HOMEStrategies for building awareness for the potential of peace education in Cameroon Ben Oru Mforndip
Has Democracy Enhanced Development in Africa? Conrad John Masabo
Permanent Emergency Powers in France: The ‘Law to Strengthen Internal Security and the Fight Against Terrorism’ and the Protection of Human Rights Lena Muhs
Women’s Political Representation in Sri Lanka: Leading towards Prosperity or Peril Pujika Rathnayake
Lack of empathy as a threat to peace Victoria Scheyer
The death of democracy in Honduras Daniel Bagheri S.
Berta Vive Daniel Bagheri Sarvestani
The Persons Who Changed the Lives of Terrorists and Criminals Surya Nath Prasad
RECENT ARTICLES Teaching Peace from Tales of the City: Peace Education through the Memoryscapes of Nagasaki Patporn Phoothong
Reflections of Refugees in Africa Wyclife Ong'eta Mose
Challenges and prospects of AU to implement the Ezulwini Consensus: The case of collective security and the use of force Tunamsifu Shirambere Philippe
The Right to Food Shant Melkonian
Freedom of Expression Under Threat in Zambia Mariateresa Garrido
Douglas Janoff on LGBTQIA Human Rights Luciana Téllez
Common Things: Communication, Community, Communal Peacebuilding Lina Patricia Forero Martínez
The political Crisis of the 2017 Honduran Election Daniel Bagheri S.
Water Security in the Sixaola River Basin Adrián Martinez Blanco and Diana Ubico Durán
Reborn Arunima Chouguley
An Open Letter to the American People: Political Responsibility in the Nuclear Age Richard Falk, David Krieger, and Robert Laney
Last Updated: 05/04/2009The real roots of the 2007-2009 economic crisis: questions and answers
Simon Stander discusses the real roots of the 2007-2009 economic crisis with questions and answers and with help, sometimes but not always, from Karl Marx. As is occasionally said Marx is good for analysis but not always for prediction. Simon Stander, formerly professor of Peace Studies (and founding editor of the Peace and Conflict Monitor) at UPEACE seems to agree.
What has caused the economic recession/great recession/mini-depression? So far when you examine the suggested causes there is not much to go on. The sky high bonuses to CEO’s of major financial institutions have been suggested, not seriously as a cause, more of a symptom of something being rotten in the state of capitalism. When you measure how much these people (mostly men) have received against the total amount of cash and other assets floating around these bonuses cannot have been responsible for much at all. These bonuses appear to be morally wrong, of course, but there is a lot morally wrong about capitalism. A more convincing approach has been to place blame on the unregulated global movement of financial instruments, especially such as CDO (collaterized debt obligation) or the SIV (structured investment vehicle). Generally speaking many and various institutions in the financial sector have been increasingly willing to make short term gains since the last recession of the late 20th and early 21st Century. What have these short term gains been about exactly? Has the answer something to do with sheer greed, the kind of greed that Gordon Gekko so lovingly praised in Oliver Stone’s movie Wall Street which came out well-timed in 1987 just as the last but one big economic crisis broke? The answer is that greed or more properly the drive to maintain the rate of profit is, indeed, at the root of the problem, but this greed is not simply a matter of individual action by greedy men (mostly men): the whole capitalist system is driven by the profit motive and, in this system, it is not simply necessary to make profit: it is necessary to maintain the rate of profit. When the rate of profit begins to fall the mass of capitalists will seek to increase the mass of profit (which is why we get amalgamations, mergers, take-overs, buy-outs and the like) and then when that is not good enough big corporations (especially) will cheat, defraud, swindle, deceive, duck, dive, weave and, if necessary, completely flout the law let alone completely bypass regulators and tax collectors. Who says so? Well, Karl Marx was the first to notice that the key to understanding why capitalism moved through a series of seemingly unending crises was this tendency (he called it a tendency) for the rate of profit to fall. “Wages,” he said, “must not rise faster than growth in productivity… the ratio between the mass surplus-value and the total capital applied in fact constitutes the rate of profit, which must therefore steadily fall. Simple as the law appears…not one of the previous writers on economics succeeded in discovering it…..One might well say that it forms the mystery around whose solution the whole of political economy since Adam Smith revolves.”
When general limited liability was introduced into the capitalist system in the Britain of the 1850’s making the introduction and sale of shares possible on a broad scale, a massive acceleration in the concentration of capital took place, and, indeed, we can take this date as the beginning of the domination of the corporation in modern advanced economies. Writing at the time of the birth of the modern corporation and during the next decade, Marx saw the dangers immediately. “It [the corporate system] reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators, and merely nominal directors; a whole system of swindling and cheating by means of corporate promotion, stock issuance and stock speculation.” Once this environment benefitting financial capitalism has been created and then expanded it becomes impossible to eradicate it. What is worse is that as the drive to maintain the rate of profit intensifies, capitalism which brings the potential benefits of more things and a higher standard of living for many is partially negated by a) its tendency to overproduction and b) its tendency for the rate of profit to decline both of which create an INEVITABLE economic instability. Therefore, the route to stabilisation is to find a cure to the overproduction and restore the rate of profit. This can only be done through “capital’s lying idle or even by its destruction under all circumstances”.
Now we can put the argument in a lengthy soundbite: when the drive for high rates of profits reaches a certain point, capital is forced to lie idle or is actually destroyed. It’s a great pity, of course, if it is your capital or mine that is destroyed, but that is the price you pay if you are one of those standing to gain at other rosier points of time in the economic cycle. In due course, when the economy reaches a new equilibrium point, a point when the profit rate improves and the worst of the state of overproduction is over, the capitalist system will expand. This means that we can now coin another lengthy soundbite: the recession or economic crisis is not the problem but the solution to the problem (of over overproduction and a falling rate of profit).
We now have a simply expressed, though irresolvable, contradiction: the solution for achieving permanent capitalist economic growth is recession but the solution to recession is capitalist economic growth. After all after the destruction of many $trillions of global financial assets, Obama is throwing in a paltry $trillion or thereabouts to revitalize the capitalist economy. Needless to say it will take time and pain for global capitalism to find a new equilibrium but it will do so within a couple of years or so. How can I say with such confidence that a new equilibrium will be found? We have to answer a new question: how is the huge surplus produced by capitalism absorbed and how is it that capitalism survives regular shocks to the system? Be assured: there is an answer to this. Whereas you can find out more about the tendency of the rate of profit to fall if you read the relevant bits of Marx’s Capital ; thus what I have said earlier is no mystery. However, the answer to why capitalism survives will not be found there. After all Marx was building up to suggest that capitalism would collapse under its own weight with a helpful and none too easy assistance, from a conscious proletariat.
To answer the newly posed question regarding the survival of capitalism through crises, we need to re-examine radically the nature of the class system that has been produced under capitalism. In the classic formulation, there are only two classes that count: the capitalist class and the working class. Economic crises, it was supposed, would provide the conditions for the collapse of capitalism (and its possible replacement with socialism). However, when we re-examine the class system we still find a capitalist class and a working class but in addition we find a powerful new class that has hitherto been undiscovered even though it has, since 1945, been responsible for the survival of capitalism as crises have occurred with great regularity. After all, capitalism has encountered recession or slump or financial crisis or depression at least every decade since industrial capitalism first emerged in England at the end of the eighteenth century. The 2007-2009 crisis is simply the latest of many crises endemic to the capitalist system and a bit more severe than some. I label this potentially powerful new class the absorptive class or “the shock absorbers”. What is this new class? How is it constituted? What are its roles or functions?
To answer this question, we have to remember that the capitalist system is a system dedicated to the production of commodities and produces vast quantities of them. It is not in essence a consumer society. Under the modern capitalist system, production is always dominant over consumption. This brings us to the roles performed by the absorptive class. First, the absorptive class has the job of absorbing the commodities that are produced. Without this class there would be insufficient purchasing power in the advanced economies to deal with the massive output that occurs as a result of what is lovingly called “economic growth”. Second, the absorptive class has also to absorb the shock of re-current economic crises in that they have to experience much of their personal surplus assets destroyed and thus help the capitalist system to find a new equilibrium where it can launch into a new phase of production during which capitalists can derive a high rate of profit. Third, the absorptive class has the function of absorbing the political shock that occurs as a result of the economic shock. A simple and current example of this latter point is that, instead of rioting on the streets, promotion of revolution or conducting other serious breaches of the rules and conventions of civil and civilised society, the absorptive class has voted Barack Obama into office in the USA. And in return he offers what is, in effect, a paltry solution to a wounded system that can only be mended by the crisis itself for as we have seen the crisis itself is the solution to the problem of overproduction. No doubt there will be street demonstrations before the crisis is over. There are some in the UK and France and there will be others, but overwhelmingly the rule of law will hold and the absorbers will mostly behave themselves. Having absorbed the commodities they will absorb the crisis.
Who are the absorbers? Where and what is this class? Well, this now requires a feat of imagination and involves a degree of abstraction. There are genuine capitalists of all sorts and there are workers in the traditional sense. In addition there is huge mass often referred to as the middle class or the middle classes. Politicians refer to them frequently. Joe Biden, the vice-president of the USA has been given the job of protecting this middle class. Groups describe themselves as being of the middle classes. It is not clear whether there is one middle class or several or they can be differentiated in some way, one sub class from another. One author has discovered the creative class, another might refer to the political class. We do not know how to separate this class from the elite or from elites. Sociologists have always had trouble among themselves in deciding exactly what a class is, and Marx and Engels especially are no real help other than knowing that classes exist. Marx started to develop a class analysis in his unfinished Volume III of Capital. He did not get very far, managing literally a few lines and died before he could get back to the job. Durkheim knew that classes existed as did Max Weber. Left-wing parties like the Labour Party of Great Britain or Social Democrats in Germany knew they existed. They are there but we can’t see them with too much clarity. The first step to clarity in respect of the absorptive class is to deal with the problem of the individual. We all appear to be individuals. We are told that we live in a society based on individualism. We are all essentially and existentially alone and are told each person must take responsibility for his her own actions; we are told that you are not an adult until you take responsibility for your own actions; community in the form of the welfare state is denigrated as the “nanny” state. As we grow up as individuals we must let go of nanny’s hand and stand on our own feet: get an education, get a job, learn about family planning, learn to drive, get a car, get a mortgage; we have to find the wherewithal to fill the house up with things, buy the services of commodified professionals like lawyers, accountants, actuaries, massage therapists, psycho-therapists, doctors, nurses, pharmacists, airline pilots, chefs, hoteliers, mechanics, grocers, vets, journalists, web designers and so on endlessly. In other words all individuals are driven to absorb vast quantities of commodities in the form of goods and services. However, the individual is not a whole person sadly to say. And that means you and me. At one level only a part of him or her is required, maybe a limb or two or a back or a brain. Also the individual may not actually be wholly a capitalist or a worker or a member of our newly discovered class of absorbers. Thus all classes are made up of fractions of individuals which is why most of us suffer severe angst. Each of us is made up of fractions and we are not clearly conscious of what are our main roles are in the capitalist system or in our everyday activities.
The second point is to note that in the system of capitalist production, huge surpluses are produced to satisfy wants for profit over and above the satisfaction of needs and these surpluses have to be absorbed otherwise we have what we now have which is an economic crisis. Some of the surplus can be absorbed by the military and by government demands, but the bulk of the vast surplus has to be consumed. The capitalist system therefore has to produce along with the commodities a class of people to consume them. This is the absorptive class which in essence might include almost everyone as long as the individual consumes something above what can be described as the satisfaction of a need. At the same time some individuals are also workers and also capitalists. But we have seen that the individual is not really an individual but a fraction so that the absorptive class is a massive collection of fractions of people rather than an enormous collection of individuals that you can see before your very eyes as might be expressed by a demonstrating mass of urban workers.
It is not surprising, then, that the absorptive class, despite its vital roles and its huge size cannot be seen. Its existence has to be arrived at initially theoretically rather than empirically.
Readers with an interest in peace and conflict may wonder what is the relevance of this discovery of the absorptive class is their teaching and their studies. Having taught peace studies and related subjects for nearly a decade I would say the following two points:
· The existence of the absorptive class explains why much violence is contained within nation states that are for the most part central to capitalism.
· The commodity narcissism that is produced by the system of production as a necessary feature of the producer society results in much repressed violence which emerges in the form of homicides and high prison populations.
For a more detailed argument relating to all the points made in this article you may wish to read the book, largely authored by myself and edited by Paul Zarembka with contributions from other academics concerned with the nature of economic crises. It is available from www.amazon.com; it is cheaper still from www.amazon.co.uk; and even cheaper from www.waterstones.com. Why this discrepancy in price? I really can’t say. I am only an economist and what do we know? Not much, many of you would say, but hopefully my analysis adds some deeper insights than most, an advantage of interdisciplinary work and the stuff of peace studies.
WHY CAPITALISM SURVIVES CRISES: THE SHOCK ABSORBERS, Simon Stander (author) and Paul Zarembka, Editor, RESEARCH IN POLITICAL ECONOMY, Volume 25, Emerald Group Publishing, forthcoming 1 June 2009.
simon Stander is the founding ediotr of the Peace and Conflict Monitor. Comments to firstname.lastname@example.org or to Simon Stander, email@example.com.