Capitalism in Crisis? 86

I am not blogging about the EU summit. It is pointless. It will of course produce a communique to reassure the markets. It makes no difference.

The economic system in which most of our readers live is little to do with capitalism. The value of goods traded is an insignificant fraction of the flow of funds around the world, much of which relates to either bets on the future values of goods, or bets on the consequences of the vectors of financial flows of which the bets themselves are a part.

The whole edifice is based not on a market for exchange of goods and concrete services, but on an astonishing matrix of state enforced legal instruments creating an extraordinary pile of paper money produced by states, but ultimately worth nothing real. This legal framework was designed to shift the great bulk of this wealth from people who actually work for a living to a small financial elite, most (but not all) of whom create little or nothing real.

If the state compelled everyone to play a pyramid scheme, then you could keep it going for decades. As the system started to reach inevitable collapse, the state moved in with bank bailouts and quantitive easing, both of which simply moved yet more money from ordinary people to the super-rich. In fact the last three years have seen the biggest transfer of resources from poor to rich in human history.

It cannot last, and whether it is Greece or Italy or Spain which is this week’s fashionable media focus is irrelevant. In making these vast levied and leveraged transfers of resources from poor to rich, states have exhausted the capacity of their people to actually pay them. That is true all over Europe, the UK and US. The currency crises are a tiny symptom of a very large impending crash.

That is why I am not blogging about today’s EU meeting or a specific statement of the US Federal Bank Chairman. They are all pissing into the wind that is shortly to be a tornado. I expect before I die I will see a genuine social revolution. I expect that, as always happens, middle class liberals like me will start by being elated by it, and end up being shot by those who seize on the change, to take their turn to use the power of the state to corner resources for themselves.

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86 thoughts on “Capitalism in Crisis?

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  • mary

    Moneylenders 1 Caring Humanitarian 0
    St Paul’s chancellor Canon Dr Giles Fraser ‘to resign’
    Canon Dr Giles Fraser was appointed St Paul’s canon chancellor in May 2009
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    The chancellor of St Paul’s Cathedral is to step down from his post, the BBC understands.
    Canon Dr Giles Fraser, who has been sympathetic to the protest camp outside the London landmark, is expected to announce his resignation within days.
    Differences over the handling of the protest are thought to have prompted his decision, says the BBC’s religious affairs correspondent Robert Pigott.

  • Komodo

    OT Max Keiser is given 24hrs to
    fix the global financial system,
    what’s the first thing he does?
    MK Raise the ‘margin rate’
    charged to speculators to borrow
    and speculate with until the
    global derivatives outstanding is
    reduced by 90%. This is actually
    the only thing you have to do to
    fix the system. The speculators
    would have to reduce their
    speculative positions and the
    threat of collapse and bailouts
    goes away. The Bank of England
    and the Federal Reserve both have
    the power to do this, they don’t
    because they are at the service of
    the speculators.

  • TFS

    What with all the police action against the protesters in American, you gotta wonder when NATO/UN will invade Uncle Sams country to protect the rights it citizens to protest under the constitution?

  • conjunction

    I am in agreement with Craig’s post, except for the last paragraph.
    The amount of money invested in derivatives, which are basically gambles about other financial products, is approximately ten times the entire global product.
    The deregulation of capital is the biggest problem we have, bigger than climate change, because it concentrates all power in the hands of those only interested in money, and thereby prevents the solution of other problems.
    Marx’s analysis of the evils of capitalism was spot on. However his projected solution wasn’t.
    Marx wrote at a time when the economic sector was undergoing a gigantic revolution, prompted by the industrial revolution. This swept away the hegemony of the old spiritual/ethical world view in which God was in his heaven and all was right with the world, which was only a sexist derivative of world views which had pertained all over the world for thousands of years.
    In its place was the rule of capital.
    Max Keiser is of course right, it should be so simple to put things right. But to implement such a policy and to sustain any improvements we need a fundamental reorientation.
    The answer is not to boot out capitalism but to reform it. Capitalists ought to be allowed to store up capital, as long as it used for general benefit. They should not be allowed to gamble with values people’s well-being depends on and the state should ensure measures of equality of rights.
    It is interesting that Craig’s other post today is about Canon Fraser, who is a hero, and it is interesting that a Christian hero should be in the news.
    I do not think of myself as a Christian, but the two thinkers who I think have much to contribute to a new understanding of economic life were both Christians, and they are Rudolf Steiner and Martin Luther King, who agreed on many points.
    They both accepted the analysis of Marx, but not the solutions. Steiner argued the importance of preventing the economic sphere from interfering with people’s rights, and preventing the state from interfering with education and religion.

    It is interesting that the greatest revolutionary of the last two thousand years, or at least a candidate for the title, Oliver Cromwell, did everything he could along with Milton to promote freedom of religion, but the overwhelming majority of his supporters had no interest in such an idea.

  • Rhisiart Gwilym

    Yes but Guest, as Nicole Foss keeps pointing out:

    In the matter of closeness in time, they hit in this order:

    1) Global financial armageddon
    2) Global Resources running out
    3) Climate change

    And as Nicole says, people always deal with the immediate catastrophe to the neglect of the much bigger but slightly less immediate ones.

  • gary smith

    `fiat money` is only worth a politicians promise, no literal value. there is another business worth $1-2 trillion per year that is based on a physical commodity, drugs. have a read of
    quite disturbing. we have a visible layer of government and an invisible layer, same for corporations and the same for the illegal drug industry. when violence breaks out people will look to the state for protection, as evidenced by the nationwide street parties in august – beholden to them once again. i dont think the people have a chance, in fact it is grossly naive to think otherwise, against the triad of government, corporation and organised crime. i suspect the people, myself included will be reduced to surviving literally from day to day. real revolution unfortunately involves violence and i dont have a gun. maybe i should get hold of one before prices go through the roof. last i heard a mach 10 was £3000 and bullets were not included. ahh nostalgia for the days of the ira selling ak47`s for £500. with this kind of chaos looming on the horizon the people will be grateful for the fascist state.

  • Wiz

    Capitalism has swept the world, especially in places that previously embraced socialism. It works in conjunction with human nature, and is in harmony with it. It has always struck me as strange that people who are prepared to assert their own greed in a ruthless fashion are so unusual. But they exist, and they are currently running the world. Craig’s analysis is compelling, but it is likely shared by the extrovertedly greedy One Per Cent elite. I would not bet on that elite being shot come the revolution, but it is at least possible that they are at the controls of a juggernaut they no longer control. What is happening in Brussels as I write is a massive exercise to protect the banks. It has nothing to do with nation states and it certainly has nothing to do with Greece. The people have not loaned money to people who could not repay. Banks have. The bail-out is in the name of the people, but the crisis has had nothing to do with the people. And the conflab in Brussels has had everything to do with Spain and Italy, and in particular keeping Euros in Spanish and Italian banks. The elite, no more than the rest of us, could not survive a pan-continental banking crash. But it seems probable that the current deal is going to last a few months only. It will be interesting to see how much longer Germany is going to be happy to be bailing out the banks of other countries. The day that it stops is the day the elite are swept away, along with the rest of us. There may well be a middle-class and quite polite revolution. We might all suddenly vote Green.

  • orkneylad

    The plans to leverage the euro backstop fund are clearly insane, and use pretty much the same ‘derivative instruments’ that created the 2007-08 crunch in the first place.

    These ‘instruments’ require impressive GROWTH to work, hence a Europe with no/low growth will bust the model, and then we’ll require deleveraging [again] at which point the new EFSF debt guarantees will blow the whole stinking chamberpot to pieces…..

  • ingo

    When you hear Ms. Lagarde talking, Wiz, how she is speaking of having values for everything in this compelling four parter by Al Jazeera and CBC, then we are not far off of adopting a more greener agenda. I just watched part 4 and thought that it rather fits with Craigs points. It also has a comment by DSK on a very uncertain European future

    Someone at the end made a point of the next bubbles bursting, apparently China has 65 million unoccupied apartments, the tip of a real estate bubble of unknown proportions. who exactly is regulating Asian markets? who is to say that these criminal mistakes done to our economies, will not be replicated in another more volatile and active economic zone?

  • conjunction

    Gary Smith, thanks for the link. I haven’t yet read every word, but it makes a lot more sense than most other conspiracy theories.

  • Daniel

    @ Conjunction

    You wrote:

    “Marx’s analysis of the evils of capitalism was spot on. However his projected solution wasn’t.”

    Marx didn’t offer a projected solution rather a philosophical template or a guide to action at the centre of which is democratic workers control of the means of production.: “The emancipation of the working class is conquered by the working class themselves”. This idea of the self-emancipation of the working class is at the heart of Marx’s thought.

    The old-style Stalinist interpretations of Marx – ie vertical impositions of the centre – are not a feasible alternatives to capitalism. However, decentralized, horizontal relationships among producers and consumers, are.

    Pat Devine has developed a “model of democratic planning entirely consistent with Marx… which planning takes the form of a political process of negotiated coordination, with decisions being made, directly or indirectly, by those who are affected by them.”

    (P. Devine, ‘Democracy and Economic Planning, Cambridge, 1988, p.189)

  • Daniel

    @ Wiz: You wrote:

    “Capitalism has swept the world, especially in places that previously embraced socialism. It works in conjunction with human nature, and is in harmony with it.”

    This is absolute nonsense. Whilst it’s true capitalism has swept the vast majority of the world, there still remain pockets of the world where capitalism has not reached. You are on even flimsier ground with your assertion that capitalism is somehow consistent to human nature. For approximately 145,000 years human beings lived in what Marx called ‘primitive communist’ hunter gatherer societies. Class society only emerged 5,000 years ago and capitalism as a form of class society some 250 years ago.

  • conjunction

    You say that Marx offered
    ‘A philosophical template or a guide to action at the centre of which is democratic workers control of the means of production.’
    That is my understanding too. He wanted workers to take control of the means of production, and believed that initially this would involve a ‘dictatorship’ of the proletariat’, which is what Lenin introduced in Russia.
    What Steiner and others believed is that for the workers to take over the state doesn’t solve the problem, the problem being that the economic sphere of life is dominant.
    Prior to the industrial revolution this was not the case. Religion and education had their own influence and government was by the monarch or in the case of the UK monarch and parliament.
    The industrial revolution led to the domination of capital, and Marxism substitutes a dictatorship of the workers. Here the Marxian dialectic breaks down as Sartre noted, a kind of stasis intervenes as occurred in Russia.
    What is needed is the retention of the capitalist system subject to a system of checks from the state which are based on a theory of human rights which have their own sovereignty which cannot be touched by economic influences.

  • Daniel

    Conjunction, I disagree with your prognosis. The patient is terminally ill and is beyond reform. I also disagree with Satre. Neither capitalism or socialism are illustrative of the end of history.

    ‘Dictatorship of the proletariat’ is widely misunderstood. Marx saw the D of the P as “temporary”, the “necessary transit point” between capitalism and a classless communist society. Moreover, Marx and Engels believed that the state was first and foremost an instrument of coercion, “special bodies of armed men” as Lenin succinctly put it.

    In this respect, the D of the P would be no different from any previous form of state, since all were based on coercion, and would not necessarily be any more arbitary or repressive than its predecessors.

    The main distinguishing feature of the D of the P was that it was precisely “the proletariat organised as the ruling class.”

  • Guest

    “And as Nicole says, people always deal with the immediate catastrophe to the neglect of the much bigger but slightly less immediate ones.”
    Rhisiart Gwilym, I would put to you that “Climate change” may well have gone beyond “immediate”, it is by far more important then “Global financial armageddon”. Soon, we may be calling “Climate change”…Global armageddon.

  • Komodo

    1. Too many people.
    2. Too many greedy people.

    Address those, and the other issues fall into place.

  • Guest

    “Capitalism in Crisis?”
    Glad you put a question mark at the end of that.
    “Crisis?”, what “Crisis?”, capitalism is in a state of total utopian euphoria, it is doing what it set out to do, what it was designed to do, make the rich richer and the poor poorer.
    It has and will remain the only system mankind will live by, regardless of the death, mayhem and total misery it brings to the whole of humanity. What right does anyone have to in anyway criticise a system that so many keep on voting for, and will keep on voting for.

  • Gary

    Like you Criag I have worked in many countries. They have all been corrupt. Some hide it better than others. In Uzbekistan they just dont bother to try to conceal it. In the UK it is largely blurred by a flawed political system and skillful supression of free speach. The system in the UK is very good at discrediting people who raise taboo issues. I am not sure the UK will see a revolution. People are too compliant here. Yes they complain but they give up quickly. I remember reading Capital, not because I am a communist, but it was a good critique of capitalism. Marx said he never got the impression that the British had the heart to take on the elite. Perhaps there is not the solidarity. I agree with you capitalism is broken. It will be interesting to see how it plays out.

  • TFS

    Now, a book rather worth reading on the subject of the fraud by the likes of Goldman Sachs etc, is

    Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America by Matt Taibbi

  • Daniel

    @ Guest: “It [capitalism] has and will remain the only system mankind will live by.”

    Nonsense. Capitalism emerged from fuedalism and there is no reason to think that it will be around for eternity. Actually such a notion is daft.

  • Guest

    Daniel, speak as you see, whats makes you think mankind will be “around for eternity”. We were more socially/community based and caring when we were tree dwellers, we are going backwards not forwards. Is there really such a word as “evolution” ?, hmmm, I think there is, but to where does it go ?.

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