STOCK MARKET GAME OF BANKOCRATS: NOT TO GET KILLED

Karl Marx' analysis of "fictional capital" from the 19th century is confirmed by the financial crisis of the 21st century

By Elmar Altvater

[This article published in: Freitag 12, 3/20/2008 is translated from the German on the World Wide Web, www.freitag.de/2008/12/08/2080/php. Elmar Altvater is an emeritus professor of political science at the Otto-Suhr Institute of the Free University of Berlin. He writes regularly for "Freitag" and is an advisor for Attac Germany.]

Finance-driven capitalism has fallen into a deep crisis. The US real estate market collapses on installments. Billions are written off. Central banks try desperately to counter this. Climate change advances irresistibly. Can one who died 125 years ago teach us about this?

The work of Karl Marx deserves our respect. The unwieldy work undertaken by Marx and Friedrich Engels aimed at penetrating capitalist conditions theoretically and changing them practically.

Marx was an engaged scholar throughout his life. He meddled - sometimes very polemically - in the controversies of his time and came into conflict with authority. He had to leave Prussia and after detours in Brussels and Paris found a place to stay in London. There he labored on criticism of economic theory. The most important result was "Das Kapital" with the subtitle "Critique of Political Economy." Marx understood his main work as an instrument in class conflict and "political economy of the proletariat." He described "Das Kapital" as the "most fearsome projectile" hurled at the head of the bourgeoisie.

Today some regard the projectile as so harmless that the middle class is not assailed. In the "Suddeutschen Zeitung," Willi Winkler says "young persons are no longer moved by the long-drawn out distinction of practical- and exchange value, the transformation of money into capital or the expropriation of the expropriators."

THE 'WORLD MARKET THUNDERSTORM"

Winkler may have been completely wrong. Perhaps young persons are beginning again to be interested in Marx' theories because the theories from the liberal and neoliberal camps are obviously discredited. The attempts of economic theory to understand the present global financial crisis or instruct the public on the climate crisis threatening human existence are hardly convincing. Marx has much to offer 125 years after his death.

The significance of the global financial markets has increased so enormously that "finance-driven capitalism" is a common term today. In his analysis, Marx started from the fact that wage labor and capital face each other in the nation state. The state gives a somewhat binding framework to the regulation of working hours. The exploitation rate of the working class is determined by capital. Marx assumed a uniform rate of profit in the nation state.

In addition, profit rates tend to adjust in the competition of corporate capital. While everyone strives for the highest possible profits, this goal can only be reached by increasing productivity. However massive capital expenditures are necessary that ultimately contribute to lower profits (measured by applied capital) so that mass purchasing power falls behind compared to rising productivity. The ultimate result is that accumulation slackens, production sales and employment decline and the cyclical crisis erupts. Capital destruction, growing unemployment and pressure on wages gradually have the consequence that the profit rate climbs again and a new cyclical upswing begins.

In any case, the "crash" underlined by Friedrich Engels - the collapse of capitalism as a result of crisis - has not occurred. Still the "world market thunderstorms" are extremely destructive as shown by the most recent financial crisis in Argentina and the subprime crisis in the US. These storms have a purging effect.

Thus the crisis is due to the over-production (declining mass demand) and over-accumulation (falling profit rates). This was one of the great discoveries of Marx and isn't yesterday's snow today. The crisis is manifest in that there is too much in the world, too much Chinese electronics, too many camel-colored coats from North Africa and cashmere sweaters from India, too many German and American cars, too much beef from Brazil, too many shirts from Bangladesh and far too much monetary liquidity of the rich owners of financial assets in bank accounts in Frankfurt, London, Zurich and New York seeking very profitable investments.

The "world market thunderstorms" have their origin in the production sphere. Their destructive force develops mainly in the financial sphere. The global financial markets seem uncoupled from production. Many believe the economic laws are only in force in production. Global financial market profits of more than 20 percent far surpass the single-digit profit rates of the real economy. These profit rates also frequently exceed the real economic growth rates many fold.

The uncoupling of the monetary from the real economy is a great illusion owed to the fetishism of money and credit - the dazzling appearance - as though the high profits from financial relations accumulated by themselves can be taken from bank vaults and need not be produced in the real economy.

BLIND MONEY MANAGERS

In the third volume of "Kapital," Marx analyzes the independent life of finances and points to the blindness of actors on the financial markets who do not understand their own action and always react too late and completely surprised to the crises...

Today's financial crash is the result of the "stock market game of bankocrats" that was unforeseen and unintended by the actors. The mortgage crisis has long turned out to be a serious banking crisis. Marx' analyses of the so-called "fictional capital" from the 19th century are confirmed by the financial crises of the 21st century. Every claim whether solid or windy becomes the basis of a new security that triggers a new guarantee of claims until this pyramid of fictional capital shows its fictional character and collapses.

Our current crises would have prompted Marx and Engels who were always curious to analyze modern money transactions and banking businesses more deeply. For example, in an 1890 letter Engels encouraged Conrad Schmid to go to Zurich and get to know the "intrigues on the money- and speculation market." He focused on the "relative independence" of the money business and occupied himself with the question how "the economic movement could prevail" against the fetish world of finances.

That Marx' reflections help in the 21st century in analyzing the modern financial crisis has to do with his theoretical approach. A capitalist society based on labor is a labor society. However since social connections are mediated through money that makes itself independent, money appears as a practical necessity to the acting subject.

Today the money fetish is made to dance by a special class of financial acrobats - with disastrous after-effects that can not be restricted to the third world (as with the debt crisis in the 1980s) or threshold countries (as in the financial crises of Mexico, Indonesia, Thailand, Brazil or Argentina). The consequences now also affect the core industrial countries.

The fetish - as Marx explains in detail - is a reality of financial "practical constraints" to which whole societies must submit.

CRITIQUE OF POLITICAL ECOLOGY

A danger with Marx is hidden here. In the everyday consciousness, the financial fetish often has a form, for example as "grasshoppers," that attacks a "location" and devours whole businesses together with jobs. This picture does not really explain anything. Rather basic connections are obscured and an answer to the question how the global financial markets can be regulated is made difficult.

The fetish of the financial markets becomes dangerous when it is given a face and "predatory" capital and "creative" capital are distinguished. Only a thorough analysis of capitalism can show the relations of the seemingly independent financial markets to the real economy of labor and production and critically question the fetish-like appearance of its independence.

The pressure to double-digit profits overstrains nature as well as the real economy of labor and production. If the profits were only a part of an immaterial virtual economy, they could be just as indifferent to us as the question where his profits originate to the financial market deceiver. The deceiver's idea is: the financial system is self-referential. The money profits come from money and money produces more money. The financial jugglers apply this circulation figure of money. Marx discovered the "double character" of commodities and labor - the heart of criticism of political economy. Every economic process has two sides: the exchange value that is transformed into money and can become independent on global financial markets and the practical value arising through the intelligent transformation of material and energy.

Different from all other theoretical approaches in political economy before and after him, Marx emphasized from the first the dependence on nature of all human existence. Therefore Marxist criticism of political economy is also a criticism of political ecology.

This aspect of his work was faded out for a long time. That the question of nature was central for Marx was first rediscovered since the 1960s thanks to a critical reconstruction of Marxist theory. It took a while until material-energetic transformations and relations of people with nature were first connected with Marxist value theory - joining criticism of the economy with a critique of resource consumption and environmental destruction.

Marxist theory is entirely in harmony with the modern approach of the "thermodynamic" economy - an economic theory that explicitly considers the connection between the natural conditions of production and consumption and social conditions including conflicts. The wealth of Marxist theory has not been exhausted 125 years after the death of its founder.