The Hypocrisy of NATO's Illegal War On Iran - Part 18

I have set out, elsewhere, why all of the liquidity injections of the 1990's, and QE of the 2010's, whilst depreciating the world's currencies/standards of prices, did not result in large-scale commodity price rises. The reason is that to do so requires that these money tokens and credit went into general circulation, as part of a rise in economic activity. But, in fact, a look at what happened shows that this liquidity was never designed to stimulate economic activity, but was designed only to protect the immediate interests of the ruling-class owners of fictitious-capital, by cutting short the bursting of asset price bubbles.

The huge rise in asset prices of the 1980's, was interrupted by the global financial crash that occurred in 1987. It wasn't just a bubble in financial markets that burst, but, also, in property markets. In 1990, house prices in Britain dropped by around 40%, in Japan, some property prices fell by up to 90%. In the US, the Federal Reserve, responded to this fall in asset prices by pumping liquidity into the system. That was quite a reversal for its newly installed Chairman, Alan Greenspan, who as an apostle of Ayn Rand, had previously been a staunch advocate of sound money.

It turned out that Greenspan was an even more staunch advocate of the immediate interests of the ruling class owners of fictitious-capital. In 1987, stock markets dropped by 25% in a single day, but, as central banks, led by the Federal Reserve, depreciated currencies by injecting huge amounts of liquidity, the result was that, when the year ended, those stock markets were up by around 50%! This was, now, a casino, in which it appeared the gamblers could not lose. If it were an actual casino, it would go bust, on that basis, and, essentially that is the relation to the real economy, and to the industrial capital that produces the profits out of which the interest/dividends, rent and taxes are paid. Interestingly, if you watch many of the current adverts, today, for online gambling sites, they have adopted a similar approach. If you win, you do not get paid in actual money, but only in tokens that you can use to make further bets. To further encourage that, they provide punters with additional tokens in the form of “acca boosts”. The use of incentives provided by governments, such as “Help To Buy”, in Britain, do a similar thing, to further inflate house prices.

A look at the last 30 years, in particular, has seen the situation described by Marx unfold precisely, but with this difference. When yields fell, as money-capital was devalued, an alternative was found in the speculative capital gains that were the other side of that process. Normally, as Marx notes, the fall in the amount of interest would lead the owners of money-capital to be forced to become industrial capitalists, when the amount of interest no longer covered their needs.. Instead, they, now, cashed in a part of the capital gain, and treated it like revenue. As with every Ponzi Scheme, provided the amount of new liquidity coming into the paper chase, pushing up the asset prices, exceeds the amount being taken out, the illusion continues, and that is what governments and central banks sought to do over the last 40 years. Rachel Reeves is at it again in the UK with the insistence that you can get your tax-free ISA (which acts like the equivalent of an “acca boost”), but only if you plough your savings into a stock market ISA, not if you simply keep your money in a cash savings account.

A number of other factors facilitated the illusion over the last 40 years. The huge rise in productivity, created by the microchip revolution reduced the unit values of commodities, so that even where liquidity did get into general circulation, it only acted to prevent what would have been significant falls in commodity prices. Even when productivity gains began to wain by the end of the last century, other developments such as globalisation, and the creation of large single markets such as the EU, acted as cost free means of expanding trade, reducing costs, and so, increasing the mass of realised profits. So long as the mass of profits continued to grow, the disproportionate growth of interest/dividends and rents was obscured.

But, 2008 showed that had reached its limit. Thatcher's Britain, and Reagan's US were the frontrunners and classic example of the relative decline of industrial capital, and simultaneous rise of fictitious-capital. Both saw deindustrialisation, and both saw a huge rise in asset prices, based on speculation. In the following decades, however, Asia, in particular, saw a corresponding growth of large-scale industrial capital, with similar things happening in Latin America, former Warsaw Pact countries, and later in parts of Africa, and the Middle-East. The US had always had a large petty-bourgeoisie comprised of small traders, as well as its large number of small farmers. It still bears some of the characteristics of its history as a location for European settler colonialism. Its advanced industrial capitalism is concentrated on its East and West Coasts, and large metropolitan areas, whilst its interior remains rural and largely backward. The deindustrialisation of the 1980's exacerbated that, and the same was true in Britain, as its old heavy industries disappeared.

Back To Part 17

SNNS 47

 

The Hypocrisy of NATO's Illegal War On Iran - Part 17

The last Innovation Cycle, which brought the microchip revolution, peaked in 1985. It acted to raise productivity, create a relative surplus population, release capital, and massively raise the rate of profit over the next 20 years. As Marx describes in Theories of Surplus Value, such periods are marked by net output rising faster than gross output. But, eventually, as all of the old fixed capital has been replaced by the new machines/technology, that basis of raising productivity dissipates. In the period of intensive accumulation, one new machine replaces two or three older machines, as these older machines wear out. The new machine also requires only one operator, often less skilled, than the two or three operators of the old machines, who are now also replaced. But, now, in the period of extensive accumulation, to increase output, requires not the replacement of existing machines/technology and workers, but the addition of more machines/technology and workers. Productivity growth slows, the relative surplus population stops growing, net output no longer grows faster than gross output. Both net output and gross output rise at a faster pace than in the earlier period, but, now, that is because gross output itself grows faster, capital accumulation expands at a faster pace.

As I have described before, this could be seen clearly, in the late 1990's, and into the early 2000's. The catastrophists, of course, could not accept the idea that capitalism/imperialism could ever be in a condition other than impending crisis, as they anticipated “the next recession”, induced by a continually falling rate of profit. I also, detailed why they were wrong, despite the global financial crisis of 2008, which actually disproved their theories. The 2008 global financial crisis, rather like that of 1847, was a consequence of rising interest rates causing asset prices to drop sharply, and the reason interest rates rise, in such a period, as Marx sets out in Capital III, is because the system has entered a period of more rapid growth, and capital accumulation. It is that, which explains the actions of the global ruling-class, since 2008. It also, explains the real basis of NATO's illegal war on Iran.

The global ruling-class, as owners of fictitious-capital, over the last 40 years, became addicted to speculative capital gains. Those capital gains were simply the other side of the coin to falling interest rates/yields. The revenue produced by the ownership of loanable money-capital is interest, just as the revenue produced by the ownership of land is rent, and the revenue produced by the ownership of industrial capital is profit. Dividends are just the name given to the interest paid on the money-capital loaned in the form of share purchase. As set out earlier, as interest rates fell in a secular downward trend after 1982, the ruling-class saw, on the one-hand, its paper wealth, in the form of financial and property assets, expand astronomically, as huge asset price bubbles were inflated. On the other hand, it saw the yields on those assets drop significantly, as the other side of those higher asset prices.

That did not require the actual revenue to fall, whether it was rent or interest/dividends. If you get £100 of interest/dividends on a bond/share that costs you £1,000 to buy that is a yield of 10%. But, the same £100, if the price of the bond/share rises to £2,000 is a yield of only 5%. The same thing with rent. If you own land/property that produces £10,000 of rent a year, it is a yield of 10% if the property cost £100,000 to buy, but only 5% if the price of the property rises to £200,000. Considering Marx's point referred to earlier, if a disproportionate amount of money goes into the ownership of loanable money-capital (i.e. into the purchase ownership of shares, bonds etc.) then this money-capital is devalued, and manifest in a corresponding rise in the price of those assets, and fall in yields/interest rates.

If you are part of the ruling-class, and your ownership of those financial and property assets runs into billions of Dollars, the fact that yields drop to insignificant levels does not matter. Even a yield of 1% on $100 billion is $1 billion of revenue per year. But, if you are a pensioner from the working or middle-class, a pension pot of $250,000 would, on the same basis, provide you only with an annual revenue of $2,500, and so inadequate to live on. But, the other side of those low yields, was the rise in asset prices. If you could cash in a part of the value of the asset, or borrow against it, that appeared to be as good as getting a yield from it, and, in the case of property, with less effort. It appeared there was no need, even to have the trouble of having tenants in properties, if year after year, the property rose in price by 10%, giving a notional £10,000 on a £100,000 property.  Nor did it seem to matter if the money used to buy shares was used by companies to invest in real capital accumulation.  Indeed, the latter itself became a hazard to those rising asset prices.

Back To Part 16

Forward To Part 18

Northern Soul Classics - You Turned My Bitter Into Sweet - Mary Love

 

The Hypocrisy of NATO's Illegal War On Iran - Part 16

Marx noted, in Capital III, Chapter 23,

“It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.” (p 378)

It is precisely that problem that the ruling-class of rentiers has faced. On the one hand, the microchip revolution of the 1980's, brought a huge rise in productivity, and the rate of profit. It brought a huge moral depreciation of the fixed capital stock, and with it a huge, global release of capital. All of these realised money profits fed into money markets, causing global interest rates to enter a secular decline from 1982 onwards, and a consequent rise in global asset prices.

In the US, stock markets rose by around 1300% between 1980 and 2000, more than 4 times the rise in GDP. Stock and property markets across the globe followed suit.

In Britain, house prices quadrupled in the 1980's. No wonder, in this “loadsamoney” culture, this inflation of asset prices, seemed to amount to the creation of wealth out of thin air.

Of course, ownership of speculative assets is neither the same as ownership of productive-capital, nor the same as ownership of a durable commodity. If you own bonds or shares, for example, if the market price of those assets rise sharply, you can sell them, and simply pocket the capital gain. You don't have to buy other bonds or shares to replace them. If you own property as a speculative asset, or as a landlord, you can similarly, sell those properties, if property prices rise sharply, without needing to replace them. In both cases, you can simply bank the realised capital gains, and wait until asset prices fall again. But, that is not the case if you own a property as a durable commodity/fixed capital.

If house prices rise, as a homeowner, that is of little benefit to you, for the simple reason that if you come to sell your home, you still need somewhere to live, and so must replace it with an equally more expensive house. If you are a commercial business that owns the commercial property in which you operate, the same applies, the building constitutes a piece of fixed capital. In fact, a rise in property prices, generally operates to your disadvantage, rather than advantage. If house prices across the board double, but wages remain the same, then, the house you paid £50,000 for, when you sell it for £100,000, appears to have provided you with £50,000 for free. But, to move to a better house, means that, this better house, which previously cost £75,000, will now cost you £150,000. In reality, you will have lost £25,000, compared to had house prices not risen.

Of course, had you not been a homeowner to start with, you would have lost out even more, which is why so many people, now, cannot afford to buy a home. Yet, the bourgeois media portray any fall in asset prices as being catastrophic, despite the fact that, for the great mass of society, they would be hugely beneficial. Indeed, for industrial capital, they would be hugely beneficial too, as I have set out, elsewhere. Its not just those who cannot afford to buy a home that are adversely affected by high house prices. One solution to the inability to pay the high prices, would be, for example, for wages to rise. But, a rise in wages, means a fall in industrial profits. Many unable to buy, are led to rent, but, that leads to higher rents, which again, means either higher wages, or else higher levels of housing benefits. Those higher benefits require higher taxes, which again, reduces industrial profits.

As I've set out, elsewhere, the same is true with inflated bond and share prices, which form the basis of workers' pension funds. The delusion referred to earlier, in which money-capital is seen as the only real capital, and the interest on which is seen, not as a deduction from industrial profit, but as some kind of natural fruit of that capital, leads to the assumption that if asset prices rise, the fruit of those assets increases along with it, like a bigger plum tree, producing more plums. But, as Marx set out, interest/dividends are simply a deduction from profit, and if the mass of profit does not rise, there is no sustainable basis for interest/dividends to rise. If interest/dividends do rise, without the mass of profit rising, then, rent, tax or profit of enterprise must fall, as Marx set out in Capital III, Chapter 15.

But, unless capital is accumulated – more labour employed – the only way to increase the mass of surplus-value/industrial profit, is to raise the rate of surplus-value. In the conditions of the 1980's, and 90's, as the huge rise in productivity created large relative surplus populations, which pushed down relative wages, and also reduced the value of labour-power, and so raised the rate of surplus value that was possible. Indeed, by raising the rate of turnover of capital, it also raised the annual rate of surplus-value, and average annual rate of profit. It, also, as set out earlier, created a release of capital that appeared as a mass of realised money profit. But, that was then, and this is now. Those conditions began to change when the new long wave upswing began in 1999, just as they have done in previous long wave cycles.

Back To Part 15

Forward To Part 17

SNNS 46

 

Anti-Duhring, Part III – Socialism, I – Historical - Part 6

The failure to address that property question, indeed even to understand it, has left the working-class effectively leaderless. On the one hand, social-democracy and social-democratic parties, in the 20th century, emphasised the common interest of labour and capital. Indeed, as Marx sets out in Wage-Labour and Capital, so long as you assume the continued existence of capital, that is true. The workers interest is that of capital too, for a continued accumulation of capital, so that more labour is employed, which creates the best conditions for their wages to rise, not only from the fact of being fully employed, but also because of rising social productivity and an expansion of the range of goods and services they can consume, as Marx describes in The Civilising Mission of Capital. It also means that, as their employment expands towards full employment, their bargaining position is strengthened, so that not only do nominal and real wages rise, but also relative wages.

However, as Marx describes, in Wage-Labour and Capital, and in Capital III, Chapter 15, it is, then, precisely this rise in relative wages, whose concomitant is a fall in relative profits, i.e. a profits squeeze, as seen in the 1960's/70's, which creates a crisis of overproduction of capital. The first consequence is that the smaller, least efficient capitals, the plethora of petty bourgeois producers – whose profit margins were already below the average – go bust. To the extent they employ workers, they are laid off. The consequence is, the, also, an overproduction of commodities, even where none existed previously, because the firms that have gone bust no longer buy from their suppliers (as Marx puts it, capital itself is physically composed of commodities), and their workers no longer have wages to finance their own consumption.

So, the affluence of the workers, in these best of all conditions, turns, for many of them, into the cause of their own misery. Moreover, the underlying cause of the crisis of overproduction of capital was the shortage of labour, causing relative wages to rise, and so relative profits to fall. To respond to it, capital is led to engage in a technological revolution, to raise productivity, and to replace labour with machines. Again, that was seen in the 1970's, with the microchip revolution. Consequently, as long as capitalism continues, and so long as the working-class does not have control over its own collective property – the large-scale socialised capital – it is doomed to repeat the cycle of prosperity, full employment/boom, crisis, and unemployment.

Social-democracy, and reformist socialism/Menshevism, cannot offer any solution, therefore, but, at the other pole there are the “revolutionary” sects, who can only offer the illusion of some repeat of the Bolshevik Revolution of 1917, or worse a version of the Peasant Wars, such as that in China in 1949, of Vietnam, Cuba, and so on. All of which are based on the interests of the petty-bourgeoisie and not the industrial proletariat. But, that petty-bourgeoisie and peasantry can never form the ruling-class, because of its atomised and heterogeneous nature. It always results in chaos, crisis and Bonapartism. It can be see as a result of Brexit and Trump, today. But, the victory of Trump, Brexit and other petty-bourgeois nationalist movements is, itself, a consequence of the failure of Marxists to offer a real analysis and solution to the property question, turning themselves, simply, into more militant wings of social-democracy, and proponents of bourgeois, trades union consciousness.

Back To Part 5