[OPE-L] That hissing? It's the sound of bubblenomics deflating

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Fri Oct 12 2007 - 16:54:08 EDT

Reply to Paul C.:

Marx assumed a gold-standard, or money-tokens convertible into gold. This was sufficient to explain the basic relationships involved in the capitalist mode of production as a unity of the production and circulation process. He was quite aware however that a gold standard was not an essential prerequisite for the trading process. He had reached that conclusion already in the Grundrisse. Whether a gold standard existed or not, made no structural difference to the nature of the basic relationships involved in the trading process. It was only a simplifying assumption, valid enough insofar as the Bank of England did indeed operate a gold standard at the time (only in 1844 the Bank Charter Act established that Bank of England notes, fully backed by gold, were the legal standard; the US adopted a silver dollar standard in July 1785, codified in the 1792 Mint and Coinage Act).

It is true - perhaps this is what Paul C. means - (and here I was insufficiently specific in my remarks), that when Marx himself distinguished between money-capital, commodity capital and production capital in Cap. Vol. 2, he had in mind three main forms of industrial capital, and not ALL the forms of capital. Thus, he wrote:

"Money-capital, commodity-capital and productive capital, do not therefore designate independent kinds of capital whose functions form the content of likewise independent branches of industry separated from one another. They denote here only special functional forms of industrial capital, which assumes all three of them one after the other. Capital describes its circuit normally only so long as its various phases pass uninterruptedly into one another. If capital stops short in the first phase M - C, money-capital assumes the rigid form of a hoard; if it stops in the phase of production, the means of production lie without functioning on the one side, while labour-power remains unemployed on the other; and if capital stops short in the last phase C' - M', piles of unsold commodities accumulate and clog the flow of circulation. However, it is in the nature of things that the circuit itself necessitates the fixation of capital for certain lengths of time in its various phases. In each of its phases industrial capital is tied up with a definite form: money-capital, productive capital, commodity-capital. It does not acquire the form in which it may enter a new transformation phase until it has performed the function corresponding to each particular form. (...) Industrial capital is the only mode of existence of capital in which not only the appropriation of surplus-value, or surplus-product, but simultaneously its creation is a function of capital." http://www.marxists.org/archive/marx/works/1885-c2/ch01.htm#4

However, the implication - worked out in more detail in Capital Vol. 3, when Marx discusses the forms of commercial capital, interest-bearing capital, bank capital etc. - is clearly that industrial capital is NOT the only "mode of existence" of capital. For example, Marx writes:

"In order to quickly settle this question, let us point out that one could also mean by the accumulation of money-capital the accumulation of wealth in the hands of bankers (money-lenders by profession), acting as middlemen between private money-capitalists on the one hand, and the state, communities, and reproducing borrowers on the other. For the entire vast extension of the credit system, and all credit in general, is exploited by them as their private capital. These fellows always possess capital and incomes in money-form or in direct claims on money. The accumulation of the wealth of this class may take place completely differently than actual accumulation [meaning productive accumulation - JB], but it proves at any rate that this class pockets a good deal of the real accumulation. (...) Government securities, like stocks and other securities of all kinds, are spheres of investment for loanable capital - capital intended for bearing interest." http://www.marxists.org/archive/marx/works/1894-c3/ch30.htm 

Capital for Marx was generally defined simply as money or funds in search of more money, or more universally, value in search of surplus-value. Its existence did not even presuppose the capitalist mode of production - indeed the very point of Marx's analysis is to show how capital, historically originating in trade, and initially only existing in the interstices of a non-capitalist society, could come to dominate the whole production process of a society, such that the whole production process functioned according to the principles of capital. 

He did not live to witness a society in which the accumulation process and labour-productivity had progressed so far, that total sum of capital assets existing external to production was greater in value than the sum invested in production. 

Parenthetically, Marx observes elsewhere:

"On the one hand all kinds of things circulate as commodities which were not produced during the given year, such as land lots, houses, etc.; furthermore goods whose period of production exceeds one year, such as cattle, timber, wine, etc. For this and other phenomena it is important to establish that aside from the quantity of money required for the immediate circulation there is always a certain quantity in a latent non-functioning state which may start functioning if the impulse is given. Furthermore, the value of such products circulates often piecemeal and gradually, like the value of houses in the rents over a number of years. On the other hand not all movements of the process of reproduction are effected through the circulation of money. The entire process of production, once its elements have been procured, is excluded from circulation." http://www.marxists.org/archive/marx/works/1885-c2/ch20_04.htm#12

When Marxists discourse grandiosely about their "analyses of the reproduction of capital", they typically forget all this, and they assume that the production of the gross output (what Marx refers to as the value of production) defines the total circuits of capital. But this is simply false, and Marx himself never argued that. It is just that in Cap. Vol 1 & 2 he was mainly concerned with the production of the gross output and its circulation.

In summary, the analysis of surpluses of money-capital (in the broader sense of financial assets, or what in popular parlance is nowadays called the "global savings glut") which I made in previous posts, is very much inspired by Marx's insights, although I think that Marx in his day could hardly conceive of all the new forms which capital would subsequently take.

Neoclassical economics often assumes a zero-sum game such that what is not saved is consumed, and what is not consumed is saved, and what is saved is invested. In that case, economic imbalances can occur only if too much is saved, or too much is consumed. The notion of the "global savings glut" thus refers to the paradox that too much is saved. The fact that the US imports a large amount of foreign capital is then "explained" by the fact that Americans save too little (if they invest in housing, this does not count as savings).  But Nikolai Bukharin and subsequently Kalecki (and to a certain extent Keynes) pointed out that such a simpleminded view is unable to make any sense of economic realities. Not only do we have to distinguish between different categories of savers and consumers, and different kinds of investment, but we also have to introduce a category of unproductive expenditure. Once we do so, there is no longer any zero-sum game between consumption and saving.


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