Are crises caused by overproduction?
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There’s an interview here from last year with Paul Mattick Jnr who puts an opposite view : that the present crisis has been caused by a fall in the rate of profit caused by capital-intensive technical development or rather by the failure to overcome this by personal and government borrowing and spending. Not too sure that this is entirely convincing, but the conclusion he draws from it that the only capitalist way-out of the crisis is austerity seems sound enough.The trouble is he spoils it by suggesting that workers ignore or take on the state by helping themselves to food, housing, etc whereas the obvious lesson is to organise politically to win control of the state and abolish capitalism that way (while of course fighting a rearguard action to try to slow down austerity). As we’ve always said, if workers are not prepared to vote for something they’re even less likely to take so-called “direct action” to get it.
ALB explains “In fact, from one point of view, a crisis is caused by capitalists choosing not to buy (not invest profits because they judge they won’t make any profits or not enough).” i came across this but lost the link “The current crisis of capitalism is that there is “surplus liquidity”. In other words, the rich have so much wealth they have exhausted places to store it. If it is not invested its value depreciates. And they won’t invest unless it produces a return. This is why we see record amounts being spent on gold or on art (ironically mostly on art that depicts the pain and isolation of capitalist society). While workers are having their jobs and wages cut and governments are enforcing austerity, companies have never held so much cash. As one author reports: “Globally, companies are sitting on more than $5 trillion.” This is a classic case of “over-production”. “
alanjjohnstone wrote:ALB explains “In fact, from one point of view, a crisis is caused by capitalists choosing not to buy (not invest profits because they judge they won’t make any profits or not enough).”One such link:-http://www.huffingtonpost.com/2011/12/06/corporate-america-is-sitting-on-the-solution-to-the-jobs-crisis_n_1132445.html
Among the articles from the 1950s just added to the Socialist Standard archives section on this site (go to Publications/Socialist Standard/Archive) are three on the subject of capitalist crises:http://www.worldsocialism.org/spgb/socialist-standard/1950s/1957/no-631-march-1957/crises-catastrophe-and-mr-stracheyhttp://www.worldsocialism.org/spgb/socialist-standard/1950s/1957/no-632-april-1957/further-reflections-criseshttp://www.worldsocialism.org/spgb/socialist-standard/1950s/1959/no-656-april-1959/affluent-society-pt2-marx-and-underconsumptionThey set out the theory of crises developed by the Party and criticise alternative theories and are still relevant and insightful today.
“… It is not a fact that too much wealth is produced. But it is true that there is a periodical over-production of wealth in its capitalistic and self-contradictory form. . . . The capitalist mode of production for this reason meets with barriers at a certain scale of production which would be inadequate under different conditions. It comes to a standstill at a point determined by the production and realisation of profit, not by the satisfaction of social needs.” Vol 3 (p. 303).
ALB explains “In fact, from one point of view, a crisis is caused by capitalists choosing not to buy (not invest profits because they judge they won’t make any profits or not enough).” Returning to previous posts on just how much exactly we have now figures for just British companies and also for Europe rather than US or world stats.”British listed companies are sitting on a cash hoard worth a total of about £19 billion as they hold off from investing due to the shaky economic outlook. Research from corporate financial health monitor Company Watch found that 211 UK-listed non-financial companies are sitting on cash of at least £1 million. Construction giant Amec led the way with £521m, followed by fashion house Burberry, which has £338m in the bank. Argos and Homebase owner Home Retail Group has £194m stashed away and Carphone Warehouse has £103m. Companies in other Western European countries are holding even more money, although nowhere has as many hoarders as Britain. In total, European firms are sitting on £110bn net cash. A survey of chief financial officers (CFOs) from accountancy firm Deloitte, which showed worries about recession and a break-up of the euro are having a direct impact on the confidence, behaviour and business strategies”In regards, to B of E injecting all that Quantitative Easing – as the saying goes – you can lead the horse to water but you can’t make it drink. No prospect of profit – no investment and the money put under the mattress big style!!!http://www.scotsman.com/business/economics/cash-is-king-for-uk-listed-companies-seeking-security-in-face-of-global-woes-1-2400234
Just to continue how companies are actually cash-rich and not re-investing but hoarding – can it be described as a capitalist strike? – these links may be useful.The FT writes that in 2006, corporate treasuries placed a mere 23 per cent of their funds in banks. But 2011, the proportion of funds sitting in banks doubled – and this year it rose above 50 per cent. Companies are eschewing capital market products, since they think that the returns are too low to justify the risk.Another factor that is prompting this flight towards the bank is a perception that bank deposits are relatively safe, if they are Federal Deposit Insurance Corp insured. Thus, the favorite destination for treasurers now is a non-interest bearing account, which carries a FDIC stamp. Never mind that this is producing negative returns; it does at least promise to return the cash. And that is important in a world where 98 per cent of treasurers are now also telling the AFP that their top priority is to protect their money, not earn yield.It could take years before they really start feeling confident enough to take long term investment bets again. The velocity at which money moves around the system – and cash is used in a productive way – may have now slowed in a more permanently; doubly so since the banks themselves are very risk averse and wary of lending. A corporate freeze is a world where money has slower velocity is also a place where it will be harder to produce growth.Companies could return to the capital markets again. History suggests that greed usually triumphs fear, in the end.http://www.ft.com/intl/cms/s/0/e234e886-cc38-11e1-9c96-00144feabdc0.html#axzz20VC9pG00This story seems to be verified by this article in Business Insiderhttp://www.businessinsider.com/the-world-is-experiencing-the-opposite-of-a-sovereign-debt-crisis-2012-7Borrowing costs for government are plummeting everywhere. US 10-Year Treasury, which is once again within a few basis points of an all-time low. Australian 10-yr bonds are at new lows. What this essentially means is that there’s a lot of money out there that sees no productive investments in the real world, and thus people are willing to stick it with entities that promise them a very meager return. It’s not about governments reaching their end-game. It’s about a growth-deficient world, governments being the one place that can absorb all this money.
“Never before in the history of the world has so much cash been hoarded in so many places by so many large organizations…Canadian companies have piled up more than $525 billion in cash reserves – almost a third the size of the entire economy – up from little more than $150 billion a decade earlier. According to a recent analysis by the Gandalf Group, at least 45 per cent of Canada’s biggest companies are hoarding cash rather than investing… In America the Federal Reserve estimates that a staggering $5.1 trillion – an amount larger than the economy of Germany – is piling up in American corporate cash holdings…In Britain, companies have accumulated almost $1.2 trillion in cash and deposits, equivalent to half the entire economy. And, no surprise, investment there grew by only 1.2 per cent last year……It’s strange, because this should be a great time for companies to invest: low prices, low interest rates, cheaper labour costs. A sensible company would build up cash during boom times – when investments are more expensive – and spend it during recessions, when consumer demand is weak and capital is cheap. Yet this is the precise opposite of what actually happens. Companies look at the low consumer demand and become terrified”http://www.theglobeandmail.com/commentary/tear-down-those-mountains-of-cash/article4431702/
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