Volume 43, Number 168,
January-March 2012
The New Financial Power
Kostas Vergopoulos*
A SYSTEMIC CRISIS

If the current capitalist crisis is actually inherent and systemic rather than external and accidental in origin, it would behoove us to talk about its "dual" interpretation so as to come to a single explanation for all its aspects, be they real or financial. The origins of the current crisis can actually be traced back to the previous decades, 1980-1990 and 1990-2000, especially to the dramatic mutations that capitalism underwent and the usa's important changes in economic policy which marked the times. Financialization, capitalism's mutation, on the one hand allowed for the opening of new "aid sectors" for accruing capital, thereby relegating overcapitalization to some point in the future. On the other hand, when it comes to its development, financialization just provided more rope in the long-term with which to hang itself. What was then heralded as the savior of the crisis would go on to become the catalyst for a more fearsome and profound crisis.

As is well known, the main product of capitalism is capital itself. Marx and Keynes have clearly shown that under capitalism, the creation of capital is carried out infinitely faster than any other merchandise or the actual demand. Lenin (1916) also brought up this phenomenon when talking about "disproportionality" in capitalist development. Disproportionality is found not only between different production sectors but also the productive sphere and finance. An unavoidable consequence of capital's rapid and uncontrolled growth is an ongoing drop in the rate of profit, which then compels the system to find or invent new valorization methods. In the 1970s, the American Marxist Paul Sweezy showed the opening up of the financial sphere as a way to provide capital with "relief" from the drop in profitability in the realm of the "real" economy. This so-called "salvation" brought about by finance made its first appearance at the end of the 19th century and at the beginning of the 20th. This first appearance ended badly with capitalism ultimately facing the threat of "parasitism" and "putrefaction" as Hilferding (1910) and Boukharine (1915) put it. It wasn't just a matter of a "fusion" between bank capital and industry capital as was later set forth; it was, more than anything, about the manifestation of the insurmountable and aggravated adversarial relationship between finance and the real economy. This exact phenomenon has now come back. Finance provides "relief" only to later destroy capitalism.

"Salvation by finance" did a good job of carrying out its role over the last two decades of the 20th century. Since then it has revealed itself, day by day, to be more of a threat to the productive sphere in that it imposes all over the world the rule of contraction and deflation, including the hardest hitting depression the world has ever known in all of its economic history. With the priority currently bestowed upon the fight against public deficit and the spread of austerity policies, the most conservative international powers require once more, in the name of financial capital, the demolition of all types of productive economy so that parasitism and putrefaction may triumph. This contemporary development houses similarities to that of a century ago. It does this whilst maintaining its own qualities which differentiate and define it in relation to any other comparable phenomenon in history.

THE MONETARIST "REFORMS"

The monetarist "revolution" has greatly contributed to capitalism's financial mutation since the beginning of the 1980s. It was originally presented as a restrictive policy seeking to control the money supply with the aim of protecting economies from the danger of inflation in the 1970s. The restriction on printing official currency has opened up the field to a multitude of non-official currencies, as well as to the so-called "debt currency." The new forms of currency and their equivalents have far surpassed the official currency goals. To begin with, economy's private sectors have created new forms of liquidity, issued by banks and even by businesses, and most importantly, the growth of the monetary and financial spheres' stemming from completely private sources was developed far from any form of official control. The official authority's restrictive monetary policies were thereby overcome by the expansionist monetary policies of the private sector. On the other hand, the enormous monetary quantities came from loans from the surplus nations, particularly the Asian ones. These two conditions have gradually created a universe of financial innovations, permitting the legalization of practices previously outlawed since Franklin Roosevelt's time. This process reached its apotheosis under the reign of Bill Clinton in 1999 when, with great fanfare and rejoicing, the Glass-Steagall Act was abolished (an act which segregated the activities of commercial banks from that of investment banks.) From that moment we jumped to the end of the capitalist economy's financial mutation.

The American economist Simon Johnson from mit, former chief economist of the imf, calls the mutation as a "quiet coup [d'état]" and decries the formation of a new "financial oligarchy" (Johnson, 2009). It was precisely then that the idea of a "virtual economy," first set forth by Clinton's economic advisors, arose. This concept was best known for its disdain of economic laws and its aspirations to replace the "real" with the "virtual". It is from then on that more arbitrary, capricious, and abstract forms of currency and credit were developed, forms which had no basis in the real economy and ended up being in an adversarial relationship with it. According to Warren Buffet, the derived financial products are the "new weapons of mass destruction": securitization of inefficient and doubtful debts, swaps, short-selling, CDS, hedge funds which impose in the midst of the economy the "casino" principle. In other words, at a time when they wanted to control the monetary field, there was a gargantuan out-of-control monetary explosion. Nonetheless, this financial hypertrophy was also the origin of an even greater capitalist mutation: the virtual sphere, already fragile from its rapid growth, now coming back to the real sphere and imposing upon it rules by making it bear the costs of its own stabilization. Financial capital is not just another form of capital, it is the dominating one which rules all the other forms. If it is true that the abundance in methods of payment stimulate production, it is equally true that a decrease in production increases the value of the different payment methods. The virtual dictates the real: finance, after carrying out its role as the savior of a capitalist system lacking valorization opportunities, now reveals that it may have also dug it its grave as it assures not new valorization fields, but rather harsh and austere policies which will only shrink the actual foundation of the economy. After going through a period of uncontrolled credit spending, financial capital's new orientation leans toward suppressing all forms of credit and reducing the currency issued, calling forth the insolvency of public finances as well creating a general air of distrust. The "monetarist revolution," rather than having controlled and healed the economy, has ended up with a monetary ocean more fearsome and uncontrollable than before.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Feb 23th, 2018.
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