http://www.marxist.com/world-capitalism-in-crisis-1.htm " Marx on fictitious capital
It is not a lack of money that causes a crisis, but on the contrary, it is the crisis that causes a lack of money. The bourgeois economists, with their banker's mentality, confuse cause with effect, appearance with essence. When the economy enters into crisis, credit dries up and people demand hard cash instead. This is the effect of the crisis, but in turn it becomes cause, pushing down demand and creating a downward spiral. The bankers and their friends in government insist that the cause of the crisis is the fact that the financial system has too little capital. This is an astonishing statement to make. For the last two decades there was a vast moneymaking carnival in which the banks made huge profits. Now they claim they do not have enough capital! Actually, there was a huge amount of loan capital in circulation during the boom and this superabundance of capital itself showed the limitations of capitalist production. These were vast sums of capital available for speculation that could not find an outlet and the bourgeois had to find other ways of using it. Marx pointed out long ago that the ideal of the bourgeois was to make money out of money, without going through the painful process of production. In the last period they appeared to have achieved this idea (except in China where there has been a real development of the productive forces). In the USA, Britain, Spain, Ireland and many other countries, the banks invested trillions in speculation, especially in the housing sector. This was the basis upon which the sub prime mortgage scandal arose and flourished, generating unimaginable amounts of fictitious capital. Already in Marx's day there were huge amounts of circulating capital; this is capital which forms the basis of fictitious capital. In those days there were credit swindles - the equivalent of derivatives today. However, when compared to the position today, all the speculation in the past pales into insignificance. The total amount of speculation on a global scale is staggering. Let us take just one example: the *credit default swap industry*. This market allows two parties to bet on the likelihood of a company defaulting on its debt. It has grown to about *$90 trillion* in notional amounts insured. *That is to say,* *probably more than double the total outstanding credit in the world*. But contracts are registered nowhere but in the books of the partners. Nobody knows the real volume of trading, which therefore exposes the world economy to a huge risk. That explains the panic on Wall Street and in the White House. They fear - correctly - that any severe shock can bring the whole unstable edifice of international finance crashing down, with unforeseen consequences. Even in the 19th century, at the height of the boom, when credit was easy and confidence was growing, most transactions were done without any real money. There is an abundance of capital at the beginning of the cycle and the rate of interest is low. The low rate of interest boosts the profits of enterprises early on in the cycle and stimulates growth. Later on the rate of interest reaches its average level during the height of prosperity. There is an increased demand for credit and therefore interest rates ought to rise at the peak of the boom. But in the last boom this did not occur. In recent years the Federal Reserve pursued a policy of deliberately keeping interest rates low (they were even negative in real terms at one stage, considering the level of inflation). This was irresponsible from an orthodox capitalist point of view. It created the housing bubble and thus laid the basis for the present crisis. But as long as vast profits were being made and investors were happy, nobody cared. They all merrily joined in this mad carnival of moneymaking. The most respectable bankers and the most learned economists joined hands and danced to the chorus of: "Eat, drink and be merry, for tomorrow we die!" The reason why they now complain they have insufficient capital is that a large part of their assets are fictitious - the result of unprecedented swindling throughout the financial sector. As long as the boom continued, nobody minded. But now that boom has turned to bust, all these assets come under scrutiny. The bankers, who yesterday were prepared to buy large amounts of debt from each other, are no longer prepared to do so. Distrust and suspicion has become general. The old easy-going optimism has been replaced by a miserly attitude to borrowing and lending. The entire banking system, upon which the circulation of capital depends, is grinding to a halt. Unless and until all the bad assets are removed, many institutions will still lack sufficient capital to extend fresh credit to the economy. Marx described this stage in the economic cycle long ago: "It is clear that there is a shortage of means of payment during a period of crisis. The convertibility of bills of exchange replaces the metamorphosis of commodities themselves, and so much more so exactly at such times the more a portion of the firms operates on pure credit. *Ignorant and mistaken bank legislation, such as that of 1844-45, can intensify this money crisis. But no kind of bank legislation can eliminate a crisis*. "In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur - a tremendous rush for means of payment - when credit suddenly ceases and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realized again. The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centres where the entire money business of the country is concentrated, like London, does this distortion become apparent; the entire process becomes incomprehensible; it is less so in centres of production." (Capital, Volume 3, Chapter 30, Money-Capital and Real Capital, I. pp. 478-9, my emphasis, AW) The capitalists must now squeeze all this fictitious capital out of the system. Like a man whose body has been poisoned, or a drug addict who is struggling against the ill effects of his addiction, they must expel the poison from the organism or perish. But this is a painful process and creates new dangers to the organism. As the system shrinks and credit dries up, the capitalists call in their debts. Those who cannot pay will go bankrupt. Unemployment grows as a result, and this in turn reduces demand, causing new bankruptcies and new debts that cannot be paid. In this way, all the factors that pushed the economy upwards in the last period turn into their opposite." ------------------------------ --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. To post to this group, send email to greenyouth@googlegroups.com To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/greenyouth?hl=en-GB -~----------~----~----~----~------~----~------~--~---
