Trickle down recession

The landlord wants rent, the banker wants interest and the entrepreneur wants profit. These are the tributes paid to property, to those who possess and control the Earth’s surface, the means of payment and the means of production. Profit is the unpaid value added by labour, and some of it goes to rent and interest, but a part of the added value that labour does get paid for also goes to rent and interest. This means that the tribute to rent and interest contains paid and unpaid value, whereas the tribute to profit is all unpaid value. Unpaid added value is monetised by debt, so that when the rate of borrowing slows down or regresses it has a direct effect on profit and a lesser one on rent and interest. However, the production of goods and services through the adding of value by labour is the source of wealth, while bankers and landlords are just profiteers and rentiers. But then bankers control borrowing and the supply of money, which gives them a strong hand and puts the burden of recession on landlords.

Real estate is the first to suffer the effects of a reduction in the rate of borrowing. Production is next, and profits drop as competitors cut prices to keep their share of a shrinking market. Finally, when borrowing decreases significantly, banks are in trouble with debt defaults piling up steadily and margins falling. “Keynesian” economists claim that cyclical drops in household borrowing can be compensated by Treasury borrowing, that public investments and tax cuts can reverse a slowdown in private investments. Such alternate borrowing sprees might work in an ideal system of controls, but in today’s reality of colossal debts accumulated by all actors – even corporations have got in deep to buy back their shares – the capacity to kick-start a growth cycle does not exist. And, though they may impose themselves in the not so distant future, monetary, wage and price inflation are out of the question. So austerity measures and hopeless attempts at debt reduction are the only alternatives on offer. Unfortunately, the examples of Argentina, Greece, Spain, etc. show that the treatment brings a lot of pain and no salvation, hardly a cheerful perspective for the years to come.