Thursday, November 25, 2010

Greedy Bankers Or Capitialism

Recessions are inherent in the boom bust cycle of capital. "Greedy bankers" are a scapegoat distracting from the fact that this will happen again and again and again. Blaming them implies you could have a nicer capitalism with good bankers. Pinning the blame on greedy bankers lets the real culprits off the hook. This is not just a financial crisis, but a crisis of the whole capitalist economy in which the whole business and political class are fully implicated.

If a few get rich while millions lose out big style, then this is capitalism working as it only can work. If there is recession followed by boom followed by recession, then capitalism is working healthily. Capitalism is working perfectly well. It works the only way it can work - in an anarchic and chaotic manner, negligent and oblivious to the misery and suffering it creates. As usual it is the working class that suffers the cutbacks, the reduced standard of living, and the vicious and right-wing reform programmes that every such crisis engenders.

That capitalism is chaotic is evident. Its frequent booms and slumps— its unavoidable features— become global. The disasters get bigger, and nastier. Those who pointed to the relatively rapid rate of capital accumulation to deny the socialist contention that world capitalism has been in a depressive state since the end of the post-war boom in the early 1970s have had their come-uppance. Marx was right. They were wrong. There can be no such thing as a permanent boom. Marx, the first person to provide a convincing analysis of how the capitalist economic system worked.Capital accumulation proceeds by fits and starts, periods of relatively rapid growth being followed by periods of contraction and stagnation. The graph of long-term growth under capitalism is not a straight line moving up from left to right but a jagged line with peaks and troughs, with each peak normally higher than the previous one. Marx argued that this cyclical pattern of growth was not just accidental but was inevitable under capitalism-it was the way capitalism functioned and developed, its "law of motion" as he put it-with each period of rapid growth ending in a slump and each slump preparing the conditions for the next round of growth.Capitalism is driven, not by consumer demand, but by the drive to make and accumulate profits as further capital and that this is by no means a smooth process.

In order to maintain or increase their share of the market and realise the surplus value embodied in their products, capitalist firms are compelled by competition to reduce their costs by improving their productivity, in particular by the introduction of more productive machines. This leads to an increase in overall productive capacity. During the period of recovery that follows a slump this poses no problem as the market is beginning to recover and expand again. However, as the competitive pressures to increase productive capacity continue, the point is eventually reached when productive capacity in a key industry or group of industries comes to outstrip the market demand for its products. At this point a crisis of overproduction breaks out. As profits fall, production is cut back, workers are laid off and, through the knock-on effect on other industries, the market shrinks, so inaugurating the period of slump. During the slump, the least productive machines are taken out of production and capital is depreciated or simply written off. This purge of under-productive machinery and over-valued capital eventually creates the conditions which allow capitalist growth to recommence, so beginning the boom-slump cycle again. This is how capitalism has developed and continues to develop.

A key factor in this is that capitalism's financial apparatus is largely built on confidence that transactions will be smooth and payments will be met. When this confidence in the efficiency of trade and commerce starts to ebb then things can take spectacular and serious turns for the worse. The erosion of financial confidence is one of the ways in which a downturn in one sector or country can spread to others.

The financial crisis is a reflection of the fact that stock exchange and foreign currency gamblers have realised that countries have expanded their productive capacities beyond market demand. One consequence of this period of slow growth was that significant amounts of profits were not being reinvested in production but, instead, being held in liquid form and invested in financial assets with the aim of making as large a short-term profit in as short a time as possible. All the multinational corporations had treasury departments engaged in financial speculation of one form or another whether on the stock exchange, the bond market, currency transactions, commodity markets or dodgy hedges such as derivatives.

This extra demand for financial assets, deriving from non-reinvested profits, has driven up their price, so creating the anomalous situation of a stock exchange boom in what is essentially a depressed economy. Most of the financial transactions that took place were not investments of productive capital- not used to set up factories or to buy machinery, equipment or raw materials-but are to buy and sell shares or bonds or foreign currencies or commodity futures or property or failing companies to asset strip them. Such purely financial transactions are utterly unproductive, even from a capitalist point of view. Not only do they not result in the production of a single extra item of wealth but they don't even increase the amount of surplus value available for sharing amongst the various sections of the capitalist class. It's a zero-sum game. As socialists have always maintained, stock exchanges are places where capitalists gamble and try to cheat each other with a view to acquiring as large a mass as possible of the surplus value that has already been produced by and robbed from the workforce.

The bankers are not wicked finance capitalists against whom the anger of workers should particularly be directed, just capitalists with their capital invested in a particular line of business, no more nor less reprehensible than the rest of the blood sucking parasitic capitalist class.

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