[OPE] estimating the severity and duration of a capitalist economic crisis

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Mon Mar 24 2008 - 08:59:53 EDT

Hi Jerry,

You are correct, it is a big "if", but why? 

In the first instance, that's because because of the unequal and combined development of the world capitalist economy, in which different factors semi-autonomous of each other can advance and amplify, or retard and diminish, the main tendencies at work everywhere. When I say "main tendencies", it means that for Marx, the motion of capital has a universal developmental logic which is replicated in every country, and this logic produces a specific pattern and leads to specific results. Yet in different countries, the same factors have a different "weighting" and their combination in the concatenation of events advances the main trend here, but retards it there. And these countries are integrated to a greater or lesser extent in global markets, governed by certain general principles of capitalist trade, in which developments in one country spill over into another. Critical events, including non-economic events such as political or military events, can strongly influence investor behaviour and the pattern of conflicts. 

This is just a shorthand to talk about all that, but it means that aggregate quantitative effects may be difficult to assess, and the theorist then devises a theory which "rules out" some possibilities and "rules in" some other possibilities, from which he derives the most likely future scenarios to provide an orientation. The quality of a theory depends on its ability to identify and distinguish between the essence of phenomena and their appearance-forms, and on the comprehensiveness of the relevant data to which it refers. The theory might be too abstract (it cannot make sense of the observable empiria) or it might be not abstract enough (it fails to identify the real essence of what is at stake in historica perspective, and is therefore misled by the empiria, dissipating in eclecticism), which is just to say much depends on how the theory itself is formed. 
Secondly, there is Rogoff's theory itself. While I disagree (as many European bankers would too I think) in important respects with his theory, Rogoff at least understands what it is about, and he does ask many of the right questions. His central thesis was that: "the most important and most universal factor supporting world-wide disinflation has been the mutually reinforcing mix of deregulation and globalization, and the consequent significant reduction in monopoly pricing power. This increased competitiveness lowers the gains a central bank can reap via unanticipated inflation because it reduces the gap between the economy's monopolistically competitive equilibrium and the socially desirable competitive equilibrium. http://www.imf.org/external/np/speeches/2003/082903.htm

This statement ought to be considered carefully for its meaning I think. >From a Marxian perspective, several questions arise: 

(1) Is "the mix of deregulation and globalisation" really "the most important factor" in inflation or disinflation, and what does that mean - or is it simply another tautology? Could it be for instance that, actually, the most important factor in inflation and disinflation is simply the monetary regime operated?
(2) What evidence exists that there has been a significant reduction of monopoly pricing power, especially given that most markets are now more strongly dominated by a few large corporations than they were in 1980 - in part as the end result of a competitive battle which eliminated competitors?
(3) What theory of capitalist competition really underpins his thesis? What is the competition really about?
(4) What does the equilibrium really consist in, and how would we know if we have it?

All this has implications for how you judge the world situation. Because of the hassles I had in previous years, I didn't yet get round to the analysis of the world market in depth, and therefore I don't get further than writing a few notes on this. But, mainly, I would argue that Rogoff's theoretical framework actually prevents him from identifying the conditions that apply for a shallow recession to turn into a deep recession. It is not due to his grasp of the data I think, but due to an inadequate distinction between the essence of phenomena and their appearance-forms. His article contains several contradictions, meaning among other things that he fails to explain satisfactorily how it is possible that you have strong inflation here, and weak inflation there, how those situations can combine. 

As I have pointed out before, the losses resulting from write-offs of leveraged loan capital which cannot be repaid are large, but within the framework of the world economy they are just not quantitatively very significant, and I can prove that with reference to previous crises. Much more significant, is the loss of confidence by investors, panics and so on as dubious financial practices come to light. In bourgeois ideology this is called the "unravelling" (a reference to the point in a novel where the significance of crucial elements in the plot are revealed), but for a worker that really means that a pack of lies is exposed to be a pack of lies. 

But if investors lose confidence, that does not mean all their capital disappears suddenly as well (thought some of it might). It just means that it is not invested where they previously invested it, that is all. What the financial institutions then try to do is to restore that confidence. They do so within the limits of the situation, but they have a range of options for restructuring. Which options will be taken, is to a large extent a political matter - what is objectively the best option will not necessarily be taken, and of course the financial crisis is seized as an opportunity to advance the interests of particular groups, just as 9/11 was seized as an opportunity to advance the imperialist agenda for world development. But once certain options are taken, that precludes some scenarios, and make possible some other scenarios. In the Marxian theory, the "essential tendencies" (which include the determination of production values by labour-time, and tendency of the average production rate of profit to fall) work themselves out with "iron necessity" in the long term, but many circumstances can accelerate or retard these tendencies, and that time-frame is shaped by the configuration of class and national forces which defines the balance of power, and the actual policy choices made. 

In Marxism 101, you just talk about C, V, and S, but this discussion is really at the level of Marxism 666. We are no longer talking about simple capital reproduction models, but the reproduction of capitalist society as a whole, i.e. the ways in which specific social contradictions are constantly mediated and mitigated by the state, supra-state bodies, the financial institutions, and managerial regimes, in order to correct imbalances which threaten the system's functioning. Here, we are not talking anymore about production assets and two social classes, but all assets and the whole population, and the system of international relations.


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