The End of The Game

Why A General Demonetization Is Only A Question Of Time

Claus Peter Ortlieb

Still the very recurrence of crises despite all the warnings of the past, in regular intervals, forbids the idea of seeking their final causes in the recklessness of single individuals. If speculation toward the close of a given commercial period appears as the immediate forerunner of the crash, it should not be forgotten that speculation itself was engendered in the previous phases of the period, and is therefore, itself a result and an accident, instead of the final cause and the substance. The political economists who pretend to explain the regular spasms of industry and commerce by speculation, resemble the now extinct school of natural philosophers who considered fever as the true cause of all maladies.

Karl Marx: The Trade Crisis in England, 1857, MECW 15, p. 401

The vast majority of economists still seem to regard “fever as the true cause of all diseases,” even 130 years after Marx. If one follows their logic, the crisis in which we still find ourselves began in 2008 with the financial crash in the wake of the Lehman bankruptcy. The cause, according to their thinking, was a crisis in the banking system, whose financial securities became largely worthless overnight. To save the financial system from complete collapse, governments had to bail out the banks with taxpayers’ money.  The bursting of the speculative bubbles also led to a severe recession in the real economy. To combat it, in the following year alone, 2009, government stimulus programs to the tune of around 3 trillion dollars were launched worldwide, thus preventing a depression like that of the 1930s – with some regrettable exceptions in southern Europe.

Since then, we have been dealing with a “sovereign debt crisis” and a still weakening economy, and “neoliberals” and “Keynesians” are arguing about what to do in this situation. While the prevailing free-market extremist doctrine, ignoring even the history of the crisis that has been shortened to the period after 2008, believes that it must fight government debt according to the microeconomic model of the “Swabian housewife” because “we have lived beyond our means,” Keynesian macroeconomists such as Nobel laureate Paul Krugman point to their textbooks: “The upswing, not the downturn, is the right time for austerity measures. Today, governments would need to spend more money, not less, and to do so until the private sector is again able to sustain the recovery.”

Common Ground Between the Adversaries

These two opposing points of view have more in common than they might like to believe. Their similarities lie in the fact that – unlike Marx – they are not familiar with a systemic concept of crisis and can only ever see the causes of the crisis phenomena (which cannot be overlooked) in the misconduct of economic actors, which is why the way out of the crisis is only a question of time and of choosing the right means.

In the standard neoclassical textbooks, the keyword “crisis” does not appear at all. It cannot exist because, according to this doctrine, markets are always and everywhere in equilibrium, apart from short-term disturbances, and supply and demand therefore coincide; and if empirical evidence shows otherwise, this can only be due to non-market influences, which therefore have to be eliminated, a line of thought that justifies, for example, austerity policies to restore “competitiveness.”

Keynesianism, on the other hand, is acquainted with the situation of crisis, as Keynes defined it for the 1930s, as a “chronic state of subnormal activity which lasts a considerable time without clearly tending toward recovery or complete collapse.” But “thanks to the analyses of contemporary economists like Keynes and the insights of their successors, we now know what actions policymakers should have taken at the time. And these analyses also tell us what we should do in today’s crisis.” Thus, for Paul Krugman, quoted here, the crisis as a permanent condition only exists if policymakers do the wrong thing, or nothing at all, and this is precisely the main accusation he makes of German policymakers in particular in his book Forget the Crisis. It should also be noted that the justification of Keynesian measures is practically devoid of any prior determination of the causes of the crisis. Crises seem to be operational accidents, something that happens from time to time, but can be fixed using knowledge from past experience.

The lack of a systemic concept of crisis has to do with the misconception of the meaning and purpose of capitalist economic activity, as propagated, for example, in the introductions to economics textbooks. There, capitalism is not mentioned, but it is stated that from the Stone Age to the present day, the goal of the economy has been the provision and consumption of goods, which are unfortunately in short supply, and it is for that reason that not everyone can have everything they want. Nowadays, every child knows that it is not the goods that are scarce, but only the money needed to acquire them, and that the purpose of all capitalist economic activity is exclusively to turn money into more money, while the satisfaction of needs is at best a welcome, though not always achievable, side effect. Only economists are ignorant of this fact. In this respect, economics can be understood as an attempt to systematically drive this knowledge out of its students, which has already made many an entrepreneur lament that they should read Marx, who after all knew how capitalism works.

The Systemic Concept of Crisis in Marx

It is left to the Marxian critique of political economy alone to make capitalism recognizable as a mode of production with two forms of wealth: In addition to concrete material wealth, as all social formations have known it, in capitalism there is a second, abstract and dominant form of wealth, expressed in money, measured in labor time, “value” in Marx’s terms. The goal of capital valorization is the multiplication of abstract wealth, whether with the production of bombs or children’s shoes is irrelevant, but the production of material wealth cannot simply be dispensed with. However, it is only a side effect and not the purpose of the activity, which consists solely in the production of surplus value. Political economy before Marx and political economy after him simply identified these two forms of wealth as “wealth par excellence” and thus missed the particular historical specificity of the capitalist mode of production. In particular, they were blind to the crises associated with this mode of production.

The systemic concept of crisis developed by Marx is based, in short, on the fact that the two capitalist forms of wealth can, and do, come into contradiction with each other again and again and to an ever-increasing degree. Since the increase of abstract wealth requires the production and sale of material wealth, successful capital valorization and accumulation presupposes the constant expansion of material production and consumer markets. As soon as the growing and in principle unlimited supply of commodities is confronted with only a limited solvent demand, the valorization process enters a crisis. The consequences are overproduction, i.e. unsellable goods, and over-accumulation, i.e. capacities that can no longer be valorized, mass layoffs, shutdown of production capacities and finally the flight of capital that can no longer be valorized into speculation.

These crises, which occur again and again in the history of capitalism, are not the return of the same thing over and over again; rather, with growing productivity, the two forms of wealth move further and further apart, which Marx characterizes as a “moving contradiction”: “Capital itself is the moving contradiction, [in] that it presses to reduce labor time to a minimum, while it posits labor time, on the other side, as the sole measure and source of wealth” (Grundrisse, 706, translation amended). Capital requires the valorization of labor while at the same time it gradually removes labor from the production process, thus destroying its own basis. Because labor time is the measure of value, the growing productivity has the consequence that, in order to achieve the same abstract wealth, an ever greater material output must be produced and sold. The crises thus increase in space and time and intensify: “Capitalist production continually strives to overcome these immanent barriers, but it overcomes them only by means that set up the barriers afresh and on a more powerful scale. The true barrier to capitalist production is capital itself” (Karl Marx: Capital: Volume III, 358).

The Long-Term Causes of The Crisis

Capital was able to satisfy the compulsion to expand resulting from the boundlessness of abstract wealth on a large scale for the last time in the period of the Fordist boom after World War 2, the “golden age of capitalism” (Eric Hobsbawm) and, at the same time, of Keynesianism. Fordism was based on mass industrial labor on the assembly line and mass consumption and presupposed a corresponding increase in real wages and the expansion of social security systems, as well as state investment in infrastructure and the education system. During this expansionary phase, economic fluctuations could indeed be balanced out by government stimulus programs (“global control” and “concerted action” in the FRG), and it is from this period that the Keynesian textbook recipes draw their justification.

That time has passed. As early as the 1970s, the Fordist boom reached its limits – due in part to the strong growth of productivity – against which Keynesian economic policy proved powerless. The phase of “stagflation” followed: government stimulus programs were no longer able to trigger self-sustaining capital accumulation, but only led to high inflation rates, which in some cases were in the double-digits. Those who, like Krugman, propagate a relaunch of such programs as a way out of the crisis should first and foremost deal with the failure of Keynesianism at the time. For it is here – and not in 2008 – that the origins of the current crisis lie.

Neoliberalism was the answer to this failure, a reaction to the crisis of the real economy with the aim of allowing the generation of profits to continue, even though the real capitalist basis for it began to shrink. One component was the deregulation of the financial sector and thus the expansion of the possibilities for credit-based money creation. It is part of the normal crisis roadmap that already realized profits, in the absence of real investment opportunities, flow into the financial markets and fuel speculation there. Neoliberalism, however, has elevated this crisis-postponing evasion to a program and thus created the illusion of the new mode of regulation, of a “finance-driven capitalism.” The independence of finance capital has always been a symptom of capitalist crises, but never their cause. What is special about the current crisis, which has been going on for almost forty years, is the spatial and temporal scale in which this process is taking place. Historically unprecedented, for example, is the deindustrialization of entire economies – like that of Great Britain under Margaret Thatcher – in favor of the new financial “industry.”

Contrary to its own monetarist doctrine, neoliberalism was, in this respect, a continuation of Keynesianism by other means, namely at the private level. The state was replaced by private lenders, who also financed the real economy through loans and thus kept it going. By shifting large amounts of money from mass consumption to the financial sector, inflation disappeared at the same time; more precisely, it shifted from the consumer goods to the stock and real estate markets (asset inflation), a thoroughly welcome effect, because the owners of the corresponding property titles could count on it to make them rich.

The “most gigantic credit-financed economic stimulus program that has ever existed” (Meinhard Miegel), ultimately the financing of credit by new credit, can of course no more be sustained in the long term than an attempt to generate wealth by chain mail. As a result, global monetary and fixed assets have increased twenty-fold in the last thirty years as if by magic, but without being matched by a corresponding increase in real values. Even the bursting of a small part of these bubbles was enough in 2008 to drive the banking system into a near total collapse, from which it could only be saved by the intervention of the states, which have since been struggling with their own debt crisis and a more or less severe recession.

Tinkering with The Consequences of The Crisis

Because of the unimaginable size of the accumulated money supply, which has been further inflated by the zero-interest rate policy of the central banks, a general demonetization is only a matter of time. The Keynesian argument that all this money apparently does not lead to inflation is likely to prove deceptive. There is no danger of inflation only as long as this money is circling self-sufficiently in financial heaven. As soon as it turns to earthly things, however, it fuels inflation there. This has already been observed on commodity and food markets, as well as on various real estate and housing markets, as a result of which rents in major German cities have recently become unaffordable for many of those affected.

In view of this situation, the proposed countermeasures, if they are really intended as a way out of the crisis, seem strangely unreal. Both sides fail to recognize that for almost forty years the real economy has been kept going only by creating debt. Austerity policies that seek to end this must necessarily lead to depression. Keynesian stimulus programs, on the other hand, amount to a mere continuation of debt policy ad infinitum, because the private sector will never again be able to sustain the upswing.

In the last forty years of crisis (measured as gross value added per hour worked according to German data from the Federal Statistical Office), productivity in industry has tripled once again, and in agriculture it has even increased six-fold. For the production of material wealth, labor becomes more and more unnecessary, and the real surplus value production based on the exploitation of labor thus becomes an impossibility. The inability of the capitalist mode of production to deal with the possibility of a life without labor that appears here is shown, for example, by the fact that, for the sake of the phantasm of “competitiveness,” the siesta is now slated to be abolished in southern Europe, with the Protestant work ethic finally due to be introduced instead.

The exit from the crisis is only possible by overcoming the abstract form of wealth and thus the capitalist mode of production, which would have to be replaced by some kid of social organization that was based solely on material wealth. As long as such a perspective is unrealistic, i.e., as long as we really only seem to have the choice between austerity measures and Keynesian stimulus programs, the latter is admittedly to be preferred. The neoliberal austerity policy amounts to sacrificing the ever increasing number of people who are no longer “systemically relevant” because they have become superfluous to capital valorization in order to maintain a system that has become unsustainable. The Keynesian programs also have the illusory goal of saving the system, but they pursue it in a more compatible way, because they do not completely lose sight of the aspect of material wealth production.

But such programs could possibly be a little more intelligent than they have been up to now: Since the last forty years have been very detrimental to the public infrastructure, the last of the money could be spent wisely on its partial restoration, as well as on the run-down social security systems. But please, no more “scrappage premiums”; after all, there is also the ecological crisis. But that’s a discussion for another time.

Originally published in KONKRET in 08/13

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