(Note: Nothing is of
course
more boring than a reply to a reply to a reply. The following is
written
with the intention of being accessible to readers not familiar with my
exchange
with the Aufheben group on fictitious
capital,
Sander’s intervention in that debate in Internationalist Perspective No. 41, and various
discussion
on e-lists. Further, I wish to sincerely thank all these critics for
making
it possible for me to sharpen my own views.)
Fictitious capital is the
gap
between total price and total value on a world scale.
Capital as defined by
Marx
is a social relationship of production, a process of valorization,
money
mixed with living labor and means of production to achieve expanded
money
in the movement M-C-M’ (money-commodity-money prime). Capital is
self-expanding
value, a “self-reflexive” (self-acting) relationship that relates
itself
to itself, "value valorizing itself" (sich selbst verwertendes Wert).
This is the profound
movement
of “pure” capital analyzed by Marx in vols. I and II of Capital, before the introduction
of
the surface phenomena of everyday appearance in vol. III. Vols. I and
II
offer a model of a "closed system" of only capitalists and proletarians.
Only in vol. III of Capital does Marx introduce
capital
as capitalists know it in daily practice, e.g. as stocks (profit),
bonds and
other interest-bearing paper (interest) and titles to landed property
(ground
rent). Capital for capitalists consists of titles to wealth,
anticipations
of future income.
Over the course of the
real-world
capitalist business cycle, the "value" of these paper claims is
determined
not by the "socially necessary labor time" for reproducing the asset to
which
it is connected (still less the necessary time of producing them), but
by
a capitalization of the cash flow generated by the investment in
question.
("Capitalization" means that in an environment where the average return
on
investment is 5%, a title to wealth producing a $5 annual profit is
"worth"
$100.)
What determines the "cash
flow"
and the profit of the individual enterprises on which these
capitalizations
are based? Where direct investment in capitalist production is
concerned,
as a first approximation, they are determined by the distribution of
the
average rate of profit through all enterprises by the mechanisms
described
in the opening chapters of vol. III of Capital. The "immediate process
of
production" produces some, or most, (but not all) of the surplus-value
available
to be transformed into profit of enterprise, interest and ground rent.
This, once again, takes
places
in the “closed system” of only capitalists and workers. But the story
hardly
ends there.
From this surplus value
extracted
from the closed system must first be deducted all consumption of the
capitalist
class itself as well as that of the "house servants" of capital, the
"kings-ministers-whores-professors",
as German Social Democracy used to say prior to 1914. Today we have to
expand
this category to include expanded forms of unproductive consumption:
national,
state and local civil servants, corporate bureaucracy, military, law
enforcement
and judicial personnel, prison employees, for starters, all the people
Marx
characterized as the "faux frais" of the system. (We can bracket here
the
question of productive and unproductive labor, but I think we can agree
that
this portion of the “active population” unproductively consumes a large
(25%
35% 40%?) of total "GDP"(to refer to this highly artificial capitalist
statistic)
in the “advanced” sector and is a net deduction from the total surplus
value
available to prop up the paper claims of stocks, bonds and titles to
landed
property.
Having deducted the
consumption
of capitalists themselves and the faux frais of the system, we are left
with
the surplus value produced (once again) inside the “closed system” of
only
capitalists and workers, available for further investment (i.e.
valorization
or the M-C-M1 movement).
We recall that capital is
"self-acting", "self-reflexive", "self-valorizing value"; this
remaining surplus value
must be reinvested for further accumulation or cease to function as
capital
("Accumulate! Accumulate! That is Moses and the prophets!") It must be
productively
consumed as future means of production (Dept. I) and future labor power
(Dept.
II).
We also recall that this
surplus
value is not just an abstract category but that it consists of real
commodities,
means of production and means of consumption, above and beyond those
consumed
in the previous year.
What determines the value
of
these commodities? It is of course the socially necessary labor time of
their
REproduction, today, interacting with the cost of reproducing all
commodities
(The most advanced method of producing buggy whips today will be
worthless
in a world that has gone beyond animal-powered transportation;
conversely,
the development of inland water transport (canals, etc.) in the 19th
century
had the effect of cheapening many other commodities.)
The "closed model" of
capitalism
developed by Marx assumes that all commodities are exchanged at their
value,
ultimately (after the shift to expanded reproduction at the end of vol.
II)
once again, at the cost of their REproduction.
This is as far as the
three
(actually four, including Theories of Surplus Value) volumes of the
incomplete
book Capital will take us. They offer
an
extremely powerful heuristic device for understanding the real world.
But
they are not the real world. My problem with critics of my theory of
fictitious
capital such as the Aufheben group and others is that
they
never get to the real world. They read in Marx that wages are
determined
by the cost of reproducing labor power and they assume this to be true,
without
looking at whether labor power in the contemporary world is actually
being
reproduced. They read in Marx that the value of fixed capital is
determined
by the cost of its reproduction and they do not look at the capitalized
book
value of aging plants in Britain and the U.S., or the similar “worth”
of
ancient tenement cash-cows in New York City, to see if that is indeed
the
case.
They do not examine the
material
social-reproductive side of accumulation because they have a vol. I
(and
most of vol. II) assumption of the indifference of the specific
material
character of a commodity. For such people, the expanded reproduction of
society
is totally unproblematic, as long as capitalist titles to wealth are
expanded
on the basis of "profits". They are exactly the kind of readers
of Capital that Rosa Luxemburg had
in
mind when she wrote, in her Anti-Kritik:
"Now, what would one say
to
a man who exclaimed: You ask, where will the profit of the (proposed
railway)
line come from? I beg your pardon, but that is down in black and white
in
the costing.” In sober circles one would probably indicate…that he
belonged
in the lunatic asylum or the nursery. But among the official custodians
of
Marxism such know-alls form the "supreme court’ of experts" who give
reports
on whether other people have simply completely misunderstood the
nature,
aim and significance of Marx's models" (p. 70)
Aufheben similarly shares the
tradition
of condescension toward Rosa Luxemburg's Accumulation of Capital (1913) begun by the grey
eminences
of German Social Democracy and continued by Comintern pamphleteers
after
her death, a condescension summed up in the view of Luxemburg as a
great revolutionary
but merely a well-intentioned and wrong-headed reader of Capital. (Most people who have
absorbed
this view are surprised when informed that Marx left the most pressing
conceptual
problem of Capital, the possibility of expanded reproduction,
unsolved,as
they are similarly surprised to learn that Luxemburg, almost alone of
20th
century Marxists, saw its non-solution as a serious problem.)
I do not agree with
Luxemburg
across the board. But she had the great merit of taking up the
challenge
(cf. Engels' preface to vol. II) of the problem of expanded social
reproduction
left unsolved by Marx. Unlike Aufheben and some other
left-communists,
she did not take expanded social reproduction for granted, or
trivialize
it as a mere linear amplification of simple reproduction.
Luxemburg (rightly) took
seriously,
as a guide to Capital, Marx's vision of
capitalism
as a transitory phase between feudalism and socialism, and analyzed
capitalism's
expanded reproduction of society as meaningful in laying the material
basis
for a higher form of society. This means among other things that she
understood
that, unlike in vol. I, where the concrete material form of a specific
commodity
is a matter of indifference for analysis, this cannot be the case for
the
total social capital of vol. III. She understood that tanks, unlike
bread,
do not return to either Dept. I or Dept. II as further capital to be
valorized.
(In her formulation of "Socialism or Barbarism", during World War I,
she
also recognized that capital, arrived at a certain stage, could also
destroy
the material basis for a higher form of society.)
Luxemburg again rightly
saw
that the "closed system" of capital and proletarians could only exist
in
negative relationship to the remaining non-capitalist world (including
the
European peasants and artisans of her own time) and that, from
feudalism
at the beginning to the draining of the petty producers of Latin
America,
Africa and Asia today, capital involves "primitive accumulation" off of
labor
power and resources for which it does not pay a reproductive price. She
summarized
this permanence of primitive accumulation thusly: "Although
(capitalism) strives
to become universal…it is immanently incapable of becoming a universal
form
of production". This means that capital, because of the permanence of
primitive
accumulation, cannot impose the universal exchange of equivalents (one
of
the assumptions of the pure model). "Primitive accumulation" as used
here,
once again, does not merely mean the separation of petty producers from
tools
and land as described in vol. I of Capital(although this still
continues
in full force today); it refers more generally to the exchange of
non-equivalents
between the “closed system” of capital and wage labor with
non-capitalist
populations, with nature, and even (within the closed system) with
labor
and means of production.
Capital, then, does not
merely
pass through the valorization process described in the (incomplete)
volumes
of ; it does not merely depend on the surplus value produced in the
“immediate
process of production”; it also supports the paper titles to wealth in
the
form of profit, interest and ground rent with unpaid inputs from
primitive
accumulation—i.e. looting—both inside and outside the “closed system”.
Capital loots the petty
producers
of the Third World through their incorporation into the proletariat, in
the
“periphery” and in the “center”, as labor power whose prior
reproduction
is not paid by capital. (This process also lowers the global wage.)
Capital loots the
backward
(petty producer) sectors of the world economy through the ground rent
it
collects on the sale of agricultural products. It loots the same
sectors
through international trade, because the world market price of
commodities
does not cover the reproduction costs of workers (themselves mainly
recruited
from non-capitalist social strata) in the weaker economies.
Capital loots nature by
the
non-replacement of resources, and the non-replacement of environments
depleted
by production, which are not counted as costs for capital.
Capital sometimes loots
the
wage-labor work force within the “closed system” by pushing the total
wage
below the reproduction costs of labor power.
Capital sometimes loots
its
own fixed plant and infrastructure by running them into the ground long
past
their normal depreciation time, or by other machinations, as witnessed
in
the recent looting of firms in the Enron, World.com, Tyco and other
episodes
of 2002.
All of these forms of
looting--the
exchange of non-equivalents with petty producers, raw materials and the
environment
outside the closed system, and with wage-laborers, plant and
infrastructure
within the closed system--, increase the total surplus value available
to prop
up capitalists' paper titles to wealth above and beyond the surplus
value
produced in the closed system through the exchange of equivalents (the
assumption
of vols. I and II of Capital). These titles to
profit,
interest and ground rent can continue their valorization process
(M-C-M')
as long as sufficient surplus value is produced within the closed
system,
and outside it, to support them. Capital as a whole can expand, for a
time,
while social reproduction contracts, just as a living organism can go
on
living, for a while, while it is consumed by cancer. When the total
surplus
value available on a world scale can no longer adequately sustain the
total
profit, interest and ground rent claims on it, there is a direct
deflationary
collapse, such as the one we may be witnessing today (summer 2003).
Thus, critics of my
conception
of fictitious capital such as the Aufhebengroup say that I "jump
right
over" the first part of vol. III of Capital devoted to the
determination
of the rate of profit. They are in some sense correct because, as the
forgoing
should make clear, I do not consider the rate of profit from the
"immediate
process of production", taken by itself, to be the crucial issue. The
problem
of capitalism is not the falling rate of profit per se but the question
of
valorizing titles to profit, interest and ground rent through the
entire surplus
value available both inside and outside the pure system. In return, I
can
say that such critics "jump right over" the question of the rate of
social
reproduction, because they consider none of the factors mentioned
above,
take social reproduction for granted, and pay no attention to the
interaction
between capital and the non-capitalist world and with nature, or to
whether
social reproduction is actually occurring within the world fully
dominated
by commodity exchange. Like the capitalists, they consider as profit
what
might in fact arise as a result of non-reproductive wages,
non-reproductive
plant and infrastructure erosion, looting of nature, and exploitation
of
labor power recruited from petty producers. They would accept as
"profit"
the profits from highly-mechanized (and locally indeed profitable)
strip
mining, without considering the "collateral" costs of endemic flooding,
pollution
from coal burning and global warning, and the social costs of the brake
on
potentially better energy sources exercised by large coal operators(to
prevent
the devalorization of their capital plant) as “deductions” from such
profit
as the level of the total social capital, none of which appear in any
capitalist
statistics as costs of the profitable strip mine.
Once again, like the
would-be
railway investor described by Rosa Luxemburg, they have no sensuous
conception
of the real-world material reproduction of society that is mediated or
aborted
by the valorization process and the capitalist rate of profit. They
have
no sense that the rate of profit and the rate of social reproduction
can
move in opposite directions. For them, it is all down in black and
white
in the costing.
I began this essay with
the
assertion that fictitious capital is the gap between total price and
total
value on a world scale. In light of the preceding let us examine this
notion
more closely. (Bourgeois economics--there is, by contrast with the
Marxian
critique of political economy, no other kind--has something of the same
idea
in "Tobin's Q", which is the ratio of the total valuation of all assets
over
the cost of replacing them in today's terms. Contemporary economists,
of
course, have no more conception of social reproduction than many
contemporary
Marxists.)
Capitalist accumulation
can
only be understood in wholes, and such wholes for capitalism are best
grasped
in the “peak to trough” movement of an entire business cycle. It is at
the
bottom of a deflationary crash such as 1929 (or perhaps the one we are
currently
witnessing) that price and value most nearly coincide, once all or most
fictitious
capital has been eliminated.
"Total value", then, is
the
cost, in today's socially necessary labor time, of reproducing existing
labor
power and capital plant on a world scale, within the "closed system" of
only
capitalists and workers. Total value is what is acting today in the
downward
pressure on prices in a possible deflationary bust. "Total value" is
therefore
determined by the labor time socially necessary for the deployment of
labor
power, plant and resources in a new cycle. Anything exceeding that
value
is fictitious. Anything holding back that process of “value valorizing
itself”
is fictitious.
People such as the Aufheben group who critique my
definition
of fictitious capital insist that in Marxist terms fictitious capital
can
only come from the credit system, and that there is nothing fictitious,
for
example, about overvalued fixed capital.
Such a criticism is
wrong-headed
on a number of levels, both in terms of Marx’s own framework in Capital, as well as in terms of
the
as well as in terms of the unfinished nature of Capital, as it relates to the
solution
to the schema of expanded reproduction at the end of vol. II.
Underneath "everything
else",
the fundamental contradiction of capital is its need to mix with living
labor
to expand as capital, and the simultaneous tendency to expel living
labor
power from the production process. Capital needs the cost of
reproducing
labor power as the universal standard of exchange, and at the same time
periodically
aborts that standard by the very technological progress spurred by its
necessary
innovation. The obstacle to the expansion of capital at a certain point
becomes
capital itself. With time, the cost of reproducing V relative to C
becomes
too small to serve as the universal standard of exchange, the
“numeraire”,
and value becomes an obstacle to further social reproduction.
Fictitious capital enters
the
picture when we move from this (very real) closed system of only
capital
and workers to consider the interaction between the closed system and
its
valorization of the total capital in the capitalist titles to wealth in
the
form of profit (stocks), interest (bonds) and ground rent (titles to
landed
property).
For in spite of the logic
of
the relationship of C to V in the pure system, real existing capital in
the
form of the paper titles to wealth—the only forms that capitalists know
in
practice—are not merely, like the M-C-M' movement of capital in the
pure
model, a social relationship of production; they are paper claims on
future
wealth, wherever that wealth may come from.
Further, unlike capital
described
in the pure model of vols. I and II, these real-world paper claims can
only
exist in a capital market regulated by a state and its central bank
(again,
introduced only in vol. III) , i.e. backed by the armed might of the
state
and the state’s power to tax. It should never be forgotten that stocks,
bonds
and titles to income from landed property long preceded the full
dominance
of capitalism per se, and that in the proto-capitalist transition in
Europe
between the 15th and 19th centuries, the first phase of capital’s
primitive
accumulation off of feudalism, such paper claims were in essence
state-backed
licenses to loot, as in the charters issued by mercantile states to tax
collectors
from the French peasantry, to African slave traders, to the Spanish
looters
of the New World, or to the English sea dogs who looted the Spanish
looters.
Contemporary Marxists sometimes forget that stocks, bonds, mortgages,
insurance,
state debt instruments and even central banking preceded historically
the
dominance of value relations in the immediate process of production.
What
differentiates capitalism from mercantile proto-capitalism is precisely
the
preponderance of the immediate process of production in providing
wealth
(as surplus value) to valorize the paper claims, but because of the
ongoing
reality of primitive accumulation in world capitalism, these paper
claims
never really lost--far from it--their original character as
state-backed licenses
to loot wealth from inside or outside the pure system.
We see this looting today
in
the trillions in debt crushing the economies of the Third World, and
such
countries being obliged to ravage their resources to merely service the
interest
on this debt; we see it in massive environmental destruction. We see it
in
the global warming occasioned by fossil fuel emissions, emissions from
technologies
and fuels that a healthy society would have long ago scrapped and
superceded.
We see it in the flood of immigrants from the bankrupted regions of the
world
ruined by decades of debt service. We see it in the proliferation of
U.S.
type workfare programs and of the working poor, where millions are
employed
at starvation wages performing infrastructural work previous done by
blue-collar
workers paid at reproductive levels.
In all these cases of
non-reproduction,
there is fictitious capital at work.
Let us now consider the
history
of these licenses to loot backed by the armed might of the state as
they
developed in their contemporary form.
In the 1890-1914 period,
world
production was increasingly chafing under the constraints of British
world
hegemony, expressed most immediately in the City of London as the
center
of world finance, the system of sterling balances, the gold standard,
national
limits to expansion, and (above all British and French) colonial
customs
zones. (The economic exploitation of the colonies made up a larger part
of
world commerce in 1900 than did the exploitation of the Third World ca.
1970,
prior to a certain Third World industrialization (the Asian tigers,
Brazil,
Mexico, more recently China). The rise of U.S. and German industry had
eclipsed
British industry. But above all, it was necessary to recompose
accumulation
to take account of a greatly increased standard of labor productivity
on
a world scale, laying the foundation for a new boom. This was
accomplished
by the 1914-1945 “Thirty Years War”, won by the U.S.
In 1918, the costs of
European
reconstruction from World War I already exceeded the capacity of any
private
capital market. German war reparations to Britain and above all France
had
to be financed by loans to Germany underwritten by the U.S. government.
This
arrangement was formalized by the Dawes Plan (1924) and the Young Plan
(1929).
But the collapse of U.S. financial markets in 1929 put an end to this
international
flow of capital, and a new arrangement had to await the end of the
great
depression and World War II.
This was achieved in the
arrangements
creating the International Monetary Fund, the World Bank, the GATT
(General
Agreement on Trade and Tariffs, predecessor of today’s WTO), followed
by
the Marshall Plan.
The mechanism was as
follows.
The U.S. emerged from World War II with greatly expanded industrial
capacity
( an important part of it military) and towered over the war-ravaged
industrial
bases of Europe and Japan. But it also emerged from the war with a
state
debt of $250 billion, quite small in today's terms but about 110% of
U.S.
GDP at the time. (This was an unprecedented figure for capitalism
during
the prior century.)
Through the Bretton Woods
system,
the U.S. placed the world on an explicit dollar standard. Britain, ca.
1900,
had achieved a sterling standard within its colonial and quasi-colonial
(e.g.
Argentina) sphere of influence. Britain's chronic balance-of-payments
deficits
with that sphere were not settled up in gold (as they were with France,
Germany,
and the U.S.) but were recycled into the City of London and thereby
enabled
the British financial system to finance further balance-of-payments
deficits.
Thus the British sphere of influence was on a de facto sterling
standard.
The U.S. extended this
arrangement
to the entire world. First, it imposed drastic devaluations on Britain,
France
and Germany, devaluations which were codified into the Bretton Woods
fixed-rate
system that lasted until 1971-73. Then, through Marshall Plan loans, it
financed
massive U.S. exports for the reconstruction of Europe, thereby
preventing
the post-World War II depression expected by many.
The U.S., through the
Bretton
Woods system, by making the artificially overvalued dollar (and, until
1967,
sterling) reserve currencies to be held alongside gold in all the
central
banks of the world, thus achieved an unprecedented control over world
money.
All goods coming to the U.S. from Europe and Japan (not to mention the
underdeveloped
world) contained an element of "loot" as described above. All American
acquisitions
of capital plant, real property, etc., above all in Europe, involved a
similar
dimension of looting. The bargain-basement sales of British assets
abroad
to repay Britain’s war debts before and after 1945 involved similar
looting.
This wealth passed into the balance sheets of U.S. capitalism, private
and
public, quite independently of the profits produced in the immediate
production
process in the U.S. itself, as might be derived from the mechanisms
described
in the first part of vol. III of Capital. But for the Aufhebencomrades and others like
them,
such looting through the credit system has nothing to do with the
valuations
of fixed capital.
But such considerations
are
merely openers. More importantly, I have said previously that Aufheben et al. do not take
seriously
the phenomenon of capitalization which is, in the course of the
business cycle,
how capitalists calculate the value of fixed capital and against which
the
calculate a rate of profit. Capitalization is, further, the link
between
fixed capital and the crdit system.
To see this in the
"embedded
theory" of real history, let us return to the story of U.S. dollar
imperialism
after World War II.
While the U.S. was
obviously
the most advanced capitalist economy after 1945, it in fact displayed a
stagnant
undertow of real significance for our story. It was hit by recessions
in
1948-49, 1953-54, and above all in 1957-58. The Korean War of 1950-53
had
made possible the consolidation of permanent “peacetime” arms
production
that took up 5-7% of GDP into the 1990’s (and which is rising again
today).
Starting in particular with the 1957-58 recession, more and more
American
direct investment in production was in Canada, Europe and (after the
mid-1960’s)
in Asia. European reconstruction had been completed ca. 1952, with
state-of-the-art
technologies, already putting pressure on the overvalued dollar and
thus
the whole Bretton Woods system.
It is in the link between
the
unraveling of this system that we see the link between overvalued fixed
capital
and the international credit system as a whole.
The U.S., with its vast
foreign
military installations, its foreign loans and, increasingly, its direct
investment
in overseas production, was running balance-of-payments deficits from
1950
onward (while the balance of trade remained favorable until 1971, the
year
the Bretton Woods system collapsed). These dollars accumulating abroad
were
at first useful to European and Asian reconstruction. But after the
1957-58
recession, they began to become a glut, and the crisis of the
overvalued
dollar became more apparent. (The "Euro-dollar" market, a separate
"offshore"
dollar-denominated banking system, began at the same time with $30
billion.
Total U.S. dollars held abroad today amount to $10 trillion.) Thus
began
the process, hopefully reaching its paroxysm today, whereby foreign
holders
of
"nomad dollars" reinvested them in U.S. capital markets, enabling the
U.S. to run further overseas deficits, and to buy foreign assets with
overvalued
dollars. It was in essence buying foreign assets with its own debts.
This financing of the
U.S.
economy with its own balance-of-payments deficits intersected the
fictitious
element of U.S. fixed capital in the following way. As the rest of the
world,
rebuilding after the war with cutting-edge technology, caught up with
and
then surpassed more and more sectors of relatively stagnant U.S.
industry,
the fixed capital of the latter was already, in reproductive terms,
(i.e.
current replacement costs) ready for devalorization. But contrary to Aufheben and others who inhabit
the
pure model of Capital of only capitalists and
workers,
capitalists strongly resist the immediate devalorization of their
capital
assets wherever and whenever possible. (One need only look at Japan
over
the past ten years, where the central bank, through the banking system,
has
kept massive real estate and industrial assets at bloated paper
values.)
Capitalist titles to wealth, such as the huge corporate bond market,
are
discounted in U.S. capital markets, ultimately underwritten by the
Federal
Reserve Bank, exactly as Marx described the Bank of England’s
operations
in discounting bills of exchange in the London money markets of the
19th
century. These discounting operations are in turn facilitated by the
recycling
of the U.S. balance of payments deficits as described above. Further,
as
overvalued corporate assets place a further squeeze on profits, the
system
grants credit to ailing firms, consumers, and to foreigners. These
procedures
give rise to a “bubble” which is circulated through the international
system,
a bubble that is further propped up by the forms of primitive
accumulation
described earlier.
The deep U.S. recession
of
1957-58 was, as indicated earlier, the beginning of the crisis of
Bretton
Woods and hence of U.S.-dominated "dollar imperialism". It marked
the beginning
of the de-industrialization of the U.S., as profitable investment in
production
slowed dramatically and shifted overseas. It is the stellar example of
how
overvalued fixed capital of indebted corporations is not immediately
written
off but passes into general circulation through the credit system. Rosa
Luxemburg
identified, in expanded reproduction, a surplus of actual goods that
had
to be sold (realized) outside the pure model (i.e. in the
non-capitalist world);
she underestimated the extent to which the expansion of credit (still
at
an early stage in her lifetime) could sell this surplus both inside the
closed
model to capitalists and to workers, and outside the pure system to
non-capitalist
strata, and thus ultimately circulate as fictitious capital requiring
valorization.
It circulates as a bubble of hot air, of potential illiquidity
(non-convertibility
to cash on demand, as in a sell-off crisis) as long as the combination
of
surplus value and loot (as defined earlier) sustains the paper claims
it
makes up.
Recession hit the U.S.
economy
again in 1960-61. More importantly, recessions in Europe and Japan in
1964-66
pointed to the end of the postwar boom, and to the further unraveling
of
the Bretton Woods system. Thus in November 1967 the British pound was
devalued
and eliminated as a second reserve currency (again, like the U.S.
today,
due to an unsustainable balance-of-payments crisis), and in March 1968
the
dollar crisis brough the system to the edge of complete collapse. In
1971,
the U.S. severed the dollar from gold and in 1973 the fixed-rate system
was
scrapped for good. The world sank into the worst downturn (1973-75)
since
the war. The world went, in Michael Hudson’s concise formulation, from
a
standard of “paper gold” to a standard of "paper paper", and has been
on
a de facto dollar standard ever since. U.S. dollars have never ceased
to
accumulate abroad, now estimated at a net indebtedness of $2 trillion
($8
trillion in U.S. holdings abroad against $10 trillion held by
foreigners).
The U.S., like Britain before it, has become a vast rentier economy,
and
any attempt, following the Aufheben methodology, to isolate
U.S.
corporate profits in the pure model of only capital and workers is
doomed
to be a misguided empiricist exercise. (If this essay seems to be U.S.
centered,
it is only because the world economy is, for now, also U.S. centered.)
Thus the perturbations of
the
fixed rate system that became clearly visible in 1958 (fluctuations of
the
free-market price of gold, creation of the Euro-dollar market) was not
merely
a monetary-credit phenomenon, stemming from credit markets, but was the
first
clear sign of a roving mass of dollars, ultimately traceable to the
inflated
book value of U.S. corporations, that had to be valorized alongside
(and
was indistinguishable from) the profit, interest and ground-rent
corresponding
to an actually available surplus value. Through the mechanism of
credit,
this fictitious book value of fixed assets circulates through the
system
as a whole.
We can briefly sketch
subsequent
events, which amount to a bloating of this pyramid of credit beyond
anything
thought possible in the mid-1970's, even though the basic "story" is in
place.
The U.S. reflated out of the 1973-75 downturn but only exacerbated all
the
problems described above. By 1978, inflation in the U.S. was
approaching
15% and America's creditors were watching their dollar-denominated
assets
depreciating through inflation by the year. The price of gold went from
$168
per ounce in spring 1978 (up from the government-determined rate of $35
per
ounce that had prevailed for four decades up to 1975) to $900 per ounce
in
January 1980 as a mass rush out of dollars threatened (as in spring
1968,
or summer 1974) to bring down the whole system in a deflationary crash.
Those
assets had to be protected and the coming to power of Thatcher in
Britain
in 1979 and Reagan in the U.S. in 1980 was precisely oriented to using
the
action of the central bank to prevent a general deflation of assets by
aborting
reproduction of both labor labor and of capital plant to the benefit of
profit
rates. Here again, as with the developments following the 1957-58
recession
in the U.S., or as in Japan since 1990, we see the central bank acting
through
the credit system to prevent immediate devalorization of all forms of
paper
claims to wealth at the expense of the “real” economy of production and
reproduction.
In the 1980's, the U.S. government ran the highest deficits (relative
to
GDP) since World War II, deficits once again financed by foreigners,
above
all the Japanese. In 1984 the U.S. shifted from its position as the
world's
largest creditor to the world's largest debtor and has never looked
back.
The 1980's saw the proliferation of hostile corporate takeovers,
leveraged
buyouts, and junk bonds while two million industrial jobs disappeared.
In
the late 1980’s, as much as half a trillion was added to the Federal
debt
in by the meltdown of the savings and loans banks, tied to the real
estate
bubble of the previous decade. From the Mexico and Brazil crises of
1982
to the Mexican “tequila crisis” of 1994, by way of the near-collapse of
the
U.S. banking system in 1991 and the actual collapse of the bond market
in
1993, U.S. crisis management was about keeping the growing bubble of
illiquidity
circulating on a world scale through the M-C-M' movement, whatever the
consequences
for material reproduction. In 1997-98 came the Asia crisis in which the
IMF
had to lend South Korea $80 billion in exchange for opening its economy
to
foreign (i.e. U.S.) investment, and exacted draconian austerity
measures
from other vulnerable countries (Indonesia, Thailand) in exchange for
bailout
loans. In 1998 came the bankruptcy of Russia and the bailout of the
hedge
fund Long Term Capital Management (the latter with $1 trillion in
implicated,
potentially illiquid assets at stake). In 2000 came the end of the
“high
tech” bubble and the beginning of three years (and counting) of
depressed
world stock markets and possible world deflation. In 2001 came the
Argentine
bankruptcy proceedings. At this writing, the Federal Reserve Bank has
been
attempting to massively reflate the U.S. credit system, now openly
talking
about a possible deflationary meltdown. Since the 1970's, fictitious
capital
has proliferated in previously unknown forms (or hitherto undeveloped
forms)
as “securitized financing”, hedge funds, and derivatives (the latter
estimated
today--though no one really knows--to involve $100 trillion globally).
Early in this essay, I
referred
to the pre-capitalist origin of stocks, bonds, and titles to landed
property,
as paper claims to future wealth, as being licenses to loot backed by
the
power of the state. I cannot imagine a more concise definition of how
fictitious
capital has operated in the post-1970's "neo-liberal" world. Nor can I
imagine
anything more wrong-headed than the way in which groups like Aufheben focus on the
distribution
of the rate of profit over the immediate process of production, naively
imagining
total profits of enterprise to correspond to some real expanded social
reproduction,
or never even posing the question of some relationship. Neo-liberal
ideology
originated precisely in Britain and the U.S., the two successive
financial
centers of actually existing capitalism, the two countries which under
“Keynesian
demand management” had de-industrialized into rentier economies
supported
by net loans and loot from elsewhere, covering over the underlying
decay
of real reproduction. What became necessary in the late 1970's was to
intensify
the availability of loot to keep total capitalist paper afloat. The IMF
and
World Bank "structural adjustment programs" bled the Third World dry
from
the 1970's onward, but this was hardly enough. The leveraged buyout
craze
of the 1980’s was more the appropriate model: to seize existing wealth
wherever
it could be found, and to dismantle real assets, whole regions and
millions
of working-class lives for the quickest possible return on investment,
leaving
only rubble behind. The war cries of de-regulation carried this looting
process
from the hollowing out of British and American industry to the current
campaign
to "break down every Great Wall of China", namely the neo-mercantile
states
which continued to be more productivist for the simple reason that they
did
not benefit from being one of the global financial centers. The
collapse
of the Soviet bloc opened previously unimagined horizons of "free
inputs"
of a highly-skilled work force available at bargain basement rates and
similarly
dazzling natural resources to be hauled off. The opening of China after
1978
was a similar breakthrough. The regimes of Latin America which had
benefited
from the crisis of 1929-1945 to achieve some modest development behind
high
tariff walls were broken down one by one. Then the Japanese deflation
after
1990 and the Asia crisis of 1997-98 provided the U.S. with an
unprecedented
opportunity to beat the drums for "reform" and "shareholder value",
attacking
the “antiquated” statist development model (which had, in Taiwan, South
Korea,
and Singapore produced the only serious counter-examples to the hundred
destitute
countries that applied IMF recipes). The U.S. success in forcing open
South
Korea and buying up bankrupt assets after 1997 was "shareholder value"
in action. Now the "shareholder value" model is knocking at the doors
of the even richer pickings in the Europe of Maastricht.
These
developments of the past 25 years confirm, in my opinion, the forgoing
analysis
and historical narrative, and show that Marxists lacking the above
conceptual
framework from Marx, Luxemburg and others who worked the same vein of
analysis
are all too prone to view such developments as normal capitalist
development,
and incapable of distinguishing out-and-out retrogression from
“business
as usual”. If this essay succeeds only in forcing a debate on the
meaning
of expanded social reproduction for an understanding of Capital, it will have achieved
its
purpose.