- 05 Apr 2009 04:24
#1858789
The Great Financial Crisis: Causes and Consequences By John Bellamy Foster and Fred Magdoff
By HoniSoit
Great Financial Crisis
Foster and Magdoff have done a real service to the Left by presenting in a very accessible style their insightful analysis of the current financial crisis, its causes and consequences, from the perspective of radical political economy.
This book is a collection of essays published from 2006 to 2008 in the Monthly Review magazine, an American Marxist journal that has a distinct emphasis on an understanding the American economy from a historical and politico-economic perspective.
While building on the ideas of generations of political economists such as Marx, Veblen, Schumpeter, Keynes, Kalecki, Steindl and Minsky, Foster and Magdoff nevertheless have made it clear that their analysis has been mostly informed and influenced by the ideas of Paul Swzeey, Paul Baran and Harry Magdoff.
The arguments in the book are obviously far more sophisticated and nuanced than I can summarise and present it here. Nevertheless, I will attempt to give a 'brief' outline of the fundamental arguments with regard to the long-term and structural causes of current financial crisis:
Foster and Magdoff take as their theoretical starting point the provocative idea that the normal state of the monopoly capitalist economy is stagnation (on the other hand, economic growth mostly comes from 'external' stimulus such as major technological innovations and huge military expenditures etc.), an argument developed by Paul Sweezy and Paul Baran in their 1966 book ‘Monopoly Capitalism'. Their argument in the book is that instead of competitive capitalism of the 19th century, the rise of giant corporations in the early 20th century has given birth to monopoly capitalism, a new stage in the evolution of capitalism industries are increasingly being dominated by giant corporations. The problem arises when the enormous productivity of the monopoly capitalist economy, coupled with oligopolistic pricing (where price is very often no longer driven down by competitive pressure), generates a huge and growing economic surplus that cannot be absorbed by the capacity of the economy through the normal channels of consumption (more products than the population can assume with their often stagnating or even declining incomes) and investment (because of diminishing return due to overcapacity unless with huge technological innovations like the automobiles). One way of channeling the huge surplus is through military expenditure which has come to be described as military Keynesianism. But with the ever growing surplus, military spending could only use up so much surplus, new channels have to be sought.
Foster and Magdoff have taken further the works of Baran and Sweezy to describe the current stage of capitalism as the Monopoly-Finance Capitalism. The central thesis is that since the 1970s, the capital has sought to channel their surplus into the financial market (with ever more sophisticated forms of financial instruments), in what they have described as the Financial Explosion, in pursuit of higher returns for their surplus (at the expense of the productive, 'real' economy). Meanwhile, the period has also witness an explosion of government (used for military expenditures, tax cuts and measures to stimulate the economy etc.), corporate (to take advantage of low interest rates especially in the past few years to finance their operation including financial speculation) as well as household debt (to finance and maintain increased level of consumption). Foster and Magdoff have warned at least two years before the onset of the financial crisis that the explosion of debt and speculation, both of which have reached such a huge magnitude in the time of their writing, cannot sustain themselves indefinitely.
There are, of course, far more details in the book but one can clearly see, in the authors' view, the importance of long-term, underlying structural problems with the system in addition to more contingent causes in making sense of the crisis.
It is a book full of important illuminating insights and telling statistics, and it deserves to be read by virtually anyone interested to understand the financial crisis.
By HoniSoit
Great Financial Crisis
Foster and Magdoff have done a real service to the Left by presenting in a very accessible style their insightful analysis of the current financial crisis, its causes and consequences, from the perspective of radical political economy.
This book is a collection of essays published from 2006 to 2008 in the Monthly Review magazine, an American Marxist journal that has a distinct emphasis on an understanding the American economy from a historical and politico-economic perspective.
While building on the ideas of generations of political economists such as Marx, Veblen, Schumpeter, Keynes, Kalecki, Steindl and Minsky, Foster and Magdoff nevertheless have made it clear that their analysis has been mostly informed and influenced by the ideas of Paul Swzeey, Paul Baran and Harry Magdoff.
The arguments in the book are obviously far more sophisticated and nuanced than I can summarise and present it here. Nevertheless, I will attempt to give a 'brief' outline of the fundamental arguments with regard to the long-term and structural causes of current financial crisis:
Foster and Magdoff take as their theoretical starting point the provocative idea that the normal state of the monopoly capitalist economy is stagnation (on the other hand, economic growth mostly comes from 'external' stimulus such as major technological innovations and huge military expenditures etc.), an argument developed by Paul Sweezy and Paul Baran in their 1966 book ‘Monopoly Capitalism'. Their argument in the book is that instead of competitive capitalism of the 19th century, the rise of giant corporations in the early 20th century has given birth to monopoly capitalism, a new stage in the evolution of capitalism industries are increasingly being dominated by giant corporations. The problem arises when the enormous productivity of the monopoly capitalist economy, coupled with oligopolistic pricing (where price is very often no longer driven down by competitive pressure), generates a huge and growing economic surplus that cannot be absorbed by the capacity of the economy through the normal channels of consumption (more products than the population can assume with their often stagnating or even declining incomes) and investment (because of diminishing return due to overcapacity unless with huge technological innovations like the automobiles). One way of channeling the huge surplus is through military expenditure which has come to be described as military Keynesianism. But with the ever growing surplus, military spending could only use up so much surplus, new channels have to be sought.
Foster and Magdoff have taken further the works of Baran and Sweezy to describe the current stage of capitalism as the Monopoly-Finance Capitalism. The central thesis is that since the 1970s, the capital has sought to channel their surplus into the financial market (with ever more sophisticated forms of financial instruments), in what they have described as the Financial Explosion, in pursuit of higher returns for their surplus (at the expense of the productive, 'real' economy). Meanwhile, the period has also witness an explosion of government (used for military expenditures, tax cuts and measures to stimulate the economy etc.), corporate (to take advantage of low interest rates especially in the past few years to finance their operation including financial speculation) as well as household debt (to finance and maintain increased level of consumption). Foster and Magdoff have warned at least two years before the onset of the financial crisis that the explosion of debt and speculation, both of which have reached such a huge magnitude in the time of their writing, cannot sustain themselves indefinitely.
There are, of course, far more details in the book but one can clearly see, in the authors' view, the importance of long-term, underlying structural problems with the system in addition to more contingent causes in making sense of the crisis.
It is a book full of important illuminating insights and telling statistics, and it deserves to be read by virtually anyone interested to understand the financial crisis.
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