Wednesday, 11 January 2017

Adam Posen Comment Shows Why Orthodox Economists Are Lost

I was just watching Bloomberg briefly and saw former Bank of England MPC member Adam Posen make a comment that illustrates why orthodox economists really do not have a clue about what is going on.

The discussion was about the end of the bond bubble, and a debate on that between the old bond king Bill Gross and the new bond king, Jeffrey Gundlach.  According to Gundlach it will be a sign that the thirty year bond bubble has burst if the US 10 year Yield rises above 3%.  Gross argues that it will be over when the Yield closes above 2.6%.

One of the Bloomberg journalists then said, but if investors sell both bonds and shares where will they go.  Posen agreed with this comment implying that there is a limit to the extent to which bond and share prices can fall, and yields rise, because the only options for "investment" that he can see or understand, are "investments" in either bonds or shares.

This, in fact, mirrors the discussions of and ideas of bankers detailed by Marx in Capital III.  As Marx describes, in the minds of these bankers the only real form of capital is money-capital, and the only real capitalists are the owners and lenders of that money-capital.  So, for Posen, it appears, it is only this money-capital that comprises capital, and it is only the "investment" of this money-capital in the purchase of fictitious capital, of paper assets such as bonds and shares that constitutes investment.

But, in fact, this investment in these paper assets is not investment of capital.  In many cases, it is speculation pure and simple, an attempt not even to obtain a revenue, but simply to obtain a capital gain.  That is quite clearly the case with high frequency trading where bonds and shares are bought and sold many times per second.

Moreover, the idea that the owners of this fictitious capital have only the choice of holding it either as bonds or shares is clearly fallacious.  For one thing, an owner of bonds or shares, could sell them, and use the proceeds to buy land from which to obtain rent.  But, here is the outrageous suggestion that apparently never entered Posen's head, which is that the owners of fictitious capital could actually sell their bonds and shares, and yes they could also sell any land they own, or works of art, fine wines, vintage cars and so on bought for the purposes of speculation for capital gain, and then use the proceeds as real capital.

In other words, from the proceeds of those sales they could actually set up an actual business; they could use the proceeds to buy a factory building, to purchase machines to put in the factory; to buy materials to be processed by the machines, and to employ labour-power, which would operate the machines and turn the material into usable commodities.

The idea that actual capitalism, and real capital is about engaging in such activity, producing real wealth and creating surplus value, so as to be able to accumulate additional real capital is never considered by many orthodox economists like Posen because they are entranced by the endless paper chase of financial capitalism.

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