[OPE-L:116] [OPE-L:352] Re: BK's and the Asian Crisis

John R. Ernst (ernst@PIPELINE.COM)
Mon, 23 Nov 1998 19:15:48

Hi Fred,

In OPE-L 351, Fred wrote:

I finally have a little time to comment on the very interesting and
important question raised by Michael P. and Andrew T. and others about
the role and necessity of bankruptcies in the current Asian crisis.

I think we need to distinguish more clearly between the bankruptcy of
non-financial corporations (which I will call "firms") and the bankruptcy
of banks. The two are related, but they are not the same.

John writes:
OK. I can go with this. Below I discuss the first part of
your post.

Fred wrote:
As I see it, the fundamental problems in Asia (and I think the world
capitalist economy) are:
1. Falling rate of profit.
2. Excessive (unsupportable) debt burdens of firms.
3. Excess capacity, created by excessive competition and
excessive borrowing.

John writes:
Given prior discussions both on and off list, I think the problems
you identify need further clarification.

Which falling rate of profit? That is, is it a rate of profit
in which inputs and outputs are simultaneously valued? If so,
then I become confused about how your "1" and "3" are related.
If your rate of profit is falling, then clearly the demand for
constant capital is growing faster than output. How then do
you get to "excessive capacity"? Further, why is the competition
"excessive"? Demand would seem to have a tendency to outstrip
supply. Does this excessive competition manifest itself as
growing demand relative to supply or the opposite? If demand is
outstripping supply, then you may well have a great deal of
borrowing. Is it excessive? If so, relative to what?

The key to your argument is, of course, that FRP. If the inputs
and outputs are simultaneously priced, the FRP may be quite
visible to the capitalists as they are as able as anyone to
use the same set of prices to compare inputs and outputs.
Are or were they making investments that they knew would
reduce their rates of profit? If so, why were the banks lending
them any funds at all? Perhaps, all loans were only short-term?

Within the context of simultaneous valuation, the only way I
know to get around this problem is to introduce the notion of
rising wages or the threat of rising wages. Even dressed up
as an argument about the class struggle, I don't think this
turkey will fly. It is simply hard to argue that Asian workers
are or were overpaid. Although there may well be some such

Now let's turn to the issue of the "slaughtering of capital values"
the topic your post addresses. Here again we need some clarification.
With simultaneous valuation, how is capital value destroyed? When
is it destroyed? Within a TSS framework in which the capital value
of one period can be compared to that of the next, this is not
that complicated. But, quite honestly, I have no idea how one
accounts for the destruction of capital value within the
simultaneous framework. Capital value is only known at the end of
each period and is determined by the relation between quantities of
inputs and of outputs. How can capital value be simultaneously
destroyed as valuation is taking place? In the simultaneous
world, there is no before and after and hence no way to describe
how the destruction of capital value takes place.