The central argument of this book is the emphasis on the dominance exercised by big businesses on the American economy’s macro-dynamic. Small entrepreneurs who compete for customers through price adjustments outnumber the quasi-monopolies or mega firms by a significant margin. However, the latter still dominates the macroeconomic dynamic. Foster and Magdoff posit that quasi-monopolization, or monopoly capital, is the driver of the American economy’s macro-dynamic.
Monopoly capital, however, brings about stagnation. The duo base this argument on the postulation that the greatest strength of this economic system is also its Achilles heel. Quasi-monopolies’ greatest strength is the increase in output. The pricing system of these quasi-monopolies leads to immense profits. However, a significant weakness arises in that the economic system cannot absorb the additional output via the regular investment and consumption channels. Stagnation thus becomes the normal state, but several forces act to counter the stagnation. Of these forces, financialization is the most critical countervailing tendency over the last three decades. The use of financial speculation to combat economic stagnation causes instability and bubbles, which inevitably cause financial meltdowns.
Financialization has its structural roots in stagnation and hence its use as a method of countering stagnation brings the risk of a financial meltdown. If stagnation is then the root of the 2008-09 financial crisis, reregulation is not a solution. Whereas successful finance reregulation will bring stability to the financial system, it will inhibit stagnation’s countervailing outlet. Hence, this will bring a jam in the reinvestment avenues for excess profits. Hence, unemployment will soar, GDP will fall, and price deflation will pose a significant threat.
Hence, from the logic of the stagnation thesis, the major problem is that illegitimate financial bubbles support the real economy. Investment in financial assets is not a guarantee for new and successful services and products. Hence, as fiscal expansion from speculation outruns the productive economy, speculative bubbles pose a growing and recurring problem and cause financial instability and crisis.
Analytical paper- An analysis of the recent US Financial crisis
The two authors put forward critical concepts acceptable by Libertarian Marxists. They posit that ever since the onset of the 20th Century, capitalism has stopped becoming the reserve of small businesses exercising dominance in their respective market segments. Instead of these little businesses, the large organizations are today dominating the economy. These large organizations are national or even international in scale. A small number of these quasi-monopolies dominate the industries. However, this does not mean that no competition exists in the industries that these firms operate. Instead, the firms engage in competition within themselves when they are not cooperating in making deals.
The companies also compete with other industries as well as with large enterprises from foreign countries. However, several small and medium-sized organizations still exist. However, the nature of the market is that it compromised and disfigured greatly by the existence of the semi-monopolistic firms.
The advent of the monopoly capitalism has led to the loss of the dynamism of capitalism. I agree with the author’s postulation that monopoly capitalism has occasioned some level of stagnation. Whereas these large industries have led to production increasing to a colossal extent. However, the market as it is cannot absorb all the excess capacity hence stagnation arises. The authors offer a very convincing argument here about how the signs of the stagnation have manifested themselves.
They argue that the slow rate of growth in the economy is one of the examples of stagnation, a postulation I agree with. The authors also point towards the high rates of unemployment, the excess capacity generated by the industries, and the recurring recession. Other hallmarks of this stagnation are the alternating periods of inflation followed by deflation and the poverty in countries considered wealthy. This argument holds true because an analysis of the major depressions that have occurred in the recent past will demonstrate that the conditions that precluded them were all rather similar.
However, the aftermath of World War 2 was not a depression but a boom. Whereas many would opine that this eliminates the idea of capitalist decline, the authors argue that the supposed prosperity was really the result of self-limiting countermeasures. The first of the countermeasures that the authors posit is imperialism, which is the wealth drain from other countries to imperialist nations. However, it is evident that the effect of these measures was short-lived since, as the author correctly note, the economy began to go through the regular business cycles.
Since then, economic events such as the third world debt crisis of the 1980’s, the Japanese Lost Decade, and the 1987 US stock market crash have occurred. These events have all precipitated the current economic depression. The argument is thus that a financial crisis is a precursor to depression, which is an idea shared by Ball. An analysis of the events before the two great depressions to have hit the world clearly demonstrates the truth in this argument. The 1929-33 crisis involved a stock market crash and panic in banking institutions. The Great Depression was the immediate aftermath. Similarly, the crisis in the United States since 2007 has culminated in the worst depression ever since that infamous one in the 1930’s.
Whereas there has still been a measure of growth, the growth has been very imbalanced. That is, it has not compensated for losses elsewhere. For instance, the mobile phone revolution, while being a good thing, does not compensate for global warming. The economy thus, has only become financialized, with capitalists investing in the virtual as opposed to the real economy.
However, while these aspects of their argument are all agreeable, there are some, which fail to hold water. For one, the authors’ proposition about the reason for the long-term stagnation is quite dubious. They argue that the monopolies produce a ‘surplus’ that the economy cannot absorb through investments leading to a clogging up of the system and finally stagnation. Hence, because the surplus cannot be absorbed, it cannot be produced either. Hence, the surplus is not a real one but is only a potential surplus, hence in fact a shortage.
The problem inherent in this analysis is that the actual problem becomes one of commodity circulation as opposed to production, where the most fundamental clash between classes occurs. If the capitalists were able to engage in profitable production, they would purchase from each other. Hence, they could hire enough employees to grow the consumer market, and no problem of effective demand would exist. Hence, the real issue is the capitalists’ inability to draw enough surplus labor from their employees to turn out a profit in production.
Hence, the flaw in their argument is that despite describing themselves as Marxists, they reject the Marxist theories of value and surplus value. They also reject his postulation of long-term stagnation and its relationship to the fall in the profit rate. Hence, they misunderstand the boom of the post-Second World War period. They fail to see that it cannot continue forever and that military spending had led to fictitious capital. The fictitious capital arose from the government borrowing to fund this spending yet no military output was entering the production cycle.
In conclusion, therefore, it is evident that the arguments raised by the authors are reliable in most of the cases. Their analysis holds true in several aspects and ties in well with existing knowledge such as that by Ball. However, on the issue of the post -World War 2 economic boom, their argument fails to be as convincing.
Foster, John Bellamy and Fred Magdoff. The Great Financial Crisis: Causes and Consequences. New York: Monthly Review Press, 2009. Print.