Blame somebody for the financial crisis!

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The speech refers to Marx when it points out phases in capitalism that he predicted, other wise it is a contemporary and comprehensive analysis of what is going on. Modern Marxism like any good theory has been allowed to develop and evolve, whilst keeping true to the core ideals.

A fundamental belief in Marxism is the scientific analysis of history to help determine likely outcomes of contemporary actions, this article does this.To suggest that this report is flawed because it uses an outmoded method is ridiculous, I would suggest that for you to come to this conclusion you either have not fully read the article or have not understood it.

P.S. I am not saying that this article is sacrosanct, I am looking for criticism of its findings from an scientific economic perspective

And here the weak point starts: The current crisis is also a crisis of the currency and the idea what a currency, or money, consist of. Marx in Volume 1 of the Capital in the very start develops two different inconsistent theories; 1) Money as metal (gold); 2) Money as a good ("Ware") - MEW, Bd. 23, p. 83/84. Only a few pages further he drops this whole idea and replace it with the theory measuring the value of a good by the human labour put into the good (ibid, p. 88 ).

It was for Marx necessary to avoid a deeper investigation to this issue to develop his theory of "surplus value" - and it was possible, because he could still work with "god given money" (gold) with a clear relation with a homogeneous mass of workers. This was for the 1860s true.

Modern money is not any more "god given", but the result of the state declaring fancy pieces of paper, nearly worthless disks of base metal and numbers in a computer for money. This money can be manipulated by the state; stands and falls with the state. In 1945 the German Reichsmark was worthless, the US-Dollar not.

In the whole 15 pages the role of the modern state to create and destroy money is no where mentioned. It was not the capitalist system which created the liquidity which forms today's "toxic assets", it was the state who created this money in the first hand. The state created this money because the politicians had to win elections and it easier to create money out of the blue than to raise taxes. Therefore we had this inflation in asset prices (houses, stocks, etc.).

What happens now is healthy correction of the market - to bring the asset prices in a better correlation with the prices for consumption.

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If have a look into Marx's Capital Vol. III, where he describes the financial crises of his time, than will see that this crises were based on the problem of the amount of gold in strong rooms of the banks and the impossibility to create money (aka gold) out of nothing. (MEW, Bd. 25, p. 469/471). The current situation is absolutely different - it is created out the overproduction of money out of nothing.

The good idea to replace the restrict gold standard with a more flexible currency without severe restrictions in creating such money is the deeper cause of the credit crunch.




And this "fundamental belief" failed - it failed so drastically that the failure overshadows to many of Marx' real achievements. I do follow Marx fully when he said that we had to put Hegel's dialectic method from the head onto it's feed. To look how the production is run, where money follows and how money is created. I fully agree with Marx when he said the the mean of production, the technology, does determine the structure of society, I fully agree with Marx that we had to understand economy before can understand politics.

But: Ignoring the role the modern state plays in this game, which forces are behind the politics (mostly the single minded wish to win the next election) does not help anyway.

Firstly thankyou for your considered reply

Checking through the article again it does directly and in depth address's the Issue of fictitious capital, and the fallacious belief that somehow capitalism has extracated itself from the need to extract surplus from production

To quote the article: "In 1981 it is estimated that the US credit market was 168 percent of GDP. By 2007 it was 350 percent. Financial
assets were five times larger than GDP in 1980, but over ten times as large in 2007. Moreover this debt has been increasingly used to finance operations in the financial markets themselves, rather than to expand productive capital." (p. 5) and "In 1981 it is estimated that the US credit market was 168 percent of GDP. By 2007 it was 350 percent. Financial assets were five times larger than GDP in 1980, but over ten times as large in 2007. Moreover this debt has been increasingly used to finance operations in the financial
markets themselves, rather than to expand productive capital." (p. 10)

But where the money came from? In the old system, Marx described, this boom would had collapsed a long time ago. There would just not enough gold in the banks to fuel this. The money which fuels this game came from the government. This money did not flow into the consumer's pockets, therefore the inflation on consumer goods stayed low, but if went into the investment. It was looking for investments, and so the sum of financial asset expanded. There was the inflation on assets, because the real capital (factories, harbours, labour skills, etc) could not grow in the same way (here the term of Marx of "fictional capital" is still correct). When people say that money is burned in wars than it not really correct: the money is wasted, but still around and looking for a place. It is for a government not only the question how they spend money, but also on what. Building infrastructure, schools raises the "value" of a country, even just giving the money to people on social benefits helps, because their consumption can turn into investment and into production. Spending money on war means to pump money into the system without having any positive real effects on the economy.

The current crisis is a less a crisis of capitalism, more of governments spending money madly.

In my option it is wrong to see in a bust something bad - it is a reasonable correction by the market. It makes sense to help unemployed or people which going to loose their house or their few savings - but it is in my option fundamentally wrong to bail out any of the big companies.

Dussel the article in question gives a thorough historical explanation on how we got to the present crisis, it explains the role of governments providing liquidity, it explains the use of fictitious capital, and it explains why you cannot separate accumulation of wealth from production, as someone simply put it to me its like an inverted pyramid with production at the bottom, eventually it has to topple over, you cannot make money from money, in the short term yes but over time the bubble must burst

To suggest that capitalism would get along happily without governments is naive in the extreme, the two are intrinsically linked, if only in the role governments play in controlling the masses for the benefit of the ruling capitalist elite. I view governments like a pressure valve, their job is to keep the working classes under control, without which the excesses of capitalism would have caused major eruptions by now.

Money supply has to bear some rational relation to the goods and services produced. Creating fiat money based on debt and then (on top of that) leveraging the debt money to provide even further debt instruments creates an insupportable amount of debt, which we are finding out in the U.S., to our sorrow. Basically what the government and the banks did was to create a house of cards. It takes just one breeze to knock it down.

As to bailing out companies, it is clearly a wast of capital to bail out companies whose management has forgotten how to produce. For example: General Motors. Better to let them sell their assets to more capable producers. Letting the dinosaurs perish to make room for lively mammals leads to a sounder situation.

One thing that must perish is the notion of a Magic Money Machine that produces wealth without underlying productivity. One cannot make something from nothing. At the very least there has to be a sound idea or invention (or discovery of valuable natural resources) to bootstrap economic expansion.

ruveyn