[OPE-L] stocks versus bonds in the global market

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sat Oct 20 2007 - 09:17:20 EDT


I do not know of a good Marxian analysis of the "crowding out effect", apart
from Marx's anectdotal remarks (Marx comments: "The competition between
lenders and borrowers and the resultant minor fluctuations of the
money-market fall outside the scope of our inquiry. The circuit described by
the rate of interest during the industrial cycle [industriellen Zyklus]
requires for its presentation the analysis of this cycle itself, but this
likewise cannot be given here. The same applies to the greater or lesser
approximate equalisation of the rate of interest in the world-market. We are
here concerned with the independent form of interest-bearing capital and the
individualisation of interest, as distinct from profit.
http://www.marxists.org/archive/marx/works/1894-c3/ch22.htm (the Pelican
translation p. 480 is, as usual, better).

Marx of course did not theorise the "industrial cycle" in detail. Part of
the reason is I think that he was unsure of how to do it, given the
difference between describing the ideal-typical movements of capital, and
how they specifically played out in historical reality, i.e. he was unsure
about what valid theoretical generalisations you could actually make about a
recurrent sequence of economic fluctuations within a given time frame. In
part also, he lacked sufficient data to abstract from, and to test his out
core concepts against real empirical fluctuations. How difficult this
project is, can be gauged from the fact that after he had sweated a long
time over his large theory of business cycles, Schumpeter had his ideas
rubbished by Kuznets, who had studied the empiria.

In any case, this "crowding-out" concept is a more or less ideological
notion, straddling what is in reality a contradictory movement. If the state
engages in deficit spending/deficit financing, and this prompts higher
interest rates, this is likely to lower profits and private sector
investment in production - but if this policy simultaneously means that the
state spends more, there is more aggregate demand, which tends to stimulate
private sector investment in production. Various permutations are possible.
Therefore, to prove any "crowding out effect" scientifically (as against
stating a dogma or political bias) requires a quantitative empirical
analysis to sort out the real effects, and an analysis of the stage of
economic conjuncture (since the same monetary policy can have different
effects at different stages of the conjuncture).

In reality, the contemporary problem is a fairly stagnant or sluggishly
growing aggregate private sector investment in production in the Triad
countries, despite low interest rates. The negative aspect is that any
significant rise in US interest rates would quickly have recessionary
implications, but on the other side, there is as I have said simply a lot of
"slack" in the system, i.e. idle funds. Bad theories of how the economy
works proliferate, adding to investor anxieties.

The classical "crowding out effect" is supposed to occur when the capitalist
economy is going at full tilt, and inflationary pressures prompt higher
interest rates, as against already saturated demand. The way the question is
currently posed is "at what point will the Fed be forced to raise interest
rates"?, or to put it a different way, "how long can the Fed keep heading
off price inflation?". That's quite difficult to evaluate empirically (as I
said I'm not a professional economist, only an amateur, but even among
economists there are all sorts of wild speculations about it).

I was interested in the stocks/bonds/securities question because I tried to
get some magnitudes for the distribution of the total social capital, which,
as I have argued for many years, exists both within and outside the sphere
of production. I think if you want to understand something about the overall
scope and dynamics of capital accumulation in the real world, as contrasted
with theory, you need to investigate this.

This is not a Marxist analysis, because Marxists are focused only on
production, in their analysis of capital accumulation - you see this very
clearly e.g. in the Dutch Marxist Robert Went's analysis of globalisation -
he simply confuses total industrial capital, with total social capital, on
the strength of a quote from Duncan Foley about financial capital,
production capital and commercial capital as the three main "nodes" of the
circuit of total social capital). I prefer to stick to Marx's own idea in
this regard - i.e. capital accumulation, although it presupposes production,
is not limited to production.

Admittedly the boundary line between "equities" and "securities" is not
always easy to draw. Some equities may effectively function as securities,
and vice versa.

BTW I do think there are recessive conditions in the making. I think that is
in part a necessary result of the overextension of credit-money, which
happens simply because one does not know a priori what the limits of credit
extension are, how far you can go. It is just that mortgage defaults, tragic
as they are for many workers, are economically only a surface appearance of
a deeper problem.


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