Re: [Marxism] Query on Henryk Grossman

["John A Imani" <johnaimani@xxxxxxxxxxxxx>]

<<Speculative bubbles such as these hardly 
relate to increased automation of auto, etc., or any other typical 
manifestation of the organic composition of capital.>>

They most certainly do.

Grossman's thought experiment, based as it is on Marx' theory of the 
tendency of the rate of profit to decline due to the accumulation of surplus-value,
demonstrates that given certain assumptions the capitalist system proves unstable, untenable:

    "The Marxist theory of accumulation described here comprises not only a theory of breakdown 
    but also a theory of crises...I shall examine the impact of one factor alone, even if it is the decisively 
    important one - the accumulation of capital from the standpoint of crises. I shall be looking at the effects 
    of the fact that a given capital which began its first circuit as M (money capital), opens up its second 
    circuit as M' (expanded money capital)." http://www.marxists.org/archive/grossman/1929/breakdown/ch02.htm

Keynes demonstrated the same from an underconsumtionist point of view (savings findinding profitable
outlets for investment).  Grossman's (and Marx') point was from the point of view of overproducttion.  Marx 
on "Excess Capital, Excess Population":

    "At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. 
    The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, 
    credit frauds, stock swindles, and crises. http://marxists.org/archive/marx/works/1894-c3/ch15.htm

This inflation (and consequent deflation) of bubble after bubble is but ledgerdemain and sleight-of-hand.  Even bourgeois know this:

 

 

"It looks like Bernanke is going to follow in the footsteps of Alan Greenspan.I think this insanity of bubbles blown has to stop."  

Video interview of  Michael Pento with Bob Pisani on "Kudlow and Company."  8/22/2007 2:01PM EST. 

http://www.cnbc.com/id/15840232?video=480635685

 

Bubbles occur when investment can find no productive outlet.  Having no out, funds then chase perceived 'hot' properties such as stock market shares, real estate equities or, in the case of the first 'bubble' tulip bulb prices[i].

 

 Stock Market

 

"Irrational exuberance" is a phrase used by former Federal Reserve Board Chairman Alan Greenspan in a speech given at the American Enterprise Institute during the stock market boom of the 1990s. The phrase was interpreted by financial pundits as a typically cryptic warning that the market might be overvalued.

 

'Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?' [ii]

Housing 

 

"Fearing that exports and the economy would slump, the BoJ repeatedly cut interest rates.Instead of weakening, the economy took off. The government plugged its budget deficit and the stockmarket shook off the Wall Street crash of 1987. Property markets blossomed, giving the banks a wonderful new source of lending. By the end of 1989, Japanese shares accounted for half the world's stockmarket capitalisation. Land prices soared. A value was famously put on the grounds of Tokyo's Imperial Palace equal to that of California."[iii]

                                                                        

"The American housing market seems to be suffering from the unravelling of a Ponzi-type system. Subprime loans were offered on generous terms that, implicitly or explicitly, depended on rising house prices. The banks that made these loans bundled them up and sold them in the credit markets to investors, eager for high yields. This was supposed to make the financial system more secure by dispersing risk more widely. [iv]

 

The buyers of these loans are asking the original mortgage-writers to buy them back. But these homelenders do not have the money to do so. The confidence that sustained their balance sheets has evaporated, leaving many in dire trouble. 



And let us not forget the military bubble.  



Value is only created by production of use-values.  Merril Lynch, etc. cannot create value, they can only re-distribute it.  Stocks, bonds, CDOs SIVs, only serve as titles to the underlying values.  Titles whose 'prices' can fluctuate, distributing greater or lesser portions of the existing purchasing power (rights to produced values) to hither or yon.  But increase in the 'prices' these titles cannot increase the amount of value produced by labor.  And when the labor input is lessened, relative to the constant capital arrayed, so is lessened pro rata, all other things (esp rate of relative surplus-value) being equal, a smaller surplus is produced vis this huge investment leading the investors to seek higher rates of return in the speculation in and the inflation of the 'prices' of this or that bubble.



That which can forestall this inevitability is



    new inventions (new needs, wants, desires);



    new markets (commodity and labor-power); or, failing these



    destruction of the existing productive forces:



        "How is this conflict settled and the conditions restored which correspond to the "sound" operation of capitalist production? The mode of settlement is already         indicated in the very emergence of the conflict whose settlement is under discussion. It implies the withdrawal and even the partial destruction of capital..."

        Marx.  Ibid.


The bourgeoisie, through their Federal Reserve and other Central Banks, can forestall crisis but only at the sake of bigger crises.


And all of this because of the tendency of the rate of profit (in value production) to decline.  And this itself due to the increase in the productivity of labor. 



--------------------------------------------------------------------------------

[i] "The term tulip mania (alternatively tulipomania) is used metaphorically to refer to any large economic bubble. The term originally came from the period in the history of the Netherlands during which demand for tulip bulbs reached such a peak that enormous prices were charged for a single bulb. It took place in the first part of the 17th century, especially in 1636-37.  http://en.wikipedia.org/wiki/Tulip_mania

 

[ii] "The Challenge of Central Banking in a Democratic Society" speech by Greenspan.  December 5, 1996.

http://www.federalreserve.gov/boarddocs/speeches/1996/19961205.htm 

 

[iii]  "Time to Arise."  Op cit.

 

[iv] "Ponzification."  The Economist.  March 17th, 2007.  p80.

http://economist.com/finance/PrinterFriendly.cfm?story_id=8864415

 

[v] http://finance.yahoo.com/q/bc?s=%5EHGX&t=5y

 


Message: 12
Date: Wed, 19 Mar 2008 10:56:53 -0400
From: Louis Proyect <lnp3@xxxxxxxxx>
Subject: [Marxism] Query on Henryk Grossman
To: Activists and scholars in Marxist tradition
<marxism@xxxxxxxxxxxxxxxxxxx>
Message-ID: <47E129B5.30906@xxxxxxxxx>
Content-Type: text/plain; charset=ISO-8859-1; format=flowed

I am nearly finished reading Rick Kuhn's biography of the Polish 
economist and have found the chapter on his crisis theory quite 
interesting in terms of its explanation of over-accumulation, the 
organic composition of capital, falling rate of profit, etc. However, 
while reading it, I wondered how relevant Grossman (or other Marxists 
focused on the organic composition of capital) is to the current crisis, 
which does not involve an increasing organic composition of capital. It, 
like most crises since the 1950s, involve "fictitious capital" to one 
extent or another, from the savings and loan crisis to LTCM--and now the 
credit crisis on Wall Street. Speculative bubbles such as these hardly 
relate to increased automation of auto, etc., or any other typical 
manifestation of the organic composition of capital. In fact, heavy 
industry--the sector addressed by classical Marxism such as Daniel 
Guerin's "Fascism and Big  Business"--seems to play a minor role in 
economic upheavals in the advanced capitalist countries. The dot-com 
crisis was ostensibly non-financial, but the fact that it arose out of a 
disconnect with "bricks and mortars" makes it seem another exception to 
Grossman (and Mattick's) formulas.

Any thoughts?
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