The Great Crash of 2008: Notes On Origins, Part I

The below is a counterpart to Anthony Boynton's historical overview of capitalist crisis and overproduction. It seeks to begin an examination of the structural causes of the present crisis in light of what Marx had to say, and what he could not say, about financial capital in Part V of the third volume of Capital, a book that lately seems to be flying off the shelves: Booklovers turn to Karl Marx as financial crisis bites in Germany

Here I seek to throw down a few theoretical markers for analysis of the crisis. This is in no way an exhaustive analysis. The essential thesis is that unlike in Marx's time, when it was considered that money capital was loaned only to industrial capitalists and not to wage laborers, financial capital today has entered into direct relations with wage labor in the form of "consumer" credit of all types. Money capital, capital as commodity, possesses as a commodity both unitary and universal attributes - it is always a sum of money, the universal exchange equivalent - unlike all other commodities whose exchange value is of partial and particular origins. Therefore financial capital acts as the single universal social personification, or concrete universal instantiation, of capitalist social relations across the entire social spectrum - and that is why financial capital always bears a close relation to the capitalist state - but a direct relation to wage labor in the form of credit, in a moment of financial crisis, threatens to project the class struggle between wage labor and capital across the whole spectrum, including the political sphere via the relations to the state.

That is exactly what we are witness to right now.

Capital as a (particular) commodity, whose form is money capital, must be analyzed quite differently from (all) commodities as attributes of capital, and that is exactly what I am reading from Marx in the relevant chapters of vol. 3.

"Driving down the cost of production, basically speeding up workers and cutting wages and benefits, does not alleviate a crisis of overproduction. In fact it aggravates it by causing the market for consumer goods to shrink. It can however, maintain profitability for businesses as profits begin to fall in the early stages of a crisis of overproduction." (Boynton, not Marx :-)

I'd add to this that extension of credit to wages in the form of credit cards, auto loans and mortgage loans, i.e. 'consumer credit', as a means to address the overproduction of capital, has as its precondition precisely this stagnation or fall in real wages. This introduces some important contradictions that are critical to understanding how a crisis in consumer credit - involving quite literally hapless Mexican immigrants trying to buy into "the American Dream" on the south side of Stockton, California, just think of it! - acted as the detonator for a generalized financial meltdown:

1) Assuming the onset of an overproduction of capital - a chronic state until now - on the one hand financial capital has a positive interest in stagnating or declining real wages, and in particular in wages that fall below refurnishing the necessities of life as determined by the prevailing standard of living, as this provides a widening market for its product;

2) On the other hand real wages can never fall so low that they cannot service the interest on the credit required for the necessities of life.

3) Further, by extending credit directly to wages, the competition for credit by industrial capital is undercut and bypassed in two ways:

a) Simply because the individual wage earner exercises much less market leverage than the industrial capitalist, interest rates can be much higher for consumer credit than for industrial loans, raising the average rate of profit of the financial sector, thereby attracting more capital investment into this sector;

b) Because wages as the variable part of industrial capital must be sufficient to cover consumer loan interest, this becomes an increment to the total interest paid by industrial capitalists to financial capitalists, and a subtraction from demand available for wage goods, further exacerbating the overproduction of commodities in the long run in this sector and depressing profits here, in turn adding further downward pressure on real wage levels in this sector.

Note that finance capital does not cease to function as capital once put into circulation in the commodity form of consumer credit, as the interest becomes a component part of variable capital while the principle remains in the form of fictitious capital as a lien on labor power.

Marx states that there is no "natural rate of interest", no equilibrium rate of interest as there is with the (general) rate of profit, therefore there is no theoretical limit on the proportion of wages or gross profit absorbed as interest, only the practical limit of the real extent of wage or profit levels. This alone gives the financial capitalist a certain advantage in competition with the industrial capitalist for profits. Marx also states that the financial capitalist does not stand in direct relation to the capitalist labor process as does the industrial capitalist, however, Marx never had the occasion to analyze money capital extended in the form of of consumer credit directly to wages, as this phenomenon began emerging in mass form only in the early 20th century, with the Great Depression being one of the first financial crises with significant involvement of consumer credit, though this was not a detonator of that crisis. It is my thesis based on the above points that this does bring the finance capitalist into such a direct relation to the wage laborer as a component part of productive capital and is therefore a relation that is a direct form of the class struggle but, unlike the relation with the industrial capitalist, presents itself immediately as a total global relation between two social classes at the moment of crisis. Some obvious reform demands spring from this: cancellation of consumer debts, caps on interest rates, etc.

Here I will not go into other key dimensions of the "financialization of wages" such as in the form of retirement plans of privileged workers being funneled into the stock market, etc., as well as the whole consumer insurance sector It is more important to move to an analysis of the other characteristic pole of the present crisis, the vast financial universe of derivatives. For if the present tendency for wages to stagnate and fall to the point where a crisis in payment of consumer loan interest was unavoidable was the detonator for this crisis, the fuse to exploding much of the global banking system outside of Asia - including the so-called 'shadow banking system' of hedge funds and whatnot - was the packaging of these soon to not be performing consumer loans into mortgage backed securities (MBS) derivatives atop which was pyramided a second order of derivatives known as credit default swaps (CDS) - essentially insurance on the MBS - in themselves amounting to an approximately $65 trillion powder keg, a sum equal to the entire global GDP in 2007.

That is for another writing. Suffice to summarize that if ever a practical proof was presented of the critical role of the balance of forces in the class struggle, here in the form of the balance between wages and capital - capital and not simply profits - as the primary motor of capitalism, this is it.