In a Nutshell

[don]

"But if...new accumulation meets with difficulties in its employment, through a lack of spheres of investment, i.e., due to a surplus in the branches of production and an over-supply of loan capital, this plethora of loanable money-capital merely shows the limitations of capitalist production. The subsequent credit swindle proves that no real obstacle stands in the way of employment of this surplus capital. However, an obstacle is indeed immanent in its laws of expansion, i.e. in the limits in which capital can realize itself as capital." (emphasis added)

It's proven itself time and again it was best to go from Adam Smith and Ricardo to Keynes and Galbraith, and not skip Marx.

[*T*]

Re: In a Nutshell

"But if...new accumulation meets with difficulties in its employment, through a lack of spheres of investment, i.e., due to a surplus in the branches of production and an over-supply of loan capital, this plethora of loanable money-capital merely shows the limitations of capitalist production. The subsequent credit swindle proves that no real obstacle stands in the way of employment of this surplus capital. However, an obstacle is indeed immanent in its laws of expansion, i.e. in the limits in which capital can realize itself as capital." (emphasis added)

Don, could you explain this paragraph please for us mortals who only speak English?

[don]

Re: In a Nutshell

In my humble opinion, what Marx's is saying is that when capital buildup exceeds profitable investment in production, it will find employment in financial manipulations. (In our case, a classic overproduction crisis in the 70s was answered with FIRE, etc) His final comment, "However, an obstacle is indeed immanent in its laws of expansion, i.e. in the limits in which capital can realize itself as capital." refers to the FIRE economy's wealth creation as being essentially fictitious and adding little to "real capital", meaning capital for production investment, which remains inherently moribund.

[*T*]

Re: In a Nutshell

In my humble opinion, what Marx's is saying is that when capital buildup exceeds profitable investment in production, it will find employment in financial manipulations. (In our case, a classic overproduction crisis in the 70s was answered with FIRE, etc) His final comment, "However, an obstacle is indeed immanent in its laws of expansion, i.e. in the limits in which capital can realize itself as capital." refers to the FIRE economy's wealth creation as being essentially fictitious and adding little to "real capital", meaning capital for production investment, which remains inherently moribund.

Ah. Thanks. Then perhaps I have been more of a Marxist than I realised.

Sounds kind of Austrian... malinvestment etc.

[don]

Re: In a Nutshell

Marx said himself he was not a Marxist and resented being called one. It sounds like the other Marx's line about avoiding any orgainization that would have himself as a member. Maybe Groucho was inspired by Karl.

I do think Marx saw himself as a part of the continuum of political economists wrestling with a scientific explanation of their world. His positing that the working classes would ultimately be the vehicle pushing forward capitalism to the next political economic era was more a scientific conclusion and not a political rallying cry. Marx was not of the working class and I don't think he identified with it as such.

[c1ue]

Re: In a Nutshell

Don,

Marx was a thinker - a lot of the politicized stuff was really from Engels.

[don]

Re: In a Nutshell

Don,

Marx was a thinker - a lot of the politicized stuff was really from Engels.

Marx was a political economist to the bone. The political has been excised from economics for obvious reasons. Without an understanding of the dialectics inherently at work between the two, Marx felt gaining an understanding of any economic epoch was hamstrung from the start.

Engels was the more flamboyantly active of the two. In the 1848 revolution, Engels fancied himself a military leader and when it collapsed, fled to England and the family factory holdings there.

[c1ue]

Re: In a Nutshell

Don,

You are right - what I was referring to was Marx using an understanding of both economics and politics to formulate a view on the future, as opposed to using said vision to affect political change.

The latter is what I meant regarding Engels.

[Jay]

Re: In a Nutshell

"But if...new accumulation meets with difficulties in its employment, through a lack of spheres of investment, i.e., due to a surplus in the branches of production and an over-supply of loan capital, this plethora of loanable money-capital merely shows the limitations of capitalist production. The subsequent credit swindle proves that no real obstacle stands in the way of employment of this surplus capital. However, an obstacle is indeed immanent in its laws of expansion, i.e. in the limits in which capital can realize itself as capital." (emphasis added)

It's proven itself time and again it was best to go from Adam Smith and Ricardo to Keynes and Galbraith, and not skip Marx.

Maybe you guys can help me with a concept I have been ruminating over since I saw this quote earlier, and I have zero economic background so sorry if this is an obvious question: Does the above quote mean that this excess capitalist production must be whittled away for the economy to start again? If so, that could be frightening in its implications and might also explain the boom that occurred after the WWII reset button was hit.

[don]

Re: In a Nutshell

It's the way it's always worked. Capitalism is the most powerful system yet to unleash human productivity. It's principal contradiction may be, by its very essence, that it in turn eliminates the ability of its major components to afford that productivity. Over Production is the result. That's where Creative Destruction comes in.

Is it truly creative. Yes. When the rival capitalist states annihilated each others industrial base in the Second World War, the slate was clean for those states to re-build with cutting edge technology and methods. The initial, albeit enormous, edge the US enjoyed, having both no damage and unprecedented production expansion, was destined to dull as its international competition sharpened. All of that increasing global productivity set the stage for a global over production condition.

Are they painful. Yes. Until and if humanity moves on to a higher economic system this is what we have

[due_indigence]

Re: In a Nutshell

I too, much to my surprise, have been dwelling on the Marxist overproduction dilemma. As producers chase lower labor costs and the cost of labor is driven downward, the workers become too poor to purchase the fruits of their own labor. Capitalism effectively destroys its own markets.

Remember Henry Ford's $5/day raise to his workers, an unprecedented action at the time. However Ford was a shrewd capitalist who knew his ongoing success relied on demand creation.

Then there's this Engels quote which fascinates me with its prescience:

“Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution.

The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filter off, more or less depreciated in value, until production and exchange gradually begin to move again.

Little by little, the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit and speculation, which finally, after breakneck leaps, ends where it began--in the ditch of a crisis. And so over and over again.

[GRG55]

Re: In a Nutshell

Maybe you guys can help me with a concept I have been ruminating over since I saw this quote earlier, and I have zero economic background so sorry if this is an obvious question: Does the above quote mean that this excess capitalist production must be whittled away for the economy to start again? If so, that could be frightening in its implications and might also explain the boom that occurred after the WWII reset button was hit.

Yep, that's pretty well it.

However, don refers to "Creative Destruction" in his post below. And that is an important point that seems to be lost in the current debate as the economy spins into depression.

Those parts of the economy where there is a mismatch between demand and the capacity to produce are the ones that have to adjust, not every single part of every single economy around the globe. Those that produce what nobody wishes to pay for should "destruct", if not completely, at least to the point that the cost and volume of supply comes back into balance with the market.

In the first instance capacity clearly exceeds any sustainable market demand - the global auto industry is the obvious example of this. The world is never, ever going to buy the number of cars that can be produced by the combined capacity of all the world's auto manufacturers & parts suppliers. Unfortunately everywhere around the world governments are responding the same way; pour public funds into saving their national auto industry. This is delaying the needed capacity adjustment and, even worse, is redirecting needed capital from still solvent parts of these economies in a vain attempt to revive the terminally ill.

In most recessions, most parts of the economy are not that far out of line and adjustments are minor, often temporary, and usually knock out only the highest-cost, most inefficient, and/or most overlevered producers. This recession/depression is shaping up for amplified severity because so many economic sectors all over the globe over-expanded due to seemingly endless amounts of cheap credit, boosting both production capacity and apparent consumer demand simultaneously. Credit is considered a cheaper form of capital than equity, and thus far, far too much of it was used as another means of boosting apparent quarterly financial results to satisfy shareholders and idiot Wall Street analysts [who are quick to slam a company in research reports if it isn't "using it's balance sheet"]. The global real estate industry [every aspect from building materials suppliers to construction to estate agents to mortgage mongers] might be the best example of this worldwide insanity.

Finally, although some will laugh at this suggestion given today's circumstances, there will be, in due course, industries where the mismatch between demand and capacity to produce is in favour of the seller. This is especially likely in those sectors where a unit of product consumed must be replaced with a new unit produced, the "shelf life" of product is short [e.g. not a consumer durable], the cost of holding inventory is high, capacity expansion requires long lead times, and the industry is capital intensive [cheap capital being in somewhat short supply now]. To the degree that sectors exhibiting these factors suffer from significant "Creative Destruction", as overlevered producers go bankrupt in the current depression, future supply-shocks become even more probable.

It's the way it's always worked. Capitalism is the most powerful system yet to unleash human productivity. It's principal contradiction may be, by its very essence, that it in turn eliminates the ability of its major components to afford that productivity. Over Production is the result. That's where Creative Destruction comes in.

Is it truly creative. Yes. When the rival capitalist states annihilated each others industrial base in the Second World War, the slate was clean for those states to re-build with cutting edge technology and methods. The initial, albeit enormous, edge the US enjoyed, having both no damage and unprecedented production expansion, was destined to dull as its international competition sharpened. All of that increasing global productivity set the stage for a global over production condition.

Are they painful. Yes. Until and if humanity moves on to a higher economic system this is what we have

It would appear we are going to get a similar "cleaning of the slate"; hopefully without the same level of mortality.

[GRG55]

Re: In a Nutshell

I too, much to my surprise, have been dwelling on the Marxist overproduction dilemma. As producers chase lower labor costs and the cost of labor is driven downward, the workers become too poor to purchase the fruits of their own labor. Capitalism effectively destroys its own markets...

This misses the fact that labour and capital are in competition. Whenever capital is cheap, more of it is employed in the production process, and this comes at the expense of labour [automation, replacement of plant equipment with newer technology - sometimes overseas]. Can anyone point to time where capital was so plentiful, for so long, and such a low price as the past decade? Capital became so mispriced [essentially "free"] that in early 2007 Private Equity firms were dictating the terms [under which they would borrow money] to the lending banks. Was there anything more absurd? Seems like just yesterday...:rolleyes:

Then there's this Engels quote which fascinates me with its prescience:

“Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution.

The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filter off, more or less depreciated in value, until production and exchange gradually begin to move again.

Little by little, the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit and speculation, which finally, after breakneck leaps, ends where it began--in the ditch of a crisis. And so over and over again.

Sounds like a description of the business cycle. The same business cycle that Central Bankers, like Alan "The Maestro" Greenspan, repeatedly declared was "dead" given the remarkable productivity improvements from IT [during the tech bubble], and later the resilience and "sophistication" of financial system derivatives and computer-model risk-management [VAR] which banished volatility from the vocabulary.

[due_indigence]

Re: In a Nutshell

There needs to be orchestrated a world war that is 'geographically strategic' i.e. it preserves the productive capacity of Asia (seems a waste to raze good factories) and destroys the consumption/demand centers such as N. America and Europe. Human need is easily replicable. Consumption isn't worth fighting for. Good old fashioned destitution in the devloped world would topple the Mazlow Hierarchy and bury the Rostow post-industrial mirage once and for all. The trouble is, the military industrial complex is on the wrong side of the conflict --unless China stops bankrolling it.

Post-war, Asia can serve as the Marshall Planners. You need an oasis like post-world war II America to serve as the spring board for the world.

[GRG55]

Re: In a Nutshell

There needs to be orchestrated a world war that is 'geographically strategic' i.e. it preserves the productive capacity of Asia (seems a waste to raze good factories) and destroys the consumption/demand centers such as N. America and Europe. Human need is easily replicable. Consumption isn't worth fighting for. Good old fashioned destitution in the devloped world would topple the Mazlow Hierarchy and bury the Rostow post-industrial mirage once and for all. The trouble is, the military industrial complex is on the wrong side of the conflict --unless China stops bankrolling it.

Post-war, Asia can serve as the Marshall Planners. You need an oasis like post-world war II America to serve as the spring board for the world.

Huh? What exactly is the point of preserving production if there is no consumption? Without the latter there is no need for the former. [Or are you implying that consumption in the producing region...Asia...can be the foundation for rebuilding the world economy?]

The whole purpose of any economic system is to create production that meets demand from a consumer willing to pay for that good or service. This is the important point that is completely missing from the debate over the General Motors and Chrysler bailouts. Not only is the government foolishly trying to preserve the production of vehicles for which there is no consumer, but those who slam GM and Chrysler as "dinosaurs" overlook the fact that there isn't enough of a market to support Toyota, Honda, Nissan, BMW, Mercedes and all other car manufacturers aggregate production capacity either.