The recession is over, yet the crisis continues to deepen. That the world economy is growing, albeit at a weak pace, should not come as a surprise, given the trillions spent by various governments on stimulus-measures. Many of those however are running out, so the impact of increased public spending is wearing off. But instead of taking new stimulus-measures, governments all over the world are doing the opposite: ĎAusterity!í is becoming the universal battle-cry of the capitalist class. And the worse a country has been hit by the present crisis, the harsher the cuts in public spending that are imposed or planned. The left claims that this is the opposite of what is needed, and so it seems at first sight: all this austerity can only undercut demand further and will thus worsen the crisis, pave the way for a new recession. That is true but itís also true that a government that would not take such measures and let its spending continue to swell would pay a high price in the future, in the form of a flight of capital, inflation and high interest rates, that would make it impossible to finance its deficits and that would choke the private sector. So, with few exceptions, they have little choice. The impact of the stimulus-packages has been less than hoped. Capitalists donít want their own states to Ďthrow good money after badí while they all wish somebody else would prop up global demand.
Profit-rates are up, and so are stocks in many countries, but unemployment continues to rise, wages continue to fall, and pensions and other benefits continue to be cut. For the working class, there is no recovery. ĎRecoveryí for them means only that those who still have a job now must work harder. But profits have recovered, much more than the modest resumption of growth would suggest. They are less the result of expanding sales than of cutting wage costs. This further erodes the demand of the working class and thus worsens the global overcapacity. It also raises the question: if the recovery of profits demanded so much unemployment, so much more misery this time, what will the capitalist class demand from the working class in the next recession?
For a ísupply sideí economist, or his Marxist counterpart, the dogmatic Ďfall-of the-tendential- profit-rate -is-the-only-contradictioní, there canít be a problem with a profit-rate rising as robustly as it has lately. If the necessary profit is there, it will be productively invested in their opinion. But it isnít: the growth of profits is not creating a rise in productive investment. Capital-owners are wary, afraid that what appears an investment opportunity today, will reveal itself to be a bubble tomorrow. So they hang on to their money. Build up liquidity. The banks are back on their feet (with the help of hundreds of billions of taxpayerís money) and are flush with cash but they hardly lend it out. Rarely have they been so tightfisted. Money is cheap these days but only for those who already have plenty of it.
Austerity is not only a government policy. Itís also a corporate policy, a banking policy, even a consumer policy. Everybody is saving more and spending less, afraid of what might come in the future. This means that the demand for money rises faster than the demand for all other commodities. As a general commodity, money makes possible the circulation of the other commodities, stepping in their place in countless transactions. But as a particular commodity, money withdraws from the circulation process; it is obtained for itself, for its (seeming) capacity to store value. As a particular commodity, it competes with other commodities. The more the demand for Ďmoney for itselfí grows, the more it undercuts general demand. Itís a self-reinforcing process called deflation. That will be the buzz-word in the next phase of the crisis.
The demand for money (in the broad sense: including stocks, bonds, gold, etc) rises because itís the only commodity that doesnít have to be sold to keep its value. All the others must be sold more or less immediately and if the demand isnít high enough for them to be sold at their value, they must be sold under their value. And the demand canít become high enough when a growing part of the purchasing power is withdrawn for the purpose of hoarding abstract value. Thus, prices tend to fall. This has been an underlying trend in the world economy for some time, but now itís bursting to the fore.
A Recovery for some
As a surface phenomenon deflation can be easily checked by pumping more money into circulation. That is what happened in past decades and it accelerated in the first reaction of the capitalist state to the crisis that erupted in 2007. It is still going on to some extent. Money is still being created at a fast pace, especially in the US. The Obama government isnít imposing a tough austerity policy yet. That might change after the coming Congressional elections. The predicted Republican victory would give Obama the political excuse to get into the same cutting mode as his European counterparts.
Suppressing deflation on the surface doesnít help because the surface, the price levels, is not the real problem. The real problem lies underneath: the growing difficulty to expand production in a way which expands value, causing a flight of value from production to hoarding. Pumping more money means devalorizing money, which doesnít solve the problem of devalorizing commodities but creates an additional one. Inflation makes money lose its capacity to store value, while the demand for it increases. So capital flees to whatever provides the illusion of being resistant to this global downward trend.
So countries and companies compete with wage-cuts and budget-cuts as a destination for hoarding. They must, or are punished by a flight of capital. Others compete in a different way: by manipulating the exchange-rate of their currencies to keep their commodities artificially cheap on their export markets. This deflates prices already before the commodities reach the market, at the expense of the workers who made them. The recent acceleration of this trend recalls the competitive devaluations of the 1930ís. It reeks of desperation.
But what else can a capitalist do in times like these? With the perspective of deflation in front of him, his logical reaction is to cut costs even more, to protect his bottom-line. Deflation doesnít have to be a disaster for capital, if itís the workers, the environment, society at large that pays the price. But what capital cannot prevent is that the contradiction between its interests and those of humanity becomes ever more glaring. What it also canít prevent is class conflict. The resistance of the working class expresses mankindís will to live, against the seemingly autonomous monster that the accumulation of capital has become.
Naturally, capitalists seek a way out of this spiral. If overcapacity is what caused this mess, why not restore conditions of scarcity? The following article, which originally appeared in Mute Magazine, explains why this helps capitalists but makes matters worse for capitalism.
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