The Banana Monarchy & Voodoo Economics - Part 4 of 9

As I have set out previously, this is not the 1970's or 1980's, but more like the late 1950's, and early 1960's. As then, we face relative labour shortages, as the productivity effects of the last Innovation Cycle, which peaked in 1985, wane, wages tend to rise, and wage share rises, and profit share declines. The underlying increase in aggregate demand from rising wage share, and demand for wage goods, means that capitals must continue to accumulate, or each loses market share, in conditions where profits, and profit margins, are still historically high, and so, where loss of market share translates immediately into a loss of profit share. A continued demand for capital, in conditions of decreased profit share, means higher interest rates, and higher interest rates means lower asset prices.

But, the ruling class owns all its wealth in the form of these assets – fictitious capital – and its concern, in the last 30 years, more or less from the 1987 crash, has been to defend those asset prices, and to seek rises in them, to produce realisable capital gains, rather than a concern for revenues from them, the more so as yields on assets fell as asset prices rose. It is the thing that has been the biggest driver of liquidity out of the real economy and into the fictitious economy over the last 40 years. The lesson they learned from 1987, was that the crash in asset prices could be reversed, by central banks destroying the real economy and the currency, by printing money tokens, and injecting endless amounts of liquidity so that worthless paper assets could be bought up.

Given that correlation, today's Brexitory stimulus is more like that of Tory Chancellor, Reginald Maudling, in 1963, than that of Anthony Barber in 1972, to which media pundits have referred. Both led to inflationary bubbles that burst, and both preceded the defeat of Tory governments that left a mess for incoming Labour governments to clear up, at the expense of workers. The boom created in 1963, fed into conditions like those of today, of a period of long wave expansion, but promoted financial and property speculation, along with unproductive consumption rather than any additional productive investment, over and above what was being generated by the long wave itself. 

As with the US twin deficits, a lack of additional productive investment, in conditions of a still creaky British capitalism, outside the EEC, the 1963 boom, simply led to increased borrowing and an increased trade deficit. That was pointed out by Wilson and Callaghan at the time, along with its effect on the instability of the Pound. Maudling himself was to later admit to that, in his 1964 budget, but, in an election year, he did nothing to reverse it.

In 1972, Barber's budget came at a time when the period of long wave uptrend was turning into downtrend, and manifest in the period of crises that followed 1974, and ran through into the period of stagnation of the 1980's and 90's. The Barber Boom again inflated asset prices, but did nothing to encourage additional productive investment, in conditions of crisis, and where capitals saw any period of relief from either fiscal or monetary measures to simply raise market prices, and to pocket additional revenues from profits, interest/dividends, and rents, rather than reinvest them. Property and other asset prices rose on the back of it, only for the bubble to burst in 1974.

An expansionary fiscal stance in the 1960's, such as proposed by Wilson's “White Heat of Technology”, still had some hope of success, precisely because it was in a period of long wave uptrend, and an expanding economy that could absorb the increased spending from the increased tax revenues produced by an expanding economy. Unlike Reagan and the Brexitories, however, it was a progressive social-democratic strategy of encouraging actual investment by the state, not simply handing tax cuts to the rich, in the hope they would use them productively.

But, again, precisely because of the time and conditions, firms had no overriding incentive to invest in large amounts of technological development and innovation, because although the relative surplus population was no longer expanding, it was not yet squeezing profits via higher wages significantly. Only in the 1970's, as Glyn and Sutcliffe et al have shown, does the growth of wage share reach the point where a crisis of overproduction of capital arises, giving precisely the required incentive for technological innovation, and the replacement of labour.

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