The financial
panic quickly spread around the globe, reflecting the fact that international investors were also heavily tied into speculation
on U.S. mortgage-backed securities. Widespread fears emerged that world economic growth would drop to the 2.5 percent or lower
level that for economists defines a world recession.14 Much of the fear that swept through global financial markets was due
to a system so complex and opaque that no one knew where the financial toxic waste was buried. This led to a stampede into
U.S. Treasury bills and a drastic decrease in lending.
By January 19, 2008, the Wall Street Journal openly declared that
the financial system had entered “The Panic Stage,” referring to Kindelberger’s model in Manias, Panics, and Crashes. The Federal Reserve Board responded in its lender of last resort function
by pouring liquidity back into the system, drastically lowering the federal funds rate from 4.75 percent in September to 3
percent in January with more interest rate cuts expected to come. The federal government stepped in with a $150 billion stimulus
package. Nothing, however, has served, as of this writing (in early March 2008), to halt the crisis, which is based in the
insolvency of much of the multi-trillion dollar mortgage market, with new shocks to follow as millions of adjustable rate
mortgages see jumps in interest rates. Above all, the end of the housing bubble has undermined the financial condition of
already hard-pressed, heavily indebted U.S. consumers, whose purchases equal 72 percent of GDP.
How serious
the economic deceleration will be in the end is still unknown. Financial analysts suggest that house prices must fall on average
by something like 20–30 percent, and much more in some regions, to get back in line with historical trends.15 The decline
in U.S. housing prices experienced an accelerated decline in the fourth quarter of 2007.16 That plus the fact that consumers
are being hard hit by other problems such as rising fuel and food prices guarantees a serious slowdown. Some observers now
refer to a “bubble cycle” and look to another bubble as the only way to avert catastrophe and quickly restore
growth to the economy.17 Others see a period of persistently weak growth.
One thing
is certain. Large capitalist interests are relatively well-placed to protect their investments in the downswing through all
sorts of hedging arrangements and can often call on the government to bail them out. They also have a myriad of ways of transferring
the costs to those lower down on the economic hierarchy. Losses will therefore fall disproportionately on small investors,
workers, and consumers, and on third world economies. The end result, as in all such episodes in the history of the system,
will be increased economic and financial sector concentration on both the national and global scales.
A Crisis of Financialization
Little more
can be said at the moment about the evolution of the downturn itself, which will still have to work its way through the system.
From a long-term historical perspective, however, these events can be seen as symptomatic of a more general crisis of financialization,
beyond which lurks the specter of stagnation. It is by exploring these wider and deeper issues rooted in class-based production
that we can throw the light on the significance of the above developments for capital accumulation and the future of capitalist
class society.
Numerous commentators
have castigated the U.S. economy for its “monstrous bubble of cheap credit...with one bubble begetting
another”—in the words of Stephen Roach, chairman of Morgan Stanley Asia. Elsewhere Roach has observed that “America’s bubbles have gotten bigger, as have the segments of the real economy they have infected.” Household
debt has risen to 133 percent of disposable personal income, while the debt of financial corporations has hit the stratosphere,
and government and non-financial corporate debt have been steadily increasing.18 This huge explosion in debt—consumer,
corporate, and government—relative to the underlying economy (equal to well over 300 percent of GDP by the
housing bubble’s peak in 2005) has both lifted the economy and led to growing instability.19
Mainstream
commentators often treat this as a national neurosis tied to a U.S. addiction to high consumption, high borrowing, and vanishing
personal savings, made possible by the infusion of capital from abroad, itself encouraged by the hegemony of the dollar. Radical
economists, however, have taken the lead in pointing to a structural transformation in the capital accumulation process itself
associated with the decades-long historical process—now commonly called financialization—in which the traditional
role of finance as a helpful servant to production has been stood on its head, with finance now dominating over production.
The issue
of financialization of the capital accumulation process was underscored a quarter-century ago in Monthly Review by Harry Magdoff and Paul Sweezy in an article on “Production and Finance.”
Starting with a theory (called the “stagnation thesis”)20 that saw financial explosion as a response to the stagnation
of the underlying economy, they argued that this helped to “offset the surplus productive capacity of modern industry”
both through its direct effect on employment and indirectly through the stimulus to demand created by an appreciation of assets
(now referred to as the “wealth effect”).21 But the question naturally arose: Could such a process continue? They
answered:
From a structural
point of view, i.e., given the far-reaching independence of the financial sector discussed above, financial inflation of this
kind can persist indefinitely. But is it not bound to collapse in the face of the stubborn stagnation of the productive sector?
Are these two sectors really that independent? Or is what we are talking about merely an inflationary bubble that is bound
to burst as many a speculative mania has done in the past history of capitalism?
No assured answer can be given to
these questions. But we are inclined to the view that in the present phase of the history of capitalism—barring a by
no means improbable shock like the breakdown of the international monetary and banking system—the coexistence of stagnation
in the productive sector and inflation in the financial sector can continue for a long time.22
At the root
of the financialization tendency, Magdoff and Sweezy argued, was the underlying stagnation of the real economy, which was
the normal state of modern capitalism. In this view, it was not stagnation that needed explaining so much as periods of rapid
growth, such as the 1960s.
Mainstream
economists have paid scant attention to the stagnation tendency in the mature economies. In received economic ideology rapid
growth is considered to be an intrinsic property of capitalism as a system. Confronted with what looks like the onset of a
major economic slowdown we are thus encouraged to see this as a mere cyclical phenomenon—painful, but self-correcting.
Sooner rather than later a full recovery will occur and growth will return to its normal fast-pace.
There is,
however, a radically different economic view, of which Magdoff and Sweezy were among the chief representatives, that suggests
that the normal path of the mature capitalist economies, such as those of the United States, the major Western European countries,
and Japan, is one of stagnation rather than rapid growth. In this perspective, today’s periodic crises, rather than
merely constituting temporary interruptions in a process of accelerated advance, point to serious and growing long-term constraints
on capital accumulation.
A capitalist
economy in order to continue to grow must constantly find new sources of demand for the growing surplus that it generates.
There comes a time, however, in the historical evolution of the economy when much of the investment-seeking surplus generated
by the enormous and growing productivity of the system is unable to find sufficient new profitable investment outlets. The
reasons for this are complex having to do with (1) the maturation of economies, in which the basic industrial structure no
longer needs to be built up from scratch but simply reproduced (and thus can be normally funded out of depreciation allowances);
(2) the absence for long periods of any new technology that generates epoch-making stimulation and transformation of the economy
such as with the introduction of the automobile (even the widespread use of computers and the Internet has not had the stimulating
effect on the economy of earlier transformative technologies); (3) growing inequality of income and wealth, which limits consumption
demand at the bottom of the economy, and tends to reduce investment as unused productive capacity builds up and as the wealthy
speculate more with their funds instead of investing in the “real” economy—the goods and services producing
sectors; and (4) a process of monopolization (oligopolization), leading to an attenuation of price competition—usually
considered to be the main force accounting for the flexibility and dynamism of the system.23
CHART: Chart 2. Net private non-residential fixed investment as a percent of GDP (5-year moving average)
Source: Bureau
of Economic Analysis, National Income and Product Accounts, Table 5.2.5. Gross and Net Domestic Investment by Major Type,
Annual Data 1929-2006; Economic Report of the President, 2008, Table B-1.
Gross Domestic Product, 1959-2007.
Historically,
stagnation made its presence felt most dramatically in the Great Depression of the 1930s. It was interrupted by the economic
stimulus provided by the Second World War and by the exceptionally favorable conditions immediately after the war in the so-called
“Golden Age.” But as the favorable conditions waned stagnation resurfaced in the 1970s. Manufacturing capacity
utilization began its secular decline that has continued to the present, averaging only 79.8 percent in the 1972–2007
period (as compared to an average of 85 percent in 1960–69). Partly as a result net investment has faltered (see chart
2).24
The classical
role of net investment (after accounting for replacing depreciated equipment) in the theory of capitalist development is clear.
At the firm level, it is only net investment that absorbs investment-seeking surplus corresponding to the undistributed (and
untaxed) profits of firms—since the remainder of gross investment is replacement investment covered by capital consumption
allowances. As economist Harold Vatter observed in an article entitled “The Atrophy of Net Investment” in 1983,
On the level
of the representative individual enterprise, the withering away of net investment spells approaching termination of the historical
and deeply rooted raison d’être of the non-financial firm: accumulation of capital. In consequence, undistributed accounting
profits, if not taxed away, would lack the traditional offsets [effective demand in the form of net investment], at least
in a closed economy.25
It was netinvestment
in the private sector that was once the major driver of the capitalist economy, absorbing a growing economic surplus. It was
relatively high net private non-residential fixed investment (together with military-oriented government spending) that helped
to create and sustain the “Golden Age” of the 1960s. The faltering of such investment (as a percent of GDP) in the
early 1970s (with brief exceptions in the late 1970s–early 1980s, and late 1990s), signaled that the economy was unable
to absorb all of the investment-seeking surplus that it was generating, and thus marked the onset of deepening stagnation
in the real economy of goods and services.
The whole
problem has gotten worse over time. Nine out of the ten years with the lowest net non-residential fixed investment as a percent
of GDP over the last half century (up through 2006) were in the 1990s and 2000s. Between 1986 and 2006,
in only one year—2000, just before the stock market crash—did the percent of GDP represented by net
private non-residential fixed investment reach the average for 1960–79
(4.2 percent). This failure to invest is clearly not due to a lack of investment-seeking surplus. One indicator of this is
that corporations are now sitting on a mountain of cash—in excess of $600 billion in corporate savings that have built
up at the same time that investment has been declining due to a lack of profitable outlets.26
What has mainly
kept things from getting worse in the last few decades as a result of the decline of net investment and limits on civilian
government spending has been soaring finance. This has provided a considerable outlet for economic surplus in what is called
FIRE (finance, insurance, and real estate), employing many new people in this non-productive sector of the
economy, while also indirectly stimulating demand through the impact of asset appreciation (the wealth effect).
Aside from
finance, the main stimulus to the economy, in recent years, has been military spending. As empire critic Chalmers Johnson
noted in the February 2008 Le Monde Diplomatique:
The Department
of Defense’s planned expenditures for the fiscal year 2008 are larger than all other nations’ military budgets
combined. The supplementary budget to pay for the current wars in Iraq and Afghanistan, not part
of the official defense budget, is itself larger than the combined military budgets of Russia and China. Defense-related
spending for fiscal 2008 will exceed $1 trillion for the first time in history....Leaving out President Bush’s two on-going
wars, defense spending has doubled since the mid-1990s. The defense budget for fiscal 2008 is the largest since the second
world war.27
But, even
the stimulus offered by such gargantuan military spending is not enough today to lift U.S. capitalism out of stagnation. Hence, the economy has become more and more dependent on financialization as the key
vehicle of growth.
Pointing in
1994 to this dramatically changed economic condition in a talk to Harvard economic graduate students, Sweezy stated:
Start reading here
In the old
days finance was treated as a modest helper of production. It tended to take on a life of its own and generate speculative
excesses in the late stages of business cycle expansions. As a rule these episodes were of brief duration and had no lasting
effects on the structure and functioning of the economy. In contrast, what has happened in recent years is the growth of a
relatively independent financial sector, not in a period of overheating but on the contrary in a period of high-level stagnation
(high-level because of the support provided to the economy by the militarily oriented public sector) in which private industry
is profitable but lacks incentives to expand, hence stagnation of private real investment. But since corporations and their
shareholders are doing well and, as always, are eager to expand their capital, they pour money into the financial markets,
which respond by expanding their capacity to handle these growing sums and offering attractive new kinds of financial instruments.
Such a process began in the 1970s and really took off in the 1980s. By the end of the decade, the old structure of the economy,
consisting of a production system served by a modest financial adjunct, had given way to a new structure in which a greatly
expanded financial sector had achieved a high degree of independence and sat on top of the underlying production system. That,
in essence, is what we have now.28
From this
perspective, capitalism in its monopoly-finance capital phase has become increasingly reliant on the ballooning of the credit-debt
system in order to escape the worst aspects of stagnation. Moreover, nothing in the financialization process itself offers
a way out of this vicious spiral. Today the bursting of two bubbles within seven years in the center of the capitalist system
points to a crisis of financialization, behind which lurks deep stagnation, with no visible way out of the trap at present
other than the blowing of further bubbles.
Is Financialization
the Real Problem or Merely a Symptom?
The foregoing argument leads to the conclusion that stagnation generates financialization,
which is the main means by which the system continues to limp along at present. But it needs to be noted that recent work
by some radical economists in the United
States has pointed to the diametrically
opposite conclusion: that financialization generates stagnation. In this view it is financialization rather than stagnation
that appears to be the real problem.
This can be
seen in a November 2007 working paper of the Political Economy Research Institute written by Thomas Palley, entitled “Financialization:
What It Is and Why It Matters.” Palley notes that “the era of financialization has been associated with generally
tepid economic growth....In all countries except the U.K., average annual growth
fell during the era of financialization that set in after 1979. Additionally, growth also appears to show a slowing trend
so that growth in the 1980s was higher than in the 1990s, which in turn was higher than in the 2000s.” He goes on to
observe that “the business cycle generated by financialization may be unstable and end in prolonged stagnation.”
Nevertheless, the main thrust of Palley’s argument is that this “prolonged stagnation” is an outgrowth of
financialization rather than the other way around. Thus he contends that such factors as the “wage stagnation and increased
income inequality” are “significantly due to changes wrought by financial sector interests.” The “new
business cycle” dominated by “the cult of debt finance” is said to lead to more volatility arising from
financial bubbles. Thus “financialization may render the economy prone to debt-deflation and prolonged recession.”
Palley calls this argument the “financialization thesis.”29
There is no
doubt that a prolonged deep stagnation could well emerge at the end of a financial bubble, i.e., with the waning of a period
of rapid financialization. After all, this is what happened in Japan following the bursting of its real estate-stock market
asset bubble in 1990.30 The analysis that we have presented here, however, would suggest that an economic malaise of this
kind is most usefully viewed as a crisis of financialization rather than
attributable to the negative effects of financialization on the economy, as suggested by Palley. The problem is that the financialization
process has stalled and with it the growth it generated.
The point
we are making here can be clarified by looking at another (October 2007) working paper (also from the Political Economy Research
Institute) by economist Özgür Orhangazi on the subject of “Financialization and Capital Accumulation in the Non-Financial
Corporate Sector.” Orhangazi argues that “increased financial investment and increased financial profit opportunities
crowd out real investment by changing the incentives of the firm managers and directing funds away from real investment.”
Noting that “the rate of capital accumulation [referring to net nonresidential fixed investment by non-financial corporations]
has been relatively low in the era of financialization,” Orhangazi sees this as due to “increased investment in
financial assets,” which “can have a ‘crowding out’ effect on real investment”: stagnation then
is converted from a cause (as in the stagnation thesis) to an effect (the financialization thesis).31
Yet, the idea
of the “crowding out” of investment by financial speculation makes little sense, in our view, when placed in the
present context of an economy characterized by rising excess capacity and vanishing net investment opportunities. There are
just so many profitable outlets for capital in the real economy of goods and services. A very narrow limit exists with regard
to the number of profit-generating opportunities associated with the creation of new or expanded automobile or appliance manufacturers,
hair salons, fast food outlets, and so on. Under these circumstances of a capital accumulation process that lacks profitable
outlets and constantly stalls, the amassing of more and more debt (and the inflation of asset prices that this produces) is
a powerful lever, as we have seen, in stimulating growth. Conversely any slowdown in the ballooning of debt threatens that
growth. This is not to say that debt should be regarded as a cure-all. To the contrary, for the weak underlying economy of
today no amount of debt stimulus is enough. It is in the nature of today’s monopoly-finance capital that it “tends
to become addicted to debt: more and more is needed just to keep the engine going.”32
Still, as
important as financialization has become in the contemporary economy, this should not blind us to the fact that the real problem
lies elsewhere: in the whole system of class exploitation rooted in production. In this sense financialization is merely a
way of compensating for the underlying disease affecting capital accumulation itself. As Marx wrote in Capital, “The superficiality of political economy shows itself in the fact that it views the expansion
and contraction of credit as the cause of the periodic alterations of the industrial cycle, while it is a mere symptom of
them.” Despite the vast expansion of credit-debt in the capitalism of today, it remains true that the real barrier to
capital is capital itself: manifested in the tendency toward overaccumulation of capital.
The well-meaning
critique of financialization advanced by Palley, Orhangazi, and others on the left is aimed at the re-regulation of the financial
system, and elimination of some of the worst aspects of neoliberalism that have emerged in the age of monopoly-finance capital.
The clear intention is to create a new financial architecture that will stabilize the economy and protect wage labor. But
if the foregoing argument is correct, such endeavors to re-regulate finance are likely to fail in their main objectives, since
any serious attempt to reign in the financial system risks destabilizing the whole regime of accumulation, which constantly
needs financialization to soar to ever higher levels.
The only things
that could conceivably be done within the system to stabilize the economy, Sweezy stated at Harvard in 1994, would be greatly
to expand civilian state spending in ways that genuinely benefited the population; and to carry out a truly radical redistribution
of income and wealth of the kind “that Joseph Kennedy, the founder of the Kennedy dynasty” referred to “in
the middle of the Great Depression, when things looked bleakest”—indicating “that he would gladly give up
half his fortune if he could be sure the other half would be safe.” Neither of these radical proposals of course is
on the agenda at present, and the nature of capitalism is such that if a crisis ever led to their adoption, every attempt
would be made by the vested interests to repeal such measures the moment the crisis had passed.33
The hard truth
of the matter is that the regime of monopoly-finance capital is designed to benefit a tiny group of oligopolists who dominate
both production and finance. A relatively small number of individuals and corporations control huge pools of capital and find
no other way to continue to make money on the required scale than through a heavy reliance on finance and speculation. This
is a deep-seated contradiction intrinsic to the development of capitalism itself. If the goal is to advance the needs of humanity
as a whole, the world will sooner or later have to embrace an alternative system. There is no other way.
(March 5, 2008)
Notes
1. John Bellamy Foster, “Financialization
of Capitalism,” Monthly Review 58, no. 11 (April 2007): 8–10.
See also John Bellamy Foster, “The Household Debt Bubble,” Monthly Review
58, no. 1 (May 2006): 1–11, and “Monopoly-Finance Capital,” Monthly
Review 58, no. 7 (December 2006); and Fred Magdoff, “The Explosion of Debt and Speculation,” Monthly Review 58, no. 6 (November 2006), 1–23.
2. “U.S. Recovery May Take Longer than Usual: Greenspan,” Reuters, February 25, 2008.
3. Paul M. Sweezy, “More (or Less) on Globalization,”
Monthly Review 49, no. 4 (September 1997): 3.
4. Stephanie
Pomboy, “The Great Bubble Transfer,” MacroMavens, April 3, 2002,
http://
www.macromavens.com/reports/the_great_bubble_transfer.pdf; Foster, “The House-hold Debt Bubble,” 8–10.
5.
The following discussion of the five phases of the housing bubble relies primarily on the following sources: Juan Landa, “Deconstructing
the Credit Bubble,” Matterhorn Capital Management Investor Update,
3rd Quarter 2007, http://www.matterhorncap
.com/pdf/3q2007.pdf., and “Subprime Collapse Part of Economic Cycle,”
San Antonio Business Journal, October 26, 2007, and Charles P. Kindelberger
and Robert Aliber, Manias, Panics, and Crashes (Hokoben, New Jersey: John
Wiley and Sons, 2005).
6. In the analysis of financial bubbles that Charles Kindelberger provided based on
the earlier theory of financial instability introduced by Hyman Minsky, the phase in the bubble associated here with a “novel
offering” is more frequently referred to as “displacement” a concept that is supposed to combine the ideas
of economic shock and innovation. Since “novel offering” is, however, more descriptive of what actually happens
in the formation of a bubble, it is often substituted for “displacement” in concrete treatments. See Kindelberger
and Aliber, Manias, Panics, and Crashes, 47–50.
7. Floyd
Norris, “Who’s Going to Take the Financial Weight?,” New York Times,
October 26, 2007; “Default Fears Unnerve Markets,” Wall
Street Journal, January
18, 2008.
8. Federal Reserve
Bank of New York, “Historical Changes of the Target Federal Funds and Discount
Rates,” http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate
.html.
9. Landa, “Deconstructing
the Credit Bubble.”
10. Hyman Minsky, Can “It” Happen Again? (New
York: M.E. Sharpe, 1982), 28–29.
11. “Household Financial Condition: Q4 2005,” Financial Markets Center, March 19, 2006, http://www.fmcenter.org; Foster, “The Household Debt Bubble,”
8.
12. “Global Derivatives Market Expands to $516 Trillion (Update),” Bloomberg.com, November 22, 2007.
13. “Bond Insurer Woes May Mean End of Loophole,” Reuters, February
13, 2008.
14. “Global Recession
Risk Grows as U.S. ‘Damage’ Spreads,” Bloomberg.com, January 28, 2008. This report refers to the world recession level, as depicted by economists, as 3 percent or lower.
But 2.5 percent is probably more accurate, i.e., more closely in line with recent world recessions and IMF views.
15. Stephen
Roach, “America’s Inflated Asset Prices Must Fall,” Financial
Times, January 8,
2008.
16. “Decline in Home Prices
Accelerates,” Wall Street Journal, February 27, 2008.
17. Eric Janszen, “The Next Bubble,” Harper’s
(February 2008), 39–45.
18. Roach, “America’s
Inflated Asset Prices Must Fall,” and “You Can Almost Hear it Pop,” New
York Times, December
16, 2007.
19. Fred Magdoff, “The
Explosion of Debt and Speculation,” 9.
20. The term “stagnation thesis” was originally associated primarily
with Alvin Hansen’s argument in response to the Great Depression. See Hansen, “The Stagnation Thesis” in
American Economic Association, Readings in Fiscal Policy (Homewood, Illinois: Richard D. Irwin, Inc., 1955), 540–57. It was later applied to Baran and Sweezy’s
Monopoly Capital. See Harry Magdoff, “Monopoly Capital” (review),
Economic Development and Cultural Change 16, no. 1 (October 1967): 148.
21.
The concept of the “wealth effect” refers to the tendency for consumption to grow independently of income due
to rising asset prices under financialization. The earliest known use of the term was in a January 27, 1975, article in Business Week entitled “How
Sagging Stocks Depress the Economy.” Alan Greenspan employed the concept of the “wealth effect” in 1980
to refer to the effect of the increase in the price of homes in stimulating consumption by home owners—Greenspan, “The
Great Malaise,” Challenge 23, no. 1 (March–April 1980): 38. He
later used it to rationalize the New Economy stock market bubble of the 1990s.
22. Harry Magdoff and Paul M. Sweezy, “Production
and Finance,” Monthly Review 35, no. 1 (May 1983): 11–12.
23.
The basic argument here was articulated in numerous publications by Paul Baran, Paul Sweezy, and Harry Magdoff in the 1950s
through 1990s.
24. Federal Reserve Statistical Release, G.17, “Industrial Production and Capacity Utilization,”
February 15, 2008, http://www.federalreserve.gov/releases/g17/Current/
default.htm;
John Bellamy Foster, “The Limits of U.S. Capitalism: Surplus Capacity and Capacity Surplus,” in Foster and Henryk
Szlajfer, ed., The Faltering Economy (New York: Monthly Review Press, 1984),
207.
25. Harold G. Vatter, “The Atrophy of Net Investment,” in Vatter and John F. Walker, The Inevitability of Government Spending (New York: Columbia University Press, 1990), 7. Vatter notes that
that net investment as a share of net national product (NNP) dropped by half between the last quarter of the nineteenth century
and the mid-twentieth century, Vatter and Walker, Inevitability of Government Spending,
8.
26. “Companies are Piling Up Cash,” New York Times, March 4, 2008. This piling up of cash has been the product of the last decade, with the average
level of cash as a percent of total assets of corporations in the Standard & Poor’ s 500-stock index doubling between
1998 and 2004 (and the median ratio tripling).
27. Chalmers Johnson, “Why the US has Really Gone Broke,” Le Monde Diplomatique (English edition), February 2008. Johnson’s $1 trillion
figure for U.S. military spending is arrived at by adding the supplemental requests for the wars in Iraq and Afghanistan to
the Department of Defense fiscal year 2008 budget (creating a grand total of $766 billion), and then adding to this the hidden
military spending in the budgets for the Department of Energy, the Department of Homeland Security, Veterans Affairs, etc.
28.
Paul M. Sweezy, “Economic Reminiscences,” Monthly Review 47,
no. 1 (May 1995), 8–9.
29. Thomas I. Palley, “Financialization: What It Is and Why It Matters,” Working Paper Series, no. 153, Political Economy Research Institute, November 2007,
1, 3, 8, 11, 21, http://www.peri.umass.edu/Publication.236+M505d3f0bd8c.0.html
30. See Kindelberger and Aliber, Manias, Panics, and Crashes, 126–35.
31. Özgür Orhangazi, “Financialization
and Capital Accumulation in the Non-Financial Corporate Sector,” Working Paper
Series, no. 149, Political Economy Research Institute, October 2007, 3–7, 45, http://www.peri.umass.edu/Publication.236+
M547c453b405.0.html.
32. Harry Magdoff and Paul M. Sweezy, The Irreversible Crisis (New York:
Monthly Review Press, 1988), 49.
33. Sweezy, “Economic Reminiscences,” 9–10.
The problem with the economy is that instead of seeking to promote the public weal through creating a greater return
on labor the government has promoted a greater return for financial institutions. In
this climate investment in the U.S. manufacturing sector was not as profitable as foreign investments (this
was noted back in 1966 in Monopoly Capitalism by Barron and Sweezy). In this climate the U.S. went off the
gold standard in 1976, which permitted the rapid expansion of money (loaned out through the Federal Reserve system of banks). Financial institutions profited sky rocketed based on the influx of dollars, which
entailed more loans, sales of stocks, bonds, credit cards, etc. However, the
material foundation for these loans was insufficient. A piece of property is
worth the replacement cost minus depreciation.
The failure of capitalism is that it is a money driven system. The
stagnation at first in the 70s was based on a siphoning away of the products of production into the military and through the
supporting of an ever growing sector of financial institutions.
A better system would be one founded upon the public weal. One where
the benefits to the masses came first. A system where the production of goods
was distributed efficiently to people.
What we need to do is get rid of the intermediates in the process, the financial institutions. Thus reward would be related to labor.
Since Bush has been president (Oct 1, 2008):
- Over
10 million people have slipped into poverty;
- Nearly14
million Americans have lost their health insurance;
- median
household income has gone down by nearly $9,300;
- over
6 million manufacturing jobs have been lost;
- over 20 million American workers have lost their pensions;
- wages and salaries
are now at the lowest share of GDP since 1929
- Federal
debt is over $10 trillion
And these numbers are gross underestimates,
for the government cheats in their accounting
