No 1702 Posted by fw, June 14, 2016
“Three years after the near collapse of global financial markets, America is still struggling with unemployment, debt, and foreclosure, European governments are teetering on the brink of bankruptcy—and the world’s billionaires are getting richer faster than ever before. The current situation is not sustainable. But what changes need to be made to overcome this mounting crisis of our world economic system? How radical an adaptation will be required? David Harvey, the brilliant theorist and scathing critic of postmodern society, looks at what the future holds for global capitalism.”
In Part 1, professor David Harvey reflected on why it is so hard to imagine an alternative to the kind of capitalism we have now. When faced with a crisis, capitalists never solve their debt problems, they simply move them around until an impasse is reached. The final solution is to privatize the debt on the backs of the people.
In Part 2, professor Harvey:
If the technical stuff in this segment becomes a bore or a chore just skip them.
David W. Harvey is the Distinguished Professor of anthropology and geography at the Graduate Center of the City University of New York (CUNY). He received his PhD in geography from the University of Cambridge. In 2007, Harvey was listed as the 18th most-cited author of books in the humanities and social sciences.
The full 85-minute video of Dr. Harvey’s talk is embedded below. My transcript of this segment begins at the 21:20-minute mark and ends at 37:20. The transcript includes subheadings, text highlighting, some added hyperlinks, and inline definitions of special words. Before watching the video, you may find it helpful to skim the transcript subheadings to get a summary overview of the key ideas discussed by Dr. Harvey. To watch the video on the You Tube website, click on the following linked title.
Start — 21:20
What capitalists do is to buy now and pay later
And here is a very interesting — let me just sideline a little bit into a little piece of Marxian theory. I like to do this as a kind of thing — every now and again you go off and you say – oh, in volume 2 of Capital, Marx sets up a very interesting little model of how a capitalist society might work. He says imagine there are two only two classes in society, the capitalists and the workers. Where does the demand come from in that society? Well the demand comes from the capitalists paying workers who then spend their money on goods. And the demand comes also from capitalists buying means of production. So the total demand is means of production plus the wage bill.
What is the total supply that the capitalists create? Well the capitalist puts all of that to work and actually creates a surplus at the end of the day which is called profit. So there must be “more” at the end of the day than there was at the beginning of the day. So the question is, who’s going to demand that “more” at the end of the day? — when in fact the demand which the capitalist has launched is just simply the wage rate plus what they spent on means of production. Demand at the end of the day has to be bigger than that because you produce more than that. You produce the surplus which underpins the profit. And Marx’s answer is well it can’t be the workers who do it [produce the surplus], so the capitalists have to do it.
Now this is a very peculiar economy. The capitalists actually generate the surplus and then they have to find the money to pay for it. Well that’s a very weird economy, actually. Except that there’s a simple way in which you can answer that question. That is, what the capitalists do is to buy now and pay later. And what they do is they actually launch further production the day after. So it’s the expansion of the system the day after that knocks up the expansion the day before. And you need enough money to do that.
In capitalism there’s a crucial relationship between the accumulation of capital and the accumulation of debt
Now in volume 2 Marx doesn’t really explain this very well. But in volume 3 when you introduce kind of stuff about — you find out that the gap between yesterday and tomorrow is filled by the credit system. So actually buying now and paying later is like issuing IOUs. That’s what you do. And the IOUs then amount — become larger and larger and larger as time goes on. What this leads to is a very simple relationship which is that the accumulation of capital actually matches the accumulation of debt. And in the history of capitalism there’s a crucial relationship between the two. If you retire the debt you end the capital.
If you end the debt, which the Republicans insists it wants to do, you end the possibility of the accumulation of capital and capitalism is over
And I wrote a nice little piece, which I sent to the Wall Street Journal, which they didn’t publish, which said, well actually the Republican party, if it really does insist on this [reduce the] debt stuff, it doesn’t really mean it — because, you know, we know what Reagan did with the debt, we know what Bush junior did with the debt — if they really insist on this, they will do a better job of ending capitalism than the working class has ever done. Because if you end the debt and you end the expansion of the debt economy, you end the possibility of the accumulation of capital: that is, capitalism is over. Okay. That’s one answer to your question. No question mark about that.
If debt management is crucial to the capitalist system, why is debt management going crazy of late?
But this then, of course, immediately poses some problems about, well, how is the debt managed? And debt management then becomes crucial to the dynamics of the capitalist system. And what we’ve seen is debt management going crazy, of course, over the last few years. Now one of thing’s the campaign pointed to me again in writing the Enigma of Capital, to look back and say, you know, this question of the relationship between debt and accumulation, how has it actually worked historically, and where did it come from?
The crucial historical relationship between state debt and military funding and the origins of capitalism
I found a very, very interesting mass of literature back on the sixteenth and seventeenth century, which economic historians have created, which is about what they called the fiscal military state. And it’s about the way in which debt, state debt in particular, and militarization kind of went together. And that’s how the wars were fought, and all rest of it: and what a crucial role this played in the dynamics and origins of capitalism, one that has been largely left unexamined. And out of this came this idea that, well, actually capitalism requires something that I called “a state-finance nexus”, which is a sort of, some sort of configuration of state and capitalist power, which, working together, can actually orchestrate what needs to be orchestrated in terms of this relationship between debt accumulation and accumulation of wealth. It has some way to do that. And if you look historically, you find this begins to become apparent, particularly in British history, the formation at this debt-finance nexus*. [*nexus refers to a means of connection]
The state-finance nexus at work during the bankruptcy of Lehman Brothers
Now the contemporary version of this struck me very forcibly in the wake of the bankruptcy of Lehman Brothers. Because who appeared on television after the bankruptcy? We didn’t see the president. Who did we see? We saw Ben Bernanke, who’s the top of the banking system. And we saw Paulson. That’s the state-finance nexus. They were it! And at that point they were the ones who came up with bits of paper and said you got to do this, you got to do that, you got to do this, you got to do this, you got to do this. And Bush kind of said, oh, yeah okay, yeah, yeah. We all were like that. They came out, they decided. That was the state-finance nexus at work.
The very powerful state-finance nexus wants to be secretive
And it was a very, very brilliant thing because the state-finance nexus by-and-large doesn’t want to be seen. It always remains hidden. There’s a great book about the Federal Reserve: it’s called Secrets to the Temple [1988 by William Greider]. It’s almost like a feudal institution, sort of there, you know. It’s a bit like the Vatican. You can’t tell what’s going on, you know, you expect the Federal Reserve to pump black smoke out its – one point or another — or white smoke on another day, you know. So I – you kind of – it’s a very — it’s very powerful.
A little bit of British history – Cromwell was crucial is creating the origins of the state-finance nexus
Actually this history is wonderfully recounted in a number of ways. And quite by chance I read a historical novel by Hillary Mantel called Wolf Hall, which is about a man called Thomas Cromwell. And actually the subtext of that book is about the formation the state-finance nexus. It’s about the way in which the monarchy had to negotiate with the merchants and the merchants connected to the monarchy and, you know, Cromwell was the one guy who kind of, after working with Cardinal Wolsey figured out — you follow the money and then you know where everything is, and, you know, that’s what it’s all about. And so, he was the one who was crucial in creating, if you like, the origins of this state-finance nexus.
Bill Clinton discovers that the financial power of bond traders trumps his political power
Now, how does this state-finance nexus work, and what is the balance of power within that state-finance nexus? And this is a thing, seems to me a crucial question, because what we see — we don’t really see this very easily. You have to look for indicators of it. But let me give you what I think was perhaps the crucial moment when we saw a switch of power relations. And that switch of power relations was most clearly revealed to me when Bill Clinton was elected to the presidency. And there is this story, which I’m sure it was not apocryphal, he was sitting with his economic advisers — but even before he was sworn in — and being Bill Clinton he was always thinking about, well, how do I get re-elected in all this kind of stuff. And he was asking his economic advisors, you know, what to do in terms of economic policy and how to do it, and the advisors we’re telling him things, and he was getting irritable and more and more irritable, and in the end he burst out and he kind of said: “You mean to say my re-election chances and all my economic policy has to be geared to the ideas of a bunch of fucking bond traders? And the answer was “Yes”.
Clinton’s discovery of the power of Wall Street resulted in him giving precedence to economic policies over social policies
And look what Clinton did. He came in promising us universal health care. What did he give us? He gave us WTO [World Trade Organization]. He gave us NAFTA. He gave us the reform of welfare as we know it. He actually is partly to blame for this whole kind of subprime fiasco, because that’s 1990s, that’s when you started to bottom feed in the housing markets. But that remark suggests that actually at that point political power is no longer in a position to dominate over financial power. And I think that’s very critical to understand.
How the 1987 stock market crash resulted in US loss of political power, forcing it into global collective decision making
Now I tracked back a little bit and I found a very interesting point where that general conclusion had been arrived at by a great guru economist. But in the wake of the stock market crash of 1987, Black Monday, you know, and had a tremendous crash in the stock market — which is also connected to this sort of grumbling crisis at the savings-and-loan in which more than 1,300 banking institutions went under in the United States, and I — at that point William Isaac [Chairman of the Federal Deposit Insurance Corporation] actually threatened the banking sector with nationalization if it didn’t clean up their act. So, that period 1987 there was a — and after that happened, people asked questions. They had this big meeting of all of the big guys, you know, [Lawrence] Summers and [Paul] Volcker and all those other people sitting around and kind of saying how do we understand what happened in 1987? And of course being economists they couldn’t agree. But one thing that did come out as fairly consensual that the United States was no longer in a position to decide unilaterally. That a crisis of that sort could not be managed simply by the US. It would require international agreement, international action.
And I think that that was a very — before that if things happen the United States unilaterally would do this or unilaterally do that or strong-arm people into doing something. It was the hegemon, as they call it. It dominated the world system; it was able to do what it wanted to. But in 1987 it suddenly found it couldn’t do it.
After the 1987 crisis, only through collective action can political power exercise control over the bond markets
And thereafter what we’ve seen is a growth, as it were, of this whole kind of question of who — where’s the political power located that can manage this whole system. And we saw in the wake of Lehman Brothers that the G7 [Group of 7] was not — and the G8 were not enough and we went to the G20. Notice what you’re doing is you’re going — you’re looking. You get to a point right now when you look at it you say well actually the only way in which political power can now actually exercise power over the bond markets is by collective action. That is, there has to be almost a global government which is going actually, consensually decide — doesn’t have to be a kind of, you know, hierarchically organized monocentric. But it has to be total agreement between them as to what to do and how to do it.
After the fall of Lehman Brothers, Obama was largely ignored at the G20 meeting in Korea.
What we saw in the wake of the Lehman Brothers was an immediate period, a brief agreement between everybody, we got to stabilize the system. After the system gets stabilized, roughly, then they all break apart and go their own way. I thought it was very interesting when Obama went to the meeting at Seoul of the G20 and basically had a whole bunch of propositions and nobody listened to him. Merkel kind of said “No we’re not doing that, no we’re not doing that.”
Today, it’s class power that drives political choice in the US
So you got the austerity thing. And the austerity is stuck in a certain kind of mode, and it’s a political decision on a political choice. And I want to go back to, I think, to this simpler, simple, very simple and overly simplistic idea obviously, which is the political choice is being driven by class power. The political choice in this country is driven by class power clearly.
Occupy Wall Street’s raised awareness of class power with its 1% – 99% mantra
And this is what the Occupy Wall Street people are saying, basically, you know. We’ve got to confront that power. And it’s very interesting. You know, I can’t remember so many cops surrounding the Tea Party rallies. They would turn up with guns and maybe the cops kind of felt oh, better keep out of there, you know. But you know, how many students at CUNY? – and we have something like 300 cops outside glaring at you, pushing you around. I mean this is kind of – seriously, seriously. This is, seems to be a major threat to political power simply to talk about social inequality and inequalities of political power, which go with it.
We live in a class dominated society where the one thing you can’t talk about is class domination.
The fact that the Party of Wall Street, as I call it, owns both political parties, it owns Congress. Then I suppose it’s done it ever since Mark Twain remarked that Congress is the best that money can buy. And so you’ve got this, this — And of course it dominates the media, and indirectly they’ve dominated the judiciary and everything else. So we live in a class dominated society where the one thing you can’t talk about is class domination.
How Ronald Reagan and George Bush junior used the debt for political purposes – to get rid of social and environmental programs
There’s something nasty about that, you know, you might be socialist or something awful like that. So here we have this. And this strategy is, of course, has been longstanding. And it’s a way of using the debt for political purposes. Now, as a sort of saying, you never let a good crisis go to waste. And in this instance, what we’ve seen is a couple of crises, which have not been done twice. But I’d like to suggest to you a certain continuity here. When Ronald Reagan came to power, what did he do? He reduced the top tax rate from 70 to 30 percent, as I earlier remarked. He had an arms race with the Soviet Union, huge arms race, which was deficit-financed. And towards the end the Reagan administration, David Stockman, his budget director, said well our plan was to run up the debt in such a way that in order to retire the debt we could get rid of all other social programs we didn’t like and cut all the environmental regulations, which industry doesn’t like. That, of course, was what they set about doing. So, the debt was an excuse to do that. It was an excuse to lead a class assault upon social welfare structure and a class assault upon environmental regulation.
What did George Bush junior do? Fought two unfunded wars. Cut the tax rate on the top big deal with Big Pharma to sort of give them loads and loads of money. None of it was funded. The debt was run up like crazy. All the time that he was in power Dick Cheney always said Ronald Reagan told us deficits don’t matter. That’s the Republicans for you — deficits don’t matter. What he really meant was well when you get the debt up their far enough we’ll be able to go off after all the social programs and all the environmental regulations we don’t like. And what the hell is happening right now? That is exactly what they’re doing. It is a class assault upon the well-being of the most vulnerable people in the population. And it is a class assault upon anything to do with environmental, you know, sustainability.
End — 37:20
END OF PART 2