STRUCTURAL CAUSES The Recent Crisis in Global Capitalism: Towards a Marxian Understanding
Vamsi Vakulabharanam
This paper analyses the current crisis through a Marxian framework. It focuses on the creation of a new regime of accumulation (neoliberalism) since the 1970s as a response to the profitability crisis of the late 1960s and 1970s in global capitalism. The regime, while addressing that crisis, could never fully address it in the sustained realisation of profits/surplus value. What then of the efficacy of a Keynesian fix? From a Marxian viewpoint, the Keynesian solution is also inherently unstable as state-supported capitalism invariably runs into other crises (such as in the 1970s), which would force further changes in the system. Marxian prescriptions would go beyond the market vis-à-vis state debate to focus on the very institutional structures that perpetuate capitalism of one kind or the other.
An earlier version of this paper was presented at a conference held on 12-13 January 2009 at Mahatma Gandhi University, Kottayam on the theme, “Global Financial Crisis, Implications for India”. I thank the participants of the conference, Arjun Jayadev, Sripad Motiram, Sudheer Kilaru, Raza Mir and Thomas Masterson for their comments on the earlier draft.
Vamsi Vakulabharanam (vamsi.vakul@gmail.com) is with the Department of Economics, University of Hyderabad and is associated with the India China Institute, New School of Social Research, New York.
1 From Crisis to Crisis: 1970s to Now
T
The roots of the current crisis lie in the particular solution that was proposed to sort out the previous systemic capitalist crisis (especially in the US) in the late 1960s and 1970s. After experiencing what some economists have termed the “Golden Age of Capitalism”,1 between 1945 and the late 1960s, the capitalist class in the advanced capitalist world began to witness early signs of a crisis in profitability by the mid-1960s (see Figure 1, p 145). There is considerable literature on the causes of this profitability crisis. A few dominant explanations in the literature are: profit squeeze (Glyn and Sutcliffe 1972; Nordhaus 1974), productivity growth slowdown due to reduction in worker effort (Bowles, Gordon and Weisskopf 1986), a secular falling rate of profit (Shaikh 1987), and foreign competition (Brenner 1998) after mid-1960s. Without going into the relative merits and demerits of these different explanations, it can be said that these different analyses discuss issues such as the strengthening of labour in the developed economies in the post-second world war era, the increased competition that the US capitalist class had to face from their counterparts in other advanced capitalist economies by the late 1960s, especially from previously war ravaged economies such as Japan and Germany, and the perceived untenable nature of the fixed exchange rate system.
The crisis was understood by most capitalist classes across the advanced world (mainly in the US) to have two dimensions (Harvey 2005a). The first dimension was that of labour. Labour unions had become too strong during the post-second world war era causing rapid growth of wages and a consequent diminution of profits. The second dimension was that post-second world war economic and political regimes (national Keynesianism) relied on big governments that were inefficient, causing eventual fiscal
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Figure 1: US Profit Rates (1947-2004)
As we now know, and as I argue below, this
model could never provide a complete solution
to the crisis-ridden accumulation regime of the
0.42
0.37
0.32
0.27
0.22
0.17
0.12 The trend line below indicates profit rates taking into account wages with supplements whereas the trend line above
1947-I1948-III1950-I1951-III1953-I1954-III1956-I1957-III1959-I1960-III1962-I1963-III1965-I1966-III1968-I1969-III1971-I1972-III1974-I1975-III1977-I1978-III1980-I1981-III1983-I1984-III1986-I1987-III1989-I1990-III1992-I1993-III1995-I1996-III1998-I1999-III2001-I2002-III2004-I
excludes supplements from computations. Source: US Bureau of Economic Analysis (BEA) and US Bureau of Labour Statistics (BLS).
c rises. Both these dimensions were seen as arising from a faulty policy structure of national Keynesianism.2
The response to the crisis (especially in the US) had both internal and external dimensions. The national Keynesian structure of accumulation was dismantled and a new regime was instituted in its place during the 1970s that has come to be known as “neoliberalism”. Apart from dismantling the fixed exchange rate s ystem in 1971, this new regime also witnessed the restructuring of capitalism in significant ways. The first target was the welfare dimension of the state. The state also had to vacate its productive economic role, to become mainly a facilitator for the improved profitability of capitalist enterprise. In this process, the state a lienated its properties at throwaway prices to private players. Finance capital that was kept under strict control after the Great Depression escaped the clutches of regulation, separated itself from and dominated over other kinds of capital such as the industrial and merchant varieties, and began to play a crucial role in restructuring the global economy in its own interests. Labour was disciplined in terms of its ability to bargain for better wages and benefits. This process deepened in the 1980s as several developing economies were brought under this regime with the helping hand of the Bretton Woods twins – the International Monetary Fund (IMF) and the World Bank. Mainstream macroeconomic theory made a big switch from the neoclassical-Keynesian synthesis to monetarism and new classical macroeconomics to support the so-called “free market” model of the economy as the most efficient way of organising an economy.
Another important response to the crisis during this period is in the way various economies became more open in terms of movements of commodities and capital, while labour was kept largely shackled in terms of its international mobility. This period also witnessed a massive increase in the importance of international finance relative to international trade. Much of the r ecent contagion effect of the crisis spreading globally from the US economy can be explained by this single factor of the vastly increased international mobility of financial capital (see K rugman 2008).
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early 1970s. It ran into serious difficulties as it led to bubbles of different kinds from time to time, and these bubbles burst, causing crises, spread over vast stretches of space and time. The latest of these bubbles was in the US housing market and it has been deflating over the last couple of years. Given the way the rest of the world was involved in the US housing market and more broadly with the US financial s ector, the crisis has spread rapidly across the globe, i nstilling fears of a second Great Depression.
2 A Marxian Explanation of the Crisis
In terms of providing a synoptic long-term explanation for the crisis, a Marxian3 framework would probably focus on the creation of a new
regime of accumulation (neoliberalism) since the 1970s as a response to the profitability crisis of the late 1960s and 1970s in global capitalism.4 This new regime, while addressing the profitability crisis of capital, never fully addressed the crisis in the sustained realisation of profits/surplus value. Other means were resorted to, such as rapid dispossession and transfer of assets from the state and various vulnerable groups (such as peasantry) to capital, creation of unprecedented levels of credit so that consumption growth could proceed uninterruptedly even as capital found means to its own profitable deployment, creation of a precarious international macro-balance, and through the generation of temporary bubbles/booms.
The crucial point to expand on regarding the current crisis is that it is not merely a financial crisis but a broader economic crisis, first and foremost in the US economy and by extension in all those economies that followed the US neoliberal model of capitalist accumulation and also those economies that were closely connected with the US economy in terms of linkages in trade or finance. It is not just a financial crisis because the neoliberal model never put in place a sustained process of production, a ppropriation and distribution of surplus value that could be r eproduced over a long period of time. In this sense, the solution to the 1970s crisis could do nothing more than set the stage for the next crisis. This can be observed by looking at some basic ideas of Marx.
Marx points to two modes of capitalist accumulation in C apital, Volume 1. First, what he termed as a process of primitive accumulation, through which the incipient capitalist class forcibly dispossessed productive groups such as the peasantry and artisans, thereby creating a class of people without any means of production and another that possessed these means. The former became the class of wageworkers, and the latter the class of productive capitalists. Second, what he termed as extended reproduction, whereby money capital is invested in a process of production wherein means of production and labour power (bought in the market as part of the process of circulation) are put through a process of production in order to produce a new commodity.
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Figure 2: Decadal Growth of Real Weekly Earnings of the US Working Class (1820-2000) +4 +3 +2 +1 +0
–1 –2 Real wage is the nominal wage divided by the consumer price index.
1820-18301830-18401840-18501850-18601860-18701870-18801880-18901890-19001900-19101910-19201920-19301930-19401940-19501950-19601960-19701970-19801980-19901990-2000 1820-2000 average: +1.5% cutting the real wages (money wages corrected for inflation) of workers, so that wages fell continuously b etween 1973 and 1996 in the US. Job security went down considerably and a significant proportion of the working class became employed on a temporary basis. On top of this, a significant chunk of capital migrated overseas (especially to the developing economies) in search of cheaper wages. An assault on the working class and a consolidation of capitalist class power were part of the strategy for the success of the capitalist class. There was also a strong drive to enhance labour productivity. Productivity levels picked up even as earnings stagnated. These trends can be observed in
Source: Historical Statistics of the United States, Colonial Times to 1970; National Bureau of Economic Research; Figures 2 and 3.6 Unlike in the Golden Age, when pro-
US Bureau of Labour Statistics.
D uring the process of production, workers add more value (labour performed) than what they are compensated for (the value of their labour power) and this gives rise to what Marx termed as surplus value. Once surplus value is produced, it needs to be realised by selling the new commodity (sold in the market as part of circulation of capital). Once this is done, a higher quantum of money capital accrues to the capitalist than what he possessed at the beginning of this cycle. This difference can either be totally used for personal consumption or it could be reinvested in the next cycle of production after paying off the different groups5 (other than workers) that helped in creating the conditions of e xistence of the process of production. If some of the surplus value is reinvested, it leads to the second mode of accumulation, i e, extended reproduction. The whole process has two stages – production of surplus value and the realisation of it. If this process is arrested in either of these stages, it leads to a crisis of devaluation of capital or commodities. A Marxian explanation of the crisis of neoliberalism would draw upon the discussion of these two modes of accumulation that Marx alluded to.
The so-called mode of primitive accumulation played an important role in the attempt to provide a fix to the crisis in the 1960s, although a slight modification needs to be made to the adjective “primitive”. Since it is now operating alongside the other mode of accumulation in a developed capitalist system, this term is probably inappropriate. Therefore, as David Harvey (2005b) modifies it in his book, The New Imperialism, we can term it as “accumulation by dispossession”. This manifested in the dispossession of various vulnerable groups such as the peasantry, petty artisans, and appropriation by private players of various common or publicly-owned properties. Also, as international financial capital became highly mobile, it began to valorise certain locations that would witness increases in prosperity and devalue other locations that would experience crises and crashes. From all these flights, financial capital made significant gains. This is one fix that the neoliberal regime attempted for the profitability/ accumulation crisis of the late 1960s.
The other fix to the above crisis was attempted through the second mode of accumulation, i e, extended reproduction. Since the crisis was perceived to be in the realm of the creation of profits, the capitalist class needed to step up the rate of exploitation in the very process of production. It did so with great efficacy by
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ductivity gains were shared with the workers, this time around, these gains were distributed among the different sections of the capitalist class (in particular, financial and merchant capital), shareholders, landlords, and importantly, the managerial/executive stratum. This meant that the previous crises in a ccumulation were largely resolved at the source, i e, at the level of the production of surplus value.
However, the major problems with these fixes are the following. While accumulation proceeded at a faster pace due to improved strategies of appropriation and improved productivity, this in turn gave rise to two other problems. First, sustained conditions of realising the generated surplus were never put in place. Basically, this means that sufficient purchasing power was not created in the new regime. The solution to the profitability crisis created a crisis of realisation. Second, with a constantly growing surplus without sufficient purchasing power as well as the largescale “accumulation by dispossession” referred to above, there was significant over-accumulation of capital that needed profitable deployment. The neoliberal capitalist regime found ways of postponing the eventual crisis by providing various temporary fixes to these problems. This point needs further elaboration.
First, as mentioned above, the US working class witnessed a decline in its real wages from 1973 onwards until the late 1990s. This fact has to be studied in conjunction with the fact that for the previous 150 years or so, the US working class had seen increases in real wages every decade (see Figure 2). This basically
Figure 3: Productivity and Wage Growth in the US Economy
1973=100 200
180
160
140
120
100
80
Productivity-Earnings Gap Productivity (non-farm business) Average hourly earnings 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 1005 Source: Dean Baker, “The Productivity to Paycheck Gap: What the Data Show”, April 2007.
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meant that the US working class had gotten used to the idea that real wages would continuously rise (Wolff 2008). What this meant is that when real wages began to decline, the working class could not (and maybe was also unwilling to) adjust its spending/consumption patterns. The working class adopted several strategies. They worked much harder, worked more jobs, women joined employment in bigger numbers, and they also resorted to borrowing in order to fulfil their needs.7 The net savings rate of the household sector in the US became close to zero. For the capitalist class that saw the growing accumulation of capital (as can be seen from Figure 3), this was a boon. Now they could resort to lending the surplus capital to workers and extract interest out of it instead of paying them wages. The entire housing boom and collapse that acted as a precursor to the current crisis needs to be located in this context as well (Wolff 2008). This was an attempted partial fix.
Second, several other fixes were attempted – expansion of overseas markets through sustained trade liberalisation policies across the globe, expanded investments in urbanisation and large-scale infrastructure, and so forth. These fixes could not solve the problem entirely either.
Third, across the entire world, neoliberal capitalism pushed deflationary policies (especially in the fiscal realm, with the imposition of fiscal responsibility norms) that were of particular benefit to financial or interest-bearing capital.8 This basically meant that there was not enough effective demand in the global economy. Therefore, the realisation problem in the US economy only became further compounded. One temporary fix for this was the flow of excessive investment into China from various developed countries and the corresponding role that the US played as a “market of last resort” in the global economy. Given the propensity to consume of the US working class, the burden of this role once again fell on them. This explains the huge current account deficits of the US economy in recent decades. At the same time, the highly paradoxical situation of net capital flows coming into the US economy (and not in the other direction) is also a direct result of this phenomenon. This created a precarious international macro-balance with the US consumers consuming more than what they could do from their incomes, while US economy needed a constant influx of capital to correct this imbalance. To reiterate an important point, one of the crucial fallouts of this situation is that the already precarious domestic realisation problem became further compounded since the burden of solving it (clearing the excess supply in the global markets) for the entire global economy was taken on by seemingly willing US consumers (mainly the working class). This eventually (especially towards the late 1990s) led to an explosion in their borrowing with the terms fairly liberally defined since there were massive capital inflows (especially from China, Japan and other Asian economies)9 into the US economy, creating easy liquidity.
Alongside these attempted fixes to the realisation problem, the neoliberal regime, especially in the last 15 years or so, also witnessed, on a large scale, an explosion of what Marx refers to as fictitious capital in Chapter 29 (“Components of Banking Capital”) of Capital, Volume 3, that further exacerbated the problem of o veraccumulation of capital as well as generated solutions to the d eployment of it through the creation of asset bubbles. Fictitious capital is different from real capital in that it is usually not engaged in the production of current surplus value or incomes but has a claim over future surplus value or incomes (also see Harvey 2006: 266-70). When money is lent out to borrowers in lieu of a collateral (whose value is based on as yet unsold commodities or unrealised incomes), lenders hold on to paper titles. Now the p aper titles (or bills of exchange) themselves begin to circulate as capital, making it fictitious in Marx’s understanding. The collateral might be in the form of fixed capital or a durable commodity (in the latter case, it is akin to fictitious capital, and can be called fictitious value) that is subject to complex changes in value due to multiple factors that unfold only in the future. Either when the value of the collateral changes drastically (in an adverse fashion), or if the production of surplus value or incomes does not keep pace with the future claims of fictitious capital, the accumulation regime-based on this fictitious capital ends up in a state of crisis. On the contrary, if the value of the collateral changes in a f avourable direction, this would lead to a perpetuation of an a sset b ubble that seemingly benefits all the engaged players in these markets.
Fictitious capital fundamentally plays the role of safeguarding the flexibility of financial capital, allowing it to break free of longterm commitments that act as impediments to its return to money capital form. It helps in improving liquidity and in faster accumulation of capital. It can also improve consumption through what is known as the “wealth effect” on consumers (partly addressing the realisation problem). In order to maintain its flexibility, financial capital needs intermediaries, who are able to borrow short-term and lend long-term, anticipating both future savings/ incomes and production of surplus value. It might also create a situation where in the producers or consumers are constantly r efinancing their debts on an annual basis or to market shares to future surplus/incomes directly. Marx argued that fictitious c apital becomes a speculative enclave unto itself, in the process severing its connections from the real economy. When the enclave makes claims over future surplus value/incomes that far outrun the pace of the production of real surplus value/incomes, it leads to crashes. It is not simply at this historical conjuncture that this becomes important but had been so in various previous conjunctures. Marx refers to some of these conjunctures way back in the 1840s and 1850s (Capital, Volume 3: 525-42).
A significant chunk of all the various forms of derivatives, collateralised debt obligations, mortgage-backed securities and credit default swaps, etc (the recent financial innovations) that have been part of the recent explosion in finance are examples mainly of fictitious capital.10 These have been developed usually by various institutions that received a boost after the 1970s under what has been called the “shadow banking system” – investment banks, special investment vehicles, hedge funds, and so forth. Paper titles/securities representing this fictitious capital circulated not only in the US and other advanced economies but also all across the world. These various institutions mentioned above, such as investment banks, also bought into capital assets all over the world, basically “leveraging” themselves to an extremely high level, as laws were rewritten that allowed higher levels of “safe” leveraging. All this encouraged risk-taking (investing in volatile asset
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markets) with the assumption that through the computation of accurate risk levels and through insurance and other hedging strategies risk could be taken care of. It is now clear that there is a systemic risk that is not taken into account by the individual risk calculations. As the claims on future surplus value or incomes far outstripped the real surplus value or incomes, the bubbles of fictitious capital began to burst, first in the US, and as the financial firms started “de-leveraging”, the crisis spread rapidly across the world. This is what happened in the housing sector and other financial sectors of the global economy. Ultimately, fi ctitious capital is a fantasy form (in the sense that it is disconnected from the real processes of capitalist production) because the various securities or paper titles simply acquire an independent life of their own with their own logic of price determination, and there are gains to be made for financial capital by engaging in speculative bubbles. This is, probably, the ultimate fantasy of capital in its most general form that money should automatically become more money without the intermediary stages of p roduction and trade.
These above mentioned fixes could work only temporarily as the realisation problem could not be postponed forever through the creation of endless borrowing, creation of a precarious international macro-balance, and the deployment of fictitious capital. They could create temporary booms based on bubbles that would have had to end sooner or later. Apart from all the crises (financial or otherwise) that the US-inspired neoliberal model created across the rest of the world, the US economy itself saw, at the very least, three huge crises in the last couple of decades. It witnessed a savings and loans crisis in the 1980s, a stock market crash in the early 2000s, and the current housing market crash that has now assumed alarming proportions.
3 Is There an End to Crises in Capitalism?
The Marxian framework has a different insight (compared to a Keynesian one) to offer on the prospects of long-term stability within a capitalist economy. Keynes shows how a free market model of capitalism does not automatically achieve economic stability/equilibrium, and is prone to periodic crises of effective demand. This is exacerbated by the role of rentier groups, who tend to heighten these crises by engaging in bouts of speculation. Long-term stability in the Keynesian framework arises due to the fact that the government corrects for shortages in e ffective demand while curbing the role of rentier interests. Marx, while accepting some of the essential tenets of the Keynesian framework, would probably argue that the Keynesian solution is also inherently unstable as state supported capitalism invariably runs into other crises (e g, inflationary one as in the 1970s), that would force further changes in the system. For instance, it could be a rgued that the 20th century capitalist experience has been one of oscillations between state-capitalism and market- oriented capi talism, with neither solution achieving long-term systemic stability. Marxian prescriptions would, therefore, go beyond the market vis-à-vis state debate to focus on the very i nstitutional structures that perpetuate capitalism of one kind or the other.
Returning to the discussion made in Section 2 on the two modes of accumulation in capitalism, if capitalist accumulation has to flow uninterruptedly, it needs to simultaneously solve two
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p roblems – creation of adequate surplus value, and the sustained realisation of it. If we analyse 20th century capitalism, it seems to be the case that solving one problem creates the conditions for the emergence of the other. If the period that led up to the Great Depression in 1929 led to a serious realisation problem, the Golden Age gave rise to a surplus creation problem. When there is a realisation problem, as Keynes suggested, states could step in and create effective demand. When there is a surplus creation problem, free market ideologies make a comeback and transform the system. This seems to create a perpetual oscillation between the state and markets, making thinkers wonder if there was some optimal mix of the two that remains stable over a long enough period of time. Probably, the Marxian disagreement with the Keynesian view is that there is no such optimal mix in capitalism.
In the Keynesian solution, when there is a sharing of productivity gains between capitalists and workers, as in the Golden Age, it seems to be the case that a slowdown in the creation of profits sets up the conditions for a violent restructuring of the class configuration. Also, curbing financial capital as was done during Golden Age never fully worked, as interest-bearing or finan cial capital kept looking for ways to escape regulation, which it eventually succeeded in by the 1970s. In the market-oriented solution, there is an excess accumulation of surplus value or capital, which creates the potential for the creation of bubbles (asset or otherwise) that will end in severe crises as we saw in 1929 as well as during the recent one. In either case, there is also a whole other question of whether a sustainable ecological balance can be maintained within the logic of capitalist accumulation (Li 2008).
Another reason to be sceptical about the efficacy of the K eyensian fix in the current context is as follows. The neoliberal regime ensured that the supporting non-capitalist institutions such as families, state, and community structures in otherwise largely capitalist social formations were all wrenched open and destroyed. It seems to be the case that any stable phase of capitalist accumulation witnesses a stable but unequal relationship b etween the capitalist and non-capitalist institutions in a social formation. For instance, historically, households not only provided a cheap way of reproducing the labour power that is then exploited in capitalist processes of production but they also served as reserves of the industrial army. Similarly, largely noncapitalist social formations (developing economies) have tended to provide cheap labour as well as cheap commodity inputs for capitalist processes of production historically. Similarly, states (welfare systems) or community structures tend to provide succour to those groups that face direct exploitation in capitalist processes or get left out. There is enough evidence now that capitalism in its current neoliberal avatar (as in some previous phases) destroyed these supporting non-capitalist structures (leaving in its wake wrecked households, traditional communities and welfare systems) and stood in its naked, i e, exploitative, form vis-à-vis the workers and peasants. When the recent crisis eventually came, the leading policymakers have tended to ask for a return to a Keynesian-like state that creates a fiscal stimulus, without the other necessary changes in supporting the noncapitalist structures or processes (even if one assumes that such changes are possible, in the first place). This may, in itself, be a
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temporary and a problematic fix. This (above-described) erosion might also increase the instability/volatility in the overall system, as the crises now have to be largely sorted out within capitalist production and realisation structures.
What about regulation? Can we not regulate our way out of crises? The reason to be sceptical about this is that financial innovation is mainly an attempt to escape regulation. It does so rapidly and in extremely complicated ways, as has been established during the recent crisis. The regulator is always lagging behind the innovator and it seems to be the case that by the time the regulator catches up, the innovator has moved afar. Keeping pace is probably impossible. Probably, a somewhat more fruitful strategy would be to adopt the Keynesian policy of “socialisation of investment”. where the function of investment is taken out of private hands. However, it might be extremely hard to generate consensus supporting this idea.
If the above analysis is correct, then it seems to be the case that capitalism can never fully work out its crises and provide a stable long-term fix. Crises are merely symptoms of a deeper disease, i e, capitalism itself (Wolff 2008). Therefore, the solution may not lie in trying to find an optimal mix of state and markets but i nstead in dispensing with the modes of accumulation that are capitalist. This can only be done through the restructuring of capitalist labour processes to eliminate exploitation and also the constant drive to accumulate that is inherent in capitalism.
4 Conclusions
The crisis presents new opportunities to ask fundamental q uestions about capitalism and probably provides space for i magining alternatives to this system. This is clearly not an easy task though, because the class configuration that has been brought into existence over the previous three or four decades is not in a position as of now to take advantage of the crisis and propose radical alternatives. Nevertheless, this is the time to be thinking about alternatives to the capitalist model, perhaps in small steps. This would definitely mean stepping out of the m arket vis-à-vis state debate to raise fundamental questions about the very process of capitalist production and exploitation. Maybe a discussion of worker and peasant cooperatives ought to be at the forefront of this rethinking, along with a redefined role for the state.
A tangential issue that may become the subject matter of a nother discussion is what Giovanni Arrighi (2008) has been a rguing about over the last couple of decades. He has shown in his work starting from the Genoese cycle all the way to the B ritish cycle of capitalist accumulation that towards the end of all long-term capitalist cycles, there is an efflorescence of financial capital. This is followed by a shift in the capitalist c entre. Does the crisis of 2008 signify a shift in the capitalist centre away from the US and the beginning of a new capitalist regime of accumulation that is inspired by the Chinese model or more broadly an Asian model (if one can articulate such a model, in the first place)? Or does it signify a temporary p eriod of vacuum wherein capitalism would work in a de-centred fashion? The answers to these questions as well as a com prehensive understanding and resolution of the crisis within or outside capitalism will emerge in the coming months and years.
Notes real interest rates are nominal rates minus infla-– (2005b): The New Imperialism (New York: Oxford tion. Financial capital can only set the nominal University Press).
1 It was a golden age not merely because capitalist rates at the time of disbursing a loan. – (2006): The Limits to Capital (London: Verso).
profits were high but also because workers’ wages 9 The fact that the US dollar continued to be the Krugman, P (2008): “International Financial rose rapidly, while global economy grew at a M ultiplier”, Viewed on 15 February 2009, most trusted reserve currency also played an imr apid pace.
A vailable at www.princeton.edu/~pkrugman/ 2 The case of New York City fiscal crisis and the finmult.pdf
portant role in creating this international macro
imbalance. r esponse to it after 1976 is a classic case of this Li, M (2008): The Rise of China and the Demise of the
10 According to recent Bank for International
formulation and solutions offered to this crisis Capitalist World-Economy (London: Pluto Press).
Settlements estimates, contracts in the various
were then replicated across the world in the name Marx, K (1981): Capital, Volumes 1 and 3 (translated
fictitious capital markets in recent years
of neoliberalism. by David Fernbach) (London: Penguin Books).
amounted to nearly $600 trillion when the glo
3 Marx’s own accounts in Capital, Volume 3 about Nordhaus, W D (1974): “The Falling Share of Profits”,
bal GDP is close to only $50 trillion. That this
interest-bearing capital and financial capital are Brookings Papers on Economic Activity I.
was not backed by any real capital is precisely
highly insightful and useful for understanding Shaikh, A (1987): “The Falling Rate of Profit and the
what Marx would have referred to as the fanta-Economic Crisis in the US” in Robert Cherry et al the current crisis, although not complete. Some of sy of fi ctitious capital.
(ed.), The Imperilled Economy, Book I, Union for Radical Political Economy.
the analytical work needs to be done by practising
Marxists.
Wolff, R (2008): “Capitalist Crisis, Marx’s Shadow”, 4 Global capitalism since the second world war has MRZine, 26/09/08.
been US centred, so system-wide crises are closely
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