A comment from Andrew Kliman

As the author of the article that Andrew Chitty links to in his post of 7 October, let me say that I realize that it doesn’t provide a really theoretical explanation of the conditions (fundamental causes, etc.) that have led to this crisis. I have some thoughts about that (see below), but this article had a different purpose. (It was written on Aug. 23, when I still had to begin by trying to convince readers that the crisis is a very serious one. Unless and until that’s commonplace, as it is now, there isn’t much use exploring fundamental causes.)

I guess that whether one finds the article disappointing or not depends on the kind of explanation one wants. Over at Radical Perspectives on the Crisis, they seem to like the fact that the article “eschews long historical narratives and investigations of the complexity of contemporary finance in favor of clear description of how the crisis came about.” Personally, I think that both kinds of explanations are needed.

As for the longer-term conditions that have given rise to the crisis, my view is basically this: The world economy has never fully recovered from the crisis of the 1970s – not in the way in which the destruction of capital in and through the Great Depression and WWII led to a post-war boom. That’s largely because of an understandable fear of having a repeat of the Great Depression. So there’s been a partial recovery only, brought about largely through:

(1) declining real wages for most workers and other austerity measures, as well as exporting the crisis into the 3d world, and

(2) a mountain of debt – mortgage, consumer, government, corporate – to paper over the sluggishness and mitigate the effects of the declining real wages.

Thus there have been persistent debt crises, and these will continue until:

(a) sufficient capital is destroyed (in value terms and physically) to once again make investment truly profitable – the present crisis may well end up being this moment, or

(b) there’s such a panic (“liquidity lock,” as a Fed official recently called it) that lending stops and the economy crashes, ushering in chaos or fascism or warlordism or whatever, or

(c) capitalism is replaced by a new human, socialist society.

Bubbles are thus, according to the above, an inevitable result of efforts to “grow the economy” faster than is warranted by the underlying flow of new value generated in production. The more sophisticated and widespread the credit markets, the greater is the degree to which “forced expansion” (Marx) can take place, but also the greater the degree of ultimate contraction when the law of value eventually makes its presence felt. It’s like a rubber band stretching and snapping back.

A fuller theoretical treatment can be found in:

Andrew Kliman, 2003. “Value Production and Economic Crisis: A temporal analysis.” In Westra, Richard and Alan Zuege (eds.), Value and the World Economy Today, London and New York: Palgrave Macmillan, 119-36.

Andrew Kliman
akliman@pace.edu