We are not yet at the stage of the cycle equivalent to the 1970's, i.e. a crisis of overproduction of capital. Over the last 40 years, central banks have inflated the currency supply, not to provide support for profits against rising relative wages, via rising prices, but to provide a safety net for asset prices, first following the asset price crash of 1987. As Money-capital was terribly devalued, in the way Marx described, because of the delusion that money-capital could simply produce interest/dividends out of thin air, so too the manifestation of that, in the form of crashes in asset prices had to be countered by a devaluation of the standard of prices. In addition, in a world of sharply rising productivity, which caused the value of commodities to fall significantly, from the 1980's on, it acted to prevent actual falls in the prices of commodities, which risk creating damaging price wars amongst large-scale producers.
But, we are at a stage, equivalent to the early 1960's, in which a period of intensive capital accumulation, after WWII, with rising productivity, came to an end, and a period of extensive accumulation, with slower productivity growth began. Today, in western economies, the large rise in the size of the petty-bourgeoisie, which is different to the conditions in the early 1960's, means that productivity growth was already sluggish, because this petty-bourgeoisie, with its pygmy capital is, by definition, inefficient. It is, however, one source for large-scale capital, in the period ahead, to ease some of its labour supply issues, as the historical trend of the petty-bourgeoisie being driven out of business and into the ranks of wage-workers resumes. Its why the petty-bourgeois, small business agendas of the likes of the Tories, Reform and Blue Labour are doomed to fail.
Lockdowns and the subsequent inflation of the currency supply used to cover the reckless hand out of replacement incomes to households, as I said at the time, marked a turning point. The inflation of the currency supply to boost asset prices, then became an inflation of commodity prices, and so, necessarily of wages. The effects of the ending of the process of globalisation as the protectionists of Trump, Reform, Blue Labour took office, inevitably caused productivity growth to slow even more, or even go into reverse. The rate of turnover of capital was reduced, so reducing the annual rate of profit, globally. Costs of circulation rose, cutting the growth of profits. The most obvious example is Trump's use of tariffs, which has imposed huge costs on the US economy, and on the profits of US companies.
At the same time, decades of austerity have left the infrastructure of many economies in the developed world in tatters, which itself imposes a drag on productivity compared to the newly industrialising economies in China, India and other parts of Asia, for example, where, brand new infrastructure is arising alongside other capital investment. As I have noted for some time, the main imperialist competitor to the US is the EU, and that is now manifest. The EU has more objective reasons to orient towards the other major imperialist bloc, which is Eurasia.
The world is divided into these three competing imperialist blocs of North America, the EU and Eurasia. Rachel Reeves can bleat all she likes, at Davos, that the UK is not there to be buffeted around, but the reality is that the UK is an irrelevance in the current world. Its survival depends upon being inside the EU imperialist bloc, and its vain attempts to continue its alliance with US imperialism, 3000 miles away across the Atlantic is not only doomed but is counterproductive, because it only isolates it from its allies in the EU.
The EU has already recognised that it must respond, and part of that response involves not just military spending, but also large-scale infrastructure modernisation, and real capital accumulation of the kind that only newly industrialising economies have pursued over the last 40 years. The EU spends more than 60% of its arms budgets on US produced weapons. It relies on US technology in almost every sphere, and that has hindered its own technological development, in every sphere. An independent EU arms industry, energy industry, space industry, computer industry and so on, will require large amounts of spending on R&D, and on an extensive accumulation of real industrial capital. That means that interest rates will rise. A reflection of that is already seen with the rise in Japanese interest rates, and bond yields. The corollary is falling asset prices, which means that central banks will again inflate currency supply to try to bolster those asset prices. If Trump succeeds in gaining control of the Fed, that process will be brought forward and intensified.
But, the other changes noted above, compared to the last 40 years, means that any such increase in liquidity will also simply feed through into higher commodity prices, including higher wages. Central banks will again try to protect profits by increasing liquidity to raise prices, but these are not the conditions of the last 30-40 years.
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