Blowing Bubbles
In previous times in capitalism's history, as with the bubbles alluded to previously, or, as with the 1929 crash, when the contradiction has manifested itself, and the bubbles have burst, they remained burst. In October 1866, there was an earlier “Black Friday”, when Britain's largest discount house, Overend Gurney, went bust, as the Bank of England began raising rates. But, unlike Northern Rock, and some of the other experiences of financial crashes in more recent times, its demise represented the end of the process. A Bank of England research note on the affair explains why,
“its primary business was bill broking. It did very little screening of its borrowers… meaning that it lent to very few productive firms, meaning that the direct loss to the real economy of its failure was small.”
As described previously, in the financial crash of 1847, as soon as the credit crunch caused by the 1844 Bank Act was alleviated, by the act's suspension, the economy quickly reverted to its previous boom. A similar thing happened in 1857. In neither case did it result in asset prices being inflated to their previous levels, because although liquidity was provided to end the credit crunch, it did not extend beyond that, as has happened with every financial crash in the last 30 years. Similarly, as I've pointed out in the past, the idea that the 1930's Depression resulted from the 1929 Wall Street Crash is false. Europe had gone into depression in the early 1920's. The US continued to grow rapidly in the 1920's, after an initial recession, after the end of WWI, when European economies began to produce commodities for themselves rather than importing them from the US. But, by the later 20's, the much greater productivity of the US economy meant that it was able to increase output, and export it across the globe. It brought in gold, which led to rising US inflation, as it was required to increase its money supply accordingly, which led into the rise in the stock market. But, by the end of the 1920's, the US was increasingly overproducing. In other words, the Depression was already underway in Europe, nearly ten years before the crash, and the seeds of the Depression were already germinating in the US before the crash.
The reason that the economy in the 1930's did not recover quickly as it had done in 1847 and 1857, after those financial crashes is quite simply that the underlying economic conditions, the conjuncture of the long wave was different. In 1847, a new long wave boom had just begun, it was still in place in 1857. So, what were financial crises remained essentially financial crises, despite an immediate effect on the real economy. In 1929, it was a period of long wave stagnation. That phase, having started, in Europe, in the early/mid 1920's, was coming to an end by the mid/late 1930's. As I've set out before, it was apparent in the new industries in car production, domestic appliances, and petrochemicals that sprang up in the UK in the Midlands and South-East, in the mid 1930's. The extent to which the UK was behind the US, in that respect can be seen in relation to car ownership. By the end of the 1920's, roughly 60% of American families owned a car. In the UK, by comparison, the figure was still below 20% as late as 1938. But, the difference between the 1929 crash, and what has happened in the last 30 years, is illustrated by the fact that it took 25 years for the Dow Jones to get back to its pre 1929 crash level, even in nominal, i.e. non-inflation adjusted terms. By comparison, the Dow today stands at nearly double its 2007 bubble high level.
As Marx says, the bursting of such bubbles should have no real impact on the real economy, because they represent only a transfer of wealth from the hands of one group of speculators into those of another. But, the situation in the last thirty years has been different, precisely because although socialised capital is the dominant form of capital, the vast majority of privately owned wealth is in the form of fictitious capital, and it is the protection of that wealth that the ruling class has sought to achieve. When share and bond prices fall, leading to capital losses, yields rise, and vice versa, and the same applies to rents, when property prices fall. What the sequence of financial and property market crashes of the last thirty years has brought about, as asset prices were reflated, is a shift in the total returns obtained from those assets away from yield and towards capital gains. That is unique in the history of capitalism. It represents a period in which capitalism has been dominated and driven by a form of property – fictitious capital – which, in itself, is in contradiction with, and hostile to the interests of capital. Where previously, as Marx described in Capital I, it was the monopoly of private capital that acted as a fetter on the further development of capital, over the last thirty years, it has been the monopoly of fictitious capital, in the hands of the top 0.01%, and their ability to shape the law so as to enable them to exercise control over property they do not own, which has acted as a fetter on the further development of capital.
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