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Saturday, December 13, 2008

Postscript to "The Financialization of Capital and the Crisis"

by John Bellamy Foster

Monthly Review (April 2008)

Six months ago the United States was already deep in a financial crisis - the roots of which were explained in this article. Yet, the conditions now are several orders of magnitude worse and are affecting the entire world. We are clearly in the midst of one of the great crises in the history of capitalism. More than a mere financial panic, what is taking place is a major devaluation of capital of still undetermined dimensions. Marx explained that capital was invariably over-extended in a boom and that in the crisis that followed a part of that capital was devalued, enabling the rest to return to profitability and to the process of accumulation and expansion. However, we are now to some extent in uncharted territory: a phase of monopoly-finance capital that is in many ways unprecedented. Even at the time of the Great Depression of the 1930s, Keynes explained that after a crisis modern capitalism might return to profitability without a return to full employment, full utilization of existing capacity, and strong growth. Our experience of the last half-century has shown that capitalism at its core was able to avoid stagnation only by vast military expenditures and, when that proved insufficient, by an enormous inflation of asset values and speculation, ie "financialization". This growth multiplied by the boom psychology on the way up (the "wealth effect") turned out to also have a contracting multiplier effect on the way down. These factors help to explain why the economic crisis in the real economy is so severe at present, and why there is no chance of an immediate restarting of the growth process.

Many people first woke up to the seriousness of the crisis only on September 18 2008, when US Secretary of Treasury Henry Paulson told Congress that the US financial sector was within days of a complete meltdown and that a $700 billion bailout for the banks was urgently needed. Since then (and indeed even before) vast amounts of government dollars have been poured into the financial structure (all told the financial exposure of the US government alone in the entire crisis has exceeded $5 trillion at this writing), including direct injection of capital into major banks and partial nationalizations {1}. Yet, still there is little sign of the crisis abating. Insolvency is spreading through the economy from consumers to banks, to non-financial firms, back to consumers, in a vicious cycle. The fact that the economy in recent decades was being lifted mainly by financialization makes the problem all that much more severe.

The entire world economy is now affected. Already one economy in the European sphere itself - Iceland - has experienced a meltdown, requiring rescue from outside, and some have called Iceland the "canary in the coalmine". Over this last neoliberal epoch, the United States and its European allies have forced upon the entire globe a model of the free flow of capital across borders. The result today is the free flow of catastrophe. Only by the imposition, first, of capital controls and the establishment, second, of non-market based "South-South" cooperation can "emerging" economies avoid becoming the worse victims of the crash.

In these dire economic circumstances we should of course be careful not to fall into an exaggerated frame of mind. It is important to remember that a breakdown of capitalism as a whole will not occur by mere economics alone. Given time to work things out on its own terms the system will no doubt recover - though a full recovery could be many years away, if possible at all.

The real historical issue before us is to what extent the world's population is willing to wait for this crisis to be resolved on capitalist terms, so that the whole irrational process of exploitation and boom and bust can gain steam again - or whether they shall decide to insert themselves into the process to say Enough! It is this political insertion from below that the powers that be most fear. From their Olympian position at the top of the system they know perhaps better than anyone else that the conditions exist for the possible renewal of socialism on a global scale. Capitalism has reached its limits as a progressive force and its famous "creative destruction" has turned into a destructive creativity in which both the world's people and the planet are now in jeopardy. Indeed, for the world's population and the earth taken a whole there is today no real alternative - to socialism.


1 "Government's Leap into Banking Has Its Perils", New York Times (October 18 2008).

John Bellamy Foster is editor of Monthly Review and professor of sociology at the University of Oregon. This postscript was written for the Portuguese translation of "The Financialization of Capital and the Crisis" that will appear in Revista Outubro, Brazil.

Bill Totten


  • The financialization of capital and the crisis are trebled. quadrupled, by the loss of the law in the Western World of habeous corpus, the militarization of the internet. the complete of loss pf privacy by the internationalization the the U S Patroit Acts, both personally and on population agregates. business groupings.

    By Blogger suzannedk, at 4:31 AM, December 14, 2008  

  • Of the money we have seen thrown around thus far let me ask you this, that 168 billion that our country borrowed to give away to us in the form of an "economic stimulus package" ...did it do a darn thing to create jobs or stimulate our economy. NO, nothing. And we borrowed the money from China. This past year the high cost of gas nearly destroyed our economy and society. More people lost jobs and homes as a direct result of that than any other factor in our history. Fannie and Freddie continue to get all the blame. Of all the homes I have seen lost in my area SW FL and believe me I have seen many, none were due to an adjustable mortgage. They were due to lack of work. Families went broke at the pump alone. Then added to that were increased electric rates FPL raised ours 16%. The high cost of fuel resulted in higher production and shipping costs that were passed on to the consumer, in most cases higher prices for smaller packaging. Consumers tightened their belts, cut back, went out to eat less or stopped totally. Drove around on tires that needed replacing longer, some even quit buying medicines they really need. Unfortunately cutting back and spending less results in even more layoffs. A real economical catch-22. And, as we are doing the happy dance around the lower prices at the pumps OPEC is planning to cut production to raise prices. They are even getting Russia in on the cutbacks. Oil is finite. We have used up the easy to get to reserves already. It will run out one day. We have so much available to us. Solar and Wind are free sources of energy. Of course to get the harnessing process set up is somewhat costly it is still free energy. It would cost the equivalent of 60 cents per gallon to charge and drive an electric car. The electricity to charge the car could be generated by solar or wind at least in part and in most cases totally. Why not use some of these billions to promote the set up of alternative energy projects on a national level? Give tax breaks and incentives to promote this. We could create clean cheap electricity, create millions of BADLY needed new green collar jobs, and most importantly get out from under our dependence on foreign oil. We should never allow anyone to have that much control over us as a nation. If all gasoline cars, trucks, and suv’s instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. What a powerful resources we have neglected. Jeff Wilson has a profound new book out called The Manhattan Project of 2009 Energy Independence Now. I suggest anyone interested in this subject read this book.

    By Blogger BeyondGreen, at 7:48 AM, December 14, 2008  

  • Where are the tax moneys to pay for harnessing the wind, the sun? To set these sources up to be effectively used, changing the vehicles to be able to use electric will cost tax moneys that the U S military/industrial complex uses to fight two losing wars of now seven years duration at a cost of billions per week. There is no end in sight of that mortal,financial, drain in order to accommodate human realities of basic needs. The high cost of gas will return. As the sole world currency, the dollar is printed to throw at a disintegrating financial system, the dollar is worth less. No-one mentions that the cost of trumped up wars to fulfill Israel's irrational needs are bankrupting the infrastructure of the United States, destroying trust world wide. The deadly outsourcing of jobs or U S globalization. has been destroying the jobs market for much more than a generation. The deregulation of everything, a process about sixty years on, has ended in a civil system that, on all fronts, does not work, it has destroyed and is destroying itself.

    By Anonymous Anonymous, at 9:30 AM, December 14, 2008  

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