Bubbles galore

Capitalism needs growth so that profits can be invested. And capitalistic growth has the dual form of production and debt, with more production to increase surplus value and more debt to realise it. A greater supply supposes a greater solvent demand, so the unpaid surplus value is paid with credit and labour borrows to consume (1). Growth also increases a government’s tax returns without modifying the rates of taxation, and thereby reduces its budget deficit (government budgets are nearly always deficient). This in turn reduces investments in Treasury bonds.

When growth is strong production increases, as do employment and consumer credit. But increasing consumer credit has less and less effect on consumer demand, so that growth slows down and occasionally drops off a cliff. Strong growth attracts large investments in increased production. Slow growth does not, but profits still roll in and need to be invested somewhere. Instead of being used to produce more, or better, or faster, investors speculate on the value of past investments, such as shares, bonds, real estate and commodities, which just pushes up their prices. Slow growth also means that governments are borrowing more, which occupies some of that money looking for a return.

Growth needs an increase in consumer demand. A part of that increased demand, especially when actual wages are stagnant, depends on credit to be solvent. But consumer credit must grow much faster than the demand it generates. At some point it can no longer grow fast enough, and consumer demand begins to contract. Then growth slows down as does investment in production, and the speculative cycle begins in earnest. The credit bubble burst in 2007/08 and never got going again. Even subprime motorcar credits have been unable to push up the growth rate to a significant level. As a result, dividends and interest have poured onto the stock market, moving up the price of shares and bonds to unprecedented heights, and pushing down the rates of interest and earnings per share to historic lows.

In 1930 Keynes published a short essay in which he imagined how things might be a century later.

“When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession – as distinguished from the love of money as a means to the enjoyments and realities of life – will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.” (2)

It was pleasant idea then and still is, but persistent wars and poverty, along with pollution and climate change, will probably stop it from ever becoming reality.

An end to bondage

Many are calling for union against capitalism, its corollary imperialism and their dehumanising effects. But, in its nonviolent form, this opposition is too abstract to mobilise more than a few, and even those will have their own interpretations and motives. Mass movements form around concrete alternative projects. In 1917 Russia, the Soviets united to end the war and share the land. In 1960s America, huge crowds marched and protested for civil rights, and then to end the conscript war in Vietnam. In the same decade, youth movements in China, Japan and Western Europe rebelled against the survival of fascist, Nazi and mandarin ideologies and practices. However, in today’s industrial nations, landless peasants have been replaced by immigrants, citizens have equal rights (and still very unequal opportunities), wars are fought by mercenaries and the phantoms of the 1930s and 40s no longer haunt the world. Yesterday’s slogans have lost their power to mobilise. And yet, an opposition to capitalism, which is all pervasive and dominates most peoples’ lives, makes no sense without a simple unifying objective.

Modern societies are divided by multiple fault lines, religion, ethnicity, gender, wealth, urban and rural, etc. this hinders unity and facilitates capitalist dominion according to the formula, divide and rule. However there is one fracture that splits nations clearly in two, borrowers and lenders. On one side the mass of those who are in debt, to keep a roof over their heads, to get to work, or just to have something to eat at the end of the month. On the other those who do not spend all their income, the bankers and retailers who grant credit, and the payday loan sharks. A vast majority does the borrowing and just a few do the lending. The cancellation of private debts would surely be an extremely popular and unifying slogan. Debt slaves are far, far more numerous than their loan masters. And usury is the foundation of capitalism, with the notion that money can bring in more money while others do the work.

The harder they come…

The world’s stock markets are extremely jittery and ready to run. For example, the short scramble on October 19^th was just because of the date. But, notwithstanding this general nervousness, indexes have continued to move incrementally upwards. This means that more money is constantly being pumped into stocks, money that is not being spent elsewhere. So where is it coming from? Some of it comes from incomes, the one to five per cent who do not spend all they “earn”. But a large, if not a major part is borrowed. After all, when dividends pay more than the cost of borrowing, and when the value of stocks is increasing steadily, who can resist such an offer of easy gains? The trouble is that the fractional value of dividends is reduced by rising share prices, and dividends in general depend on fluctuating corporate profits. And then there is the looming subject of interest rates that are artificially low due to central banks discounting at around zero per cent and buying vast quantities of bonds. Will it go on indefinitely and negate the whole idea of usury and the retribution of lent money, or will interest rates rise and upset the present fragile equilibrium?

Borrowing to buy shares whose rising value allows more borrowing. On a more modest scale, a similar process led to the housing bubble that popped in 2007. That event will be dwarfed by the deflation of the stock market balloon. It seemed likely this would happen in October, which is historically propitious, but it could occur any time in the coming months, because the structure is creaking loudly and will not hold up much longer. If Powell, the new Fed chairman, tinkers with the rates, it could be the last straw, so Yellen must be relieved to have exited in time. It brings to memory when Greenspan handed over to Bernanke in 2006. Except that Powell has inherited a bag of bonds valued at over four trillion dollars, which is a heavy handicap.

Une exemplarité sans lendemains

Les inégalités de propriété et de revenu ont existé, sans doute depuis les débuts de la privatisation immobilière et foncière au néolithique. Mais le degré de ces inégalités a continuellement fluctué. Il semblerait qu’au cours des âges l’extrême inégalité d’une société est un prélude à son effondrement. Beaucoup se sont exprimés sur la perte de vertu d’une richesse excessive qui peut tout acheter. Ils décrivent les décadences de la moralité et les dévotions au dieu argent qui est sans éthique. Il s’agit donc de mœurs et de politique. Lucas Chancel suggère une interprétation originale et plus systémique. Lorsqu’il y a une grande concentration de richesses chez quelques-uns, leur train de vie dépasse toute mesure. Mais la haute sphère sociale sert de modèle pour les classes moyennes qui cherchent à tout prix d’augmenter leur consommation. Il résulte de ce mimétisme dispendieux un pillage des ressources naturelles et humaines qui n’est pas soutenable. Des archéologues ont étudié les restes de sociétés disparues. Certains cas montrent des signes de violente destruction, de razzia ou de conquête. D’autres semblent s’être désintégrés sans interventions extérieures. L’ile de Pâques vient à l’esprit, ainsi que les pueblos abandonnées du sud-ouest des États-Unis et les cités perdues d’Amérique Centrale. Ces mondes disparus ont pu être les victimes d’un exemple insoutenable donné par le sommet d’une hiérarchie sociale excessive. Rome, après qu’Auguste ait remplacé Cincinnatus comme modèle exemplaire, a succombé à quelque chose de semblable, avec le tarissement des flux d’esclaves, de papyrus et de blé, les légions qui recrutaient des mercenaires barbares et les plébéiens embourgeoisés qui réclamaient du pain et des jeux en rentiers. Plus récemment, la fin de l’Ancien Régime était en partie la conséquence d’un excès de fortune de quelques-uns et de la volonté mimétique des classes montantes. Quant au Second Empire et la Belle Époque, le nivellement s’est fait par deux guerres totales. A présent la richesse est à nouveau concentrée au sommet, et le modèle est manifestement sans avenir. Sauf que cette fois-ci il ne s’agit pas d’un pays ou d’un empire, voire d’un continent, mais de la planète entière, océans compris.