“The Great Financial Crisis – Causes and Conflicts” ---
John Bellamy Foster & Fred Magdoff, 2009
These are astounding times for American Marxists. War and economic collapse are the mother of revolution. Right now we have two ‘small’ wars and one giant economic collapse – and that not limited to one country. Republicans are babbling about Obama being a ‘socialist.’ So socialism, safely buried by its association with Joseph Stalin, Leonoid Brezhnev and a sclerotic bureaucracy, is once again placed on the table. Though carried by the oddest of flag bearers!
While most people are scratching their heads over the financial crisis, making up various stories to explain what they see unfolding before their eyes, Foster and Magdoff explain this crisis based on long-running observation, for them personified by the American Marxist analysis of Paul Baran, Paul Sweezy and Fred Magdoff. Foster is the present editor of their magazine Monthly Review, and carries on their tradition, which started in the 60s.
To deal with the crisis, conservatives are still pushing to cut taxes and ‘big guvmint’; centrists want to take a bite from the tax-cut pie and the Keynesian pie too; while liberals think that lots of government spending will bring the ‘good times’ back.
Think again. John Maynard Keynes, the present patron saint after the fall of Saint Thomas Friedman, inspired Roosevelt to blunt the depression in the 1930s by using his approach to contain the fall in unemployment, the financial situation of the banks, and the productive character of manufacturing firms. Of course, Roosevelt borrowed most of his specific New Deal programs from real populists like Louisiana governor and senator Huey Long. A longerette-smoking East Coast patrician, Roosevelt was elected on a program of mild ‘improvements’ to counter the effects of the depression. While the Communist Party has put him on their banners, Roosevelt only did what he had to do to save capital – the ‘enemy,’ as they say, was at the gates. His solutions gave capitalism a 'human' face.
However, as Foster and others point out, what really ended the depression was World War Two, which boosted war-time production 6 times, far above the drop in production that had developed in the recession of 1938 under Roosevelt. Of course, liberals can’t face this. So the present worship of Saint Keynes as their savior. They hope that blunting this recession/depression will be sufficient. After all, what other choice do they have? Nationalization, without compensation, with workers control? We are at an actual situation where the banking, real estate/land, health care, auto and oil sectors of the economy should be nationalized. These are, of course, the pre-cursors to the workers state. So for liberals this is impossible.
Foster carefully analyses the 50s and 60s, and, like his predecessors, calls it a “golden decade’ but an EXCEPTION to normal capitalist development. Due to the destruction of competing productive forces in Europe during World War Two; the technological development of cheap oil, roads, suburbia and automobile technology; and the strong position of the U.S. military - the United States economy flourished for 25 years based on these exceptional circumstances. This all came apart at the beginning of the 70s, when stagnation overcame the U.S. economy. The imperialist boom was over. Vietnam was a defeat, on the battlefield and economically; the oil embargo showed the fragility of the oil economy, and the fall of the dollar were all symptomatic of an underlying malaise in the United States, a stagnating economic situation not seen in 25 years. That situation continued through the 70s, until financialization slowly took off.
The rulers at the time, quite clearly, wondered what to do. Nixon decided with his Treasury Secretary to abandon a ‘production’-based economy, and send work, instead, off-shore or across the border. It is no accident that Nixon was the one who lead 'detente' with China - which weakened the USSR, and eventually lead the Chinese to become our industrial heartland. Every production worker in the U.S. knows what that decisions meant. To substitute, the U.S. slowly started to build up FINANCIAL capital as a solution to the drop in profits from production. This is when financialization began to grow to dominance in the U.S. economy. Financialization is a phrase first popularized by Sweezy, Magdoff and Baran, according to Foster. However, I suspect there are prior Marxists who pointed to financialization as the final phase of capital. At its peak in 2005, the financial sector (FIRE – Finance, Insurance, Real Estate) of the U.S economy produced 40% of the profit, while the productive sector making actual things or goods, brought in 18%. The tables had turned.
However, with the domination of the financial sector has come a more robust and international bubble economy. Just as the jet plane allows disease to spread around the world at lightning speed, so the international capitalist markets allow a contagion from one market to infect all the others, in hours. This actually is not what was predicted by the Marketeers.
As we watched, the real estate bubble, created by rentier capital, was securitized by Wall Street, i.e. financial capital. Wall Street sold this new product around the world over 6 years, transferring the finance bubble from the tech economy to the sub-prime/CDO economy. In their enthusiasm for debt, and belief that bubbles never pop, the international banking sector over-leveraged themselves up to 43 times, which included decreasing the assets on hand in case of an old-fashioned ‘run’ on the bank. Encouraging debt, of course, is the core of finance-driven development. The banks backed financialization in Eastern Europe and other countries, and downplayed production, so as to impoverish them again through interest, rent and debt.
Now we see virtual bankruptcy of most of the largest banks in the U.S. – and many in the rest of the world. The recession, which may turn into a depression, is still accelerating across the globe. What Foster reminds us, in his last chapter, written in December 2008, is that it is the failure of the capitalist economy at its productive ROOT which has lead to this situation. In a quite interesting polemic with groups of left-liberals who assert that re-regulating finance capital and emphasizing productive capital will regenerate society, Foster and Magdoff assert it is precisely both financialization AND capitalist productivity that have failed. Hence the “stagnation” thesis that they embody seems to be more radical then the ‘re-regulation’ hypothesis.
One of the books few weaknesses is that they do not detail the specific roots of this stagnation – only hinting at over-production and the falling rate of profit – both classical Marxist categories. I think this was not within their purpose, however.
The main weakness of the book is its almost exclusive focus on the U.S. Foster and Magdoff only hint at the way imperial capital can blunt recessions by ‘exporting’ misery overseas – soaking the working, middle and farm classes in other countries to pay for their crisis. Just as they do to the domestic working class on a lesser scale. One characteristic of the 50s-60s that Foster somewhat ignores is this spread of U.S. imperial capital around the globe, while every other national finance sector was still weak.
Foster does assert that the particular conditions of the 50s-60s cannot be copied. He does not think that the internet (and, I suspect, though he does not address it, the ‘green’ economy) can substitute for the automobile and cheap oil. He does not think that U.S. military dominance will increase anymore - especially with the limited failure in Iraq. And he does not believe that increasing the productive side of U.S. capitalism again will work. On this latter, Obama and the Gore faction are counting on the ‘green economy’ to revive capitalism. Seeing as ecosphere and human survival also depend on a ‘green economy’, this is one of the most logical ways to try to get out of the crisis. I, too, however, doubt that it will work in a capitalist framework.
This books is short, clear and well-written - the best book-long analysis of the underlying cause of our present predicament. The graphs are illuminating, the rhetoric is minimal, the approach is factual. It proves once again that Marxism is still relevant, still scientifically perceptive, and still has the answers which people are looking for.
Red Frog – 2/17/09
--- and I bought it at MayDay books!