"Moderation" is reckless

Submitted by martin on 1 February, 2011 - 11:47

The unspoken assumption by union and Labour Party leaders, that the Tory/ Lib-Dem cuts are inevitable and can only be alleviated by negotiating voluntary redundancies and used as grist for electoral agitation, is being proved reckless.

Evidence is mounting that the cuts will bring not only their obvious immediate damage, but also some degree or another of "double-dip" downturn in the whole economy.

The crisis of September 2008 came from overaccumulation of debt. An intricate network in which one capitalist borrowed from another, who borrowed from yet another, and then yet another, with households and industrial or commercial capital as the first borrowers in the chain, eventually toppled, as doubt about whether debts could or would be repaid flooded through the system.

Governments limited the collapse by taking over or guaranteeing key debts of the major banks. Governments command greater confidence as repayers of debt, but not unlimited confidence. Thus, now, the crisis of the debts of Greece and Ireland, and soon of Portugal, Spain, and Italy.

To pay down the debts, even governments need expanded income. That is unavailable without an expansion of industrial and commercial investment and of household consumption.

The theory of the Tory/ Lib-Dem cuts is that by limiting the expansion of government debt they will limit interest rates and the "crowding-out" of industrial and commercial borrowing by government borrowing, and thus clear the way for private capital to expand.

Even on the most mainstream of economic assumptions, this argument depends on those desired effects outweighing the depressive influence of reduced market demand from workers who have lost their jobs and capitalists who have lost their public-sector contracts.

The statistics of the decline of output in October-December 2010 suggest that the depressive influences are weightier. And that is before any economic shocks.

Such shocks are likely. Portugal, Spain, Italy, Ireland, and Greece will probably not get through the next year or so without further crises caused by doubt about their ability to cover debt. Across the rich capitalist world, the unsustainable household debt levels of 2007-8 still prevail, and are unlikely to improve soon.

Not to fight to stop the cuts now is recklessly to accept the probable devastation of a whole generation by prolonged economic depression.

Comments

Submitted by stuartjordan on Tue, 01/02/2011 - 12:21

As I understand it, the underlying problem is that crises come about because capitalism generates overaccumulations of capital - stores of capital in various forms (fixed capital, money, labour power) which cannot find any decent investment opportunities and realise a profit.

The main reason for this is in the nature of the capitalist production process fixed capital (C) and variable capital (V) goes in one end and C+V+surplus value comes out the other end. This means that the consumers only have the money equivalent of C+V while the products available on the market equal C+V+S. To use the Keynesian term, there is a lack of effective demand. To get around this problem capitalism needs to constantly find ways to develop new markets to bridge this gap.

The system of credit is a one way of doing this. Banks create credit money which represents nothing but the promise of future labour. We are indebted to our future selves. Since the 1970s the expansion of personal credit, in the form of mortgages and credit cards has made up for a stagnation in wages and has created the effective demand so the bosses could continue to make their profit. This system driven by credit ultimately falters when speculators stop believing in it.

Beneath the surface problem of a credit crunch lies the structural problem that surplus value is owned entirely by the boss class. It is the enormous inequality between rich and poor which lies at the heart of capitalist crises and only a massive redistribution of wealth could redress the balance. Ultimately this entails the abolition of capitalist class relations.

Submitted by martin on Fri, 25/02/2011 - 10:21

Whatever crises are due to, it is certainly not C+V being less than C+V+S. The "effective demand" for "C+S", so to speak, is provided by capitalists, the effective demand for "V" by workers.

Sorry, Stuart, what you have written is completely wrong. Not just a misunderstanding, or only part of the truth, but completely, entirely, 100% wrong.

If capitalists neither invest in new means of production, nor blow their profits on luxury goods, then of course there will be a deficiency of effective demand. But that is another way of saying, if there's a crisis, there's a crisis. It is not a "theory" of crisis.

Tom, sorry, your stuff is wrong, too. All crises involve a shortage of effective aggregate demand.

It is commonly written that Marx had "three theories of crisis". As far as I can see, this story just arises from would-be Marxist academics wanting a simple story to tell students who they thought wouldn't actually read Marx and see that those academics were pompous nitwits. Good for exam papers (to be marked by the said pompous nitwits) on "what are Marxist theories of crisis", perhaps, but nothing else.

Some notes on what Marx actually wrote: click here.

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