The ‘Implications’ of Paul Baran, Pt 3

Forty-six years after ‘Monopoly Capital’

The special July-August 2012 edition of Monthly Review, devoted to the critique of economics, not only includes Paul Baran’s “Implications” and correspondence between Baran and Sweezy that is invaluable in understanding the past of Marxist political economy and monopoly capitalism. It also contains an article by John Smith of Kingston University in London that points to the kind of Marxist economics that is necessary to understand the monopoly capitalism of the early 21st century.

“Monopoly Capital” was published 56 years after Rudolf Hilferding’s “Finance Capital” and 50 years after Lenin’s pamphlet “Imperialism.” The period of time that now separates us from “Monopoly Capital” is approximately the same as that separating Rudolf Hilferding’s “Finance Capital” and Lenin’s Imperialism from Marx’s “Capital.”

The world of ‘Monopoly Capital’

As we have seen, “Monopoly Capital” was very much a book of its time. It reflected the changes that had occurred between the era of Hilferding and Lenin and the time that “Monopoly Capital” was written in the late 1950s and early 1960s. Let’s review what those changes were.

The most important was the impact of the Russian Revolution of October 1917, which proved to be the defining event of the entire 20th century. For the first time in history, the working class seized and held state power for a substantial period of time. The working class held power long enough to embark on the construction of socialism. As a result, for the first time world capitalism faced a rival economic system that proved in practice, not just in theory, that capitalists are not necessary for modern industrial production.

The other defining event of the last century was the great Chinese Revolution of 1949. Only today can we fully appreciate the significance of this revolution. It began a process of shifting the center of human civilization from Europe and its “white colonies”—including the United States—toward Asia. The days of using the term “Asiatic” as a synonym for backwardness are gone for good.

These revolutions—and there were many others—forced the capitalist classes to make unheard-of concessions to the working classes of the imperialist countries in order to maintain capitalist rule. These revolutions also completely undermined the old European colonial empires—most importantly the British Empire. In contrast, the European empires were near the peak of their power when Hilferding published “Finance Capital” in 1910.

Empire, Revolution and Counterrevolution

Reader Terry Coggan commenting on my reply on the European crisis wrote: “Thank you for your series of posts over the last several years—I have found them extremely useful. You wisely avoid overt political comment. Where you do depart from your own guideline, as in note 8 to this post where you label the rebellions in the Arab world as ‘counter-revolutionary’—an opinion that can at best be described as controversial—I feel you risk compromising the value of your blog.”

Politics and economics

I have and will continue to keep this blog focused on basic economic theory, especially crisis theory. But as Marxists, we cannot really separate economics from politics. It is a basic tenant of historical materialism that changes in the economic situation will lead sooner or later to important political developments, including both revolutions and counterrevolutions.

Over the last several years, we have seen increasingly radical shifts in the politics of many quite different countries. For example, we have seen waves of demonstrations and strikes in Greece, Spain, Ireland, France, Ireland and Britain. In the United States, we saw after decades of retreat by the trade unions the struggle of the Wisconsin public workers against the attempt to deny them the basic labor rights of collective bargaining and union representation. Just months later we saw the rise of the Occupy movement, beginning in the United States and then spreading around the world. The Occupy movement itself was inspired by the Egyptian revolution that overthrew the hated long-time Egyptian dictator Hosni Mubarak last February.

In analyzing the revolutions of 1848, Marx explained that the outbreak of the European revolutions of that year, which stretched from France in the west to Hungary in the east, was triggered by the worldwide crisis of overproduction that came to a head in London in October 1847.

The ebbing of that revolutionary wave, according to Marx, was largely determined by the onset of a historic wave of economic prosperity caused by the discovery of gold in far-off California in 1848 and Australia in 1851. He considered this development to have had even greater importance than the revolutions of 1848.

It is pretty clear that the current upheavals—of which the revolutions in the Arab world are the most important component, so far at least—are rooted in the worldwide crisis of overproduction that came to a head in New York in September 2008 with the collapse of the Lehman Brother’s bank. Although the future evolution of the economic situation is as always uncertain, it seems extremely unlikely that the world political situation will be stabilized by new gold discoveries comparable to the discoveries of 1848 and 1851.

In my footnote to which Terry Coggan refers, I most certainly did not say that “the rebellions in the Arab world” were “counterrevolutionary.” We have seen “rebellions” in Morocco, Jordan, Yemen and Bahrain, and even demonstrations in Saudi Arabia, as well as the overthrow of the governments of Egypt and Tunisia. In addition, we saw a movement that succeeded in overthrowing the Muammar Qaddafi government in Libya but only with the help of direct U.S. and NATO military intervention.

There is also a movement in Syria trying to bring down the government of Bashar Assad. Unlike the movement in Yemen against the long-time dictatorial President Abdullah Saleh, or movements against the absolute monarchies in the Arab world, the movement against Assad and his Baath Party enjoys the support of the governments of the U.S., Britain and the European Union.

U.S. President Obama has demanded that President Assad leave office, just like he previously demanded that Qaddafi surrender power in Libya—though Qaddafi held no formal posts in Libya. Such a demand goes counter to the basic principle of bourgeois democracy that the question of who leads the government of a given country is the business of the people of the given country alone—especially if it is a historically oppressed country—and is none of the business of the leaders of a foreign government.

All democrats, as well as socialists if they are to remain consistent with their principles, must demand that the Obama administration and other imperialist governments halt their interference in the internal affairs of Syria and resume normal relations with the Syrian government. This should be done independently of whether or not we like or approve of the Bashar Assad government.

I expressed an opinion in a footnote that the movements in Libya and Syria are out of step with the movements against the U.S.-supported monarchies and dictatorships in other Arab countries. This opinion, I admit, goes counter to the view propagated in the 1 percent-controlled media that there is a common “Arab Spring” that includes the Egyptian and Tunisian revolutions but also the overthrow of the government of Libya with the help of NATO’s bombers. The same false amalgam includes the movement attempting to overthrow the Syrian government with the support of the U.S. and Europe as well as the Arab League, which is dominated by reactionary Arab governments, many of them monarchies.

The American Empire and the Evolution of the International Monetary System

As we have seen, the law of uneven development as it manifests itself under capitalism is rooted in the fundamental laws that rule capitalist production.

The law of the uneven development of capitalism means that capitalist production in one country will develop with a vigor that far exceeds the development of other countries engaged in capitalist production. But in the next historical period, the country that was developing its capitalist production with exceptional force begins to decay while another country—or group of countries—develop their capitalist production with great vigor, which in turn will be doomed to decay in the following historical period.

At the very dawn of capitalist production, the Italian city state of Venice was the leading capitalist power. Then came the turn of the Netherlands, followed by Britain and now the United States. During the 20th century, the United States evolved into a world-spanning empire with military bases around the globe.

The American empire commands military power that dwarfs any potential competitor. As Mao-Zedong bluntly put it, (political) power grows out of the barrel of a gun. And indeed, America’s unchallenged military power—the gun—translates into unprecedented political power. This is what we mean by the American empire, or “the Empire” for short. But “the gun” depends on the ability to produce “guns,” and the ability to produce guns reflects the development both relatively and absolutely of the productive forces.

The Bloody Rise of the Dollar System

The current dollar-centered international monetary system is the result of a century of competition among the capitalist nations, especially the imperialist countries. The competition that led to the current dollar system was not only economic but also political and not least military. The military competition took the form of not one but two of the bloodiest wars in world history.

Relationship between economic, political and military competition

Although there is not a one-to-one relationship between political-military and economic competition among capitalist countries, political-military competition is ultimately rooted in economic competition. So in examining competition among capitalist countries, we first have to look at economic competition. What are the economic laws that govern competition and trade among different capitalist countries?

First, let’s review the laws that do not govern international trade under the capitalist system. Using the quantity theory of money and, at least implicitly, Say’s Law, the (bourgeois) economists picture competition among capitalist nations as a friendly game in which everybody emerges the winner. Within each country, according to the economists, “full employment” reigns.

According to the modern marginalist economists, under perfect competition each “factor of production”—land represented by landowners, capital represented by capitalists, and labor represented by workers—gets back in rent on land, interest on capital, and the wages of labor precisely the value each creates. Our economists claim that as long as “perfect competition” exists, no “factor of production” can exploit another factor of production.

Similarly in world trade, every country benefits by “free trade.” According to the theory of comparative advantage, each country concentrates its production on what it is comparatively best at, not necessarily absolutely best at. According to this theory, even if a given country has a below-average level of labor productivity in every branch of production, there will always be some branch where it will enjoy a comparative advantage enabling it to prevail in international competition.

Therefore, if we are to believe the economists, countries that are deficient in modern productive forces benefit from international trade just as much as the countries that monopolize the world’s most advanced productive forces. The result, the economists claim, is the most efficient system of global production that the prevailing technical and natural conditions of production allow.

World Trade and the False Theory of Comparative Advantage

Some introductory remarks

This reply and the one that will follow should be seen as a continuation of my reply criticizing the view of economist Dean Baker that the U.S. dollar is “overvalued” and his claim that the U.S. trade deficit could easily be corrected and the U.S. unemployment crisis eased by simply lowering the exchange rate of the U.S. dollar against other currencies.

I had originally planned to continue the discussion of world trade and currency exchange rates the following month but the contrived U.S. government debt crisis in August forced a change of plans.

Reader Mike has made some interesting remarks about world trade and the dollar system—the foundation of the American empire, which has dominated the world politically, militarily as well as economically since World War II. To understand the growing threat of a renewed crisis barely two years after the official end of the “Great Recession” of 2007-09, it is important to understand both world trade and the dollar system.

Discussing Baker’s arguments for a lower dollar, Mike wants to know if there is an objective basis for determining if currencies are “high” or “low” in relation to one another. Baker summarizes his argument as follows:

“The U.S. pattern of spending more than it takes in is due to the fact that the dollar is too high. In a system of floating exchange rates, like the one we have, the price of currencies is supposed to fluctuate to bring trade into balance. This means that the trade deficit is caused by the over-valued dollar and a decline in the dollar is the predictable result.”

The obvious problem with the view that the U.S. dollar is “overvalued” is that ever since the end of the Bretton Woods system 40 years ago, the exchange rate of the U.S. dollar has shown a secular tendency to decline against other currencies. If the dollar was “too high” in the sense that there is a correct level of exchange rates that would end the U.S. trade deficit, why hasn’t the secular fall in the dollar brought the U.S. trade account into balance?

Dean Baker on the Price of Oil

Recently, Mrzine, the online magazine of the Monthly Review Foundation, published the testimony of the left Keynesian economist Dean Baker to the U.S Congress. Baker attempted in his testimony to refute the claims made by right-wing bourgeois economists that the spike in oil and gasoline prices earlier this year was caused by the U.S. Federal Reserve Board’s policy of “quantitative easing.”

What is “quantitative easing”? And why has the U.S. Federal Reserve System, which under the dollar system acts in effect as the world’s central bank, been following such a policy?

Last year, the outbreak of the European sovereign debt crisis, followed by a distinct pause in the global economic recovery, brought fears of a renewed global recession. The U.S. Federal Reserve Board announced that it would purchase $600 billion worth of U.S. bonds in a bid to stave off a “double-dip” global recession. Or what comes to exactly the same thing, the Fed in effect announced that it was going to transform $600 billion in U.S. government debt into green U.S. paper dollars—or their electronic equivalent.

Since last December when the quantitative easing program actually kicked in—it had been announced earlier—the quantity of token money denominated in U.S. dollars has jumped by more than 35 percent. To put this number into perspective, during the prosperous post-World War II years, the quantity of U.S. token money rarely grew more than 3 percent per year.

Between May 21, 2010, and April 29, 2011, oil prices jumped almost 62 percent, peaking out at over $113 per barrel. In response, gasoline prices have soared. World food prices have also increased sharply in terms of the depreciated U.S. dollar.

Even before the explosion in the quantity of dollar token money began, speculators anticipating the expected increase in token dollars began to push up the dollar price of gold, oil and primary food commodities. The dollar price of gold rose from $1,177 per troy ounce on May 21, 2010, to $1,556 per troy ounce on April 29, 2011. Or what comes to exactly the same thing, the U.S. dollar in terms of gold was devalued against gold by more than 24 percent in the same period.

When speculators expect a change in the quantity, or rate of growth of the quantity, of token money, they act accordingly, causing currency prices of gold and primary commodities to change even before the expected change actually occurs. If the expected change fails to materialize, markets will then react sharply in the opposite direction. This is exactly what happened in late 2008. But this was not the case in 2010 and 2011, since this time the expected changes in the quantity of dollar token money have indeed fully materialized.

So it would seem on this issue that the right-wing bourgeois economists who blame the U.S. Federal Reserve System for the spiking oil, gasoline and food prices have a point, though the alternative might well have been a renewed global recession.

However, in his congressional testimony the progressive economist Dean Baker challenged the view that the Federal Reserve policies have had much to do with this year’s spiking oil and gasoline prices. (Baker didn’t deal with the question of food prices in his congressional testimony.) Since the MRzine editors decided that Baker’s testimony was worth publishing, it is worth examining Baker’s arguments in some detail.

Presumably, MRzine published Dean Baker’s testimony because the editors believe that Baker is the kind of left Keynesian that Marxists can and should be working with as part of Monthly Review’s general policy of attempting to push the U.S. economics profession back toward Keynesianism, which dominated it in the years immediately after World War II, as opposed to the neo-liberal theories that have dominated since the 1970s. Indeed, Baker as an economist is probably about as far to the left as you can get in the U.S. and still be a bourgeois economist. It is therefore instructive to examine Baker’s approach to the question of the recent rise in oil and gasoline prices.

A Keynesian Takes on Karl Marx

In this reply, unless otherwise noted, text in italics and in brackets in Marx quotes is carried over from the version taken from the Marxist Internet Archive.

A friend N has asked if there is any difference between “the over-accumulation of capital” and “the overproduction of commodities.” Another friend M sent me a critical article by leading American Keynesian economist Brad DeLong on Chapter 17 of Marx’s “Theories of Surplus Value.” DeLong’s article is titled “Marx’s Half Baked Crisis Theory and His Theories of Surplus Value, Chapter 17.”

It so happens that in Chapter 17 Marx deals with the relationship between the “overproduction of capital”—also called the “over-accumulation of capital”—and “the overproduction of commodities.” The economists of Marx’s time—the middle years of the 19th century—admitted the “overproduction of capital”—equivalent to the over-accumulation of capital—while denying the “overproduction of commodities.”

Therefore, DeLong’s critique of Marx and N’s question about the relationship between the overproduction of commodities and the over-accumulation of capital are connected by Chapter 17 of “Theories of Surplus Value,” the target of Brad DeLong. It is therefore possible to deal with DeLong’s critique and N’s question in a single reply.

Are Marx and Keynes Compatible? Pt 3

In the October 2010 edition of Monthly Review, John Bellamy Foster wrote that John Maynard Keynes demonstrated that ”the economy did not automatically [emphasis added—SW] equilibrate at full employment.” (“Notes from the Editors”)

Here Foster does not in any way distinguish his own views from those of Keynes. He seems to assume that Marx as well held the view that while capitalism does not automatically equilibrate at full employment it can be made to do so if the government and the monetary authorities follow policies designed to achieve full employment. This was indeed Keynes’s opinion. But did Marx agree? Is it really possible to achieve full employment under the capitalist system?

Are Keynes and Marx Compatible? Pt 2

John Bellamy Foster’s Case for Keynes

I explained in last month’s reply that John Maynard Keynes is the leading economist of non-Marxist progressives. Marxists themselves are sharply divided on the nature and usefulness of Keynes’s work and its relationship to Marxism.

As a rule, Marxists who support the Grossman-Mattick school or other schools that blame capitalist crises on the periodic inability of the capitalists to produce sufficient surplus value to maintain capitalist prosperity are quite hostile to Keynes’s work. According to these schools, the only way out of a capitalist crisis within the limits of the capitalist system is to increase the rate of surplus value―the rate of exploitation of the workers―and thus restore an “adequate” rate of profit for the capitalists.

Any attempts by a government inspired by Keynes’s theories to restore the purchasing power of the people during a capitalist crisis only makes it more difficult for the capitalists to restore an adequate production of surplus value. Therefore, the “not enough production of surplus value” schools of Marxist crisis theory hold that Keynesian policies only make a capitalist crisis worse. By spreading dangerous reformist illusions about the possibility of improving the condition of the working class and its allies within the capitalist system, these schools of Marxists claim the “Keynesian Marxist” tendencies such as the Monthly Review School build support for opportunist reformist tendencies within the workers’ movement.

A New Gold Standard?

A reader asks, what is the significance of the reported moves by the central banks of China, India, Russia and perhaps other countries to increase their gold reserves? Why are China, India and Russia moving to increase the percentage of their reserves held in gold as opposed to foreign currencies such the dollar and euro? Could the moves of these countries to increase their gold reserves point to a possible revival of the international gold standard in some form?

The answer to the first question is that these countries are nervous about the future of all paper currencies. During the first phase of the crisis of 2007-09, the dollar fell not only against gold but also against the euro. Naturally, countries increased the percentage of euros in their reserves, since it seemed like a good bet against the falling dollar.

Then came the sovereign debt crisis in Europe that assumed acute form just a month or so ago. The euro plunged against the dollar. But the dollar is not looking too good itself. While the dollar was soaring against the euro, it was slipping against gold, the money commodity. For the first time, the dollar price of gold inched above $1,200. Unlike paper currencies, gold is a commodity. And like all commodities, its value is determined by the amount of labor socially necessary to produce it under the prevailing conditions of production.

With the world’s gold mines facing growing depletion, the value of gold for the foreseeable future seems a little more certain than the future value of any paper currency, whether the dollar, euro or yen. No matter how bad things get, gold cannot be “run off the printing presses.” New gold can be produced and the existing supply increased only by the slow process of the labor of workers in the gold mines and in the gold refining industry.

Does this mean that the international gold standard is about to be restored? The answer for the immediate future is a definite no. The three countries that are reportedly moving to increase their gold reserves are not imperialist countries. Indeed, these countries have few gold reserves. The great bulk of the gold that is held by governments or central banks is held by the governments of the United States and the European satellite imperialist countries such as Germany, France and Italy.