational aspects such as that of the recent behaviour of financial
markets whereby it is the very “methodical” approach to capitalist industry and
finance that is leading to the most catastrophically irrational aspects of the
behaviour of capitalist agents, from investors to firms to governments. Thus,
we can truly say that, in these recent developments but also in the entire “logic”
of capitalism, there is madness in the method! The madness of capitalism has
method; and indeed it is the capitalist method itself, the “logic” of
capitalism, that is mad!
The madness
of the capitalist method has several aspects which we shall treat very tersely
here. In the first place, we must consider that capitalism is the control on
the part of capitalists of the living labour of workers in exchange for the
dead labour (the product) produced by workers themselves. Capitalists control
the living labour of workers by expropriating workers from the means of
production and then claiming ownership of the industrial product, which they
then “exchange” with workers as payment through money wages for the living
labour that they have “sold” to capitalists. Only a fool would fail to see the “madness”
of this arrangement.
But there
is another consequential aspect of this madness of dividing living labour from
dead labour – of separating living activity from its “product”. This aspect concerns the
difference or separation between industrial and financial capital. Because capitalists pay
workers’ wages with money, there is a separation between the physical activity
of capitalist production – the process of valorization of that production by
means of living labour - and the financial realization of that production by
means of its “sale” in the capitalist market. In other words, the value that a
capitalist invests in production (means of production plus wages) may well not
be “realized” profitably by the time the product is brought to market for sale.
There is therefore a new divide or separation in capitalism not just between
living labour and dead labour, but also between financial and industrial
capital. As Keynes coarsely but tersely put it, "Money [especially money capital] is a bridge between the present and the future".
The problem
with this second divide is that when finance capital invests money capital for
industrial production by lending it to industrial capitalist entrepreneurs,
finance capitalists “expect” to receive a “return” on that invested capital
that is a portion (interest) of the profits made by the entrepreneur from
industrial production. Eventually, however, there comes a time when the profits
of industrial capital do not materialize and therefore the interest payable to
financiers gets slimmer and slimmer until not only is there no “return on
capital” for the financiers – but indeed there is no “return of capital”
because the investment is done at a loss!
At such a
point, the entire financial pyramid of capitalism begins to collapse, bringing
industrial production in its wake and, with it, resulting in unemployment and
immense destruction of capitalist value! It is at such a point that monetary
authorities and governments intervene to ensure that the collapse of finance
and then of industrial investment and production do not result in the
apocalyptic destruction of capitalist enterprise and of society as a whole! The
way governments and monetary authorities try to resolve the problem can take
two directions: the first path is that the authorities allow the unprofitable
capitalist enterprises to go bankrupt and die so that the financial pyramid can
be restructured in new more profitable ways. But the second path is that authorities
can simply redistribute social wealth and resources by means of fiscal and
monetary action so as to help the existing financial pyramid to continue
without a thorough restructuring of production.
This second
path is achieved through monetary expansion: although it avoids an immediate
and painful crisis, if carried too far, this path can lead to the exacerbation
and the exasperation of the unproductive and unprofitable capitalist
investments that led the system to the brink of crisis in the first place. Further, the printing of money has the combined effect of inflating asset prices which, combined with lower profitability, lowers even more the rate of interest or yield of financial instruments and bank deposits - which leads finance capitalists into a downward vicious spiral of ever more "speculative" investments and credit to entrepreneurs!
Now, this is exactly what is happening right now, and what has happened since the end of World War Two in the capitalist world. In a nutshell, monetary authorities (central banks and Treasurers) have held up the financial pyramid by simply injecting more funding in distressed investments to ensure that finance capital does not collapse and that industrial capitalists stop employing workers in unprofitable enterprises (“zombie” firms). The problem with this kind of “Greenspan put” is that each time the financial pyramid is about to collapse because of the unprofitability of capitalist enterprise the problem or proverbial “can” is “kicked down the road” by inflating asset prices (securities or sticks and bonds) and so maintaining employment and social stability.
Now, this is exactly what is happening right now, and what has happened since the end of World War Two in the capitalist world. In a nutshell, monetary authorities (central banks and Treasurers) have held up the financial pyramid by simply injecting more funding in distressed investments to ensure that finance capital does not collapse and that industrial capitalists stop employing workers in unprofitable enterprises (“zombie” firms). The problem with this kind of “Greenspan put” is that each time the financial pyramid is about to collapse because of the unprofitability of capitalist enterprise the problem or proverbial “can” is “kicked down the road” by inflating asset prices (securities or sticks and bonds) and so maintaining employment and social stability.
Of course,
this “asset inflation” is not registered as actual inflation because asset prices
do not form part of the assessment of “consumer price indices” through which
inflation is officially measured. But asset inflation is real and has real
consequences in that it results in the ever more inequitable redistribution of
social wealth and resources (income and real assets) away from producers (which
includes workers and industrial capitalists) to the owners of finance capital
(the rentier class). As one can well imagine, by “socializing” the losses of
financial capital, governments and monetary authorities do nothing but increase
the burden of social production through inflation and taxation on the shoulders
of producers. This problem has been intensified by the gradual erosion of productivity through disinvestment occasioned by the rise of "distributive" - and therefore non-productive - businesses ranfing from Google and Facebook (the worst), to Amazon (middling worst) to Apple and Microsoft (only slightly better). These are supposedly "growth stocks" that - dear Lord! - have absolutely nothing to do with economic growth or productivity!
It is
stunningly obvious that eventually the “madness” of this “method” will result
in two things: both the catastrophic deflation of the “asset bubble”
induced by the “Greenspan put” of central-bank monetary expansion, and also,
concomitant with the bursting of this financial bubble, the complete collapse
of capitalist industrial production and employment due to the fact that by now
the price distortions in the allocation of capital investments induced by the
misallocation of capital as a result of “the Greenspan put” make it impossible to separate solvent from insolvent enterprises!
This is
precisely the point that we are about to reach. Those fools who think that
there can be no end to financial market speculation on Wall Street because “the
Fed has our backs covered” simply fail to realize that no matter what the Fed
does there will have to be a “Minsky Moment” or “Wile E. Coyote Moment” when
even the most foolhardy stock-exchange speculators realize that the “zombie”
companies they are investing in will never be able to repay their mounting
debts (bonds) because they do not generate the earnings and profits needed to
repay the “face value” of those bonds let alone any “interest” due on them! Tersely put, no amount of liquidity can make an unprofitable (or "insolvent") business or enterprise suddenly profitable (or "solvent")!
So, if you
have any money in the stock market right now, be very very afraid because sooner or later - "something has got to give"!
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