Home > political-economy > Some (not set in concrete) thoughts on the eurozone financial crisis

Some (not set in concrete) thoughts on the eurozone financial crisis

November 18, 2011 Leave a comment Go to comments

The heart of the eurocrisis is how to starve the proletariat without killing capitalism itself.

Creating a global average wage for labor power can only be done with a global currency; and the dollar is the only global currency. Against dollar denominated prices, every other currency is overvalued; i.e., wages denominated in all other currencies are too high. This is not to say the worker is “overpaid in these currencies — the opposite is true: labor power is ridiculously “undervalued”, and there is a crying need to address the hunger and misery of society. However, capital is not driven to satisfy these needs, but by the need to accumulate.

An increase in the wages of the working class, no matter how necessary for the survival of working folk, would lead to a fall in the rate of accumulation; which is determined by the rate of profit. On no account will capital tolerate a fall in this rate. So, there has to a general devaluation of the existing capital — a crisis, in which a portion of the existing capital in the world market is devalued or altogether ceases to function as capital. This is what is now being expressed in the eurocrisis.

Ultimately, the euro must be devalued or cease to function entirely as a currency — I think. But, not only the euro: what is evident in the eurozone, is also true of the ruble, yuan, yen, etc. They must be devalued against the dollar or cease functioning.

The result of this process is not given, since it will be the outcome of fierce competition between the currency zone monetary authorities. Right now, Washington is squeezing the eurozone; but it is also exerting overt economic, political and military pressure on China. Washington’s key advantage in this competition is that world prices are already denominated in dollars; and the euro is the only significant competitor to this monopoly. Although multiple currencies appear to be the norm for the world market, this is actually an anomaly; exchange tends to favor one currency.

Money — i.e., commodity money (gold) — having already been driven out of exchange, the competition is now between worthless currencies, each possessing only what is called “purchasing power”. Which is to say, they are, to varying degrees, accepted as money in an exchange. The “purchasing power” of a currency, however, is solely determined by the willingness of owners of commodities to accept it as payment. Although we think of currency possessing purchasing power of its own, in fact, this purchasing power is not inherent in the currency. Purchasing power of currency is an expression of a social relation between buyer and seller that takes the form of the currency.

That this purchasing power must take the form of a currency is already given in the fact the the seller must sell his commodity. But, which currency form purchasing power must take is not determined by this need alone, but also by the needs of the seller to buy later. The seller needs to sell, but, later, he will need to buy again — in this new role as buyer, he wants the most universal mediator possible. He sells to buy again, and must consider both his present role as seller and his future role as buyer in this single sale.

The purchasing power of any currency is, therefore, determined not only by what the buyer will accept in exchange for his commodity, but also the degree to which what he accepts as payment can again be alienated unconditionally in a later exchange. Only the dollar has this absolute and unconditionally alienable quality in the world market today. The purchasing power of the dollar is absolute; the purchasing power of all other currencies is merely relative.

Even in the absence of an authority that can determined arbitrarily that the dollar is the world market currency, it is world reserve currency by this reason alone; and, moreover, no authority can change this. There will not be an alternative to the dollar, and all talk of this is just the disgruntled mutterings of the losers.

This crisis has been playing out for the last 40 years, since the collapse of Bretton Woods, with a series of rolling currency crises. In each case, the IMF has acted as the US’s global mafia enforcer: Mexico, Russia, the Asian nations, Argentina, Chile, etc. That Keynesian knucklehead, Paul Krugman, won the Nobel award in economics for allegedly describing these sorts of crises — although he did nothing of the kind.

What makes the euro-crisis unique, however, is that Europe is one fourth of global demand. The question remains to be determined: can the world market take the reduction of Europe demand by 50-60% without imploding?

I showed in the previous post how, in Marx’s argument on money, exchange converts need for specific useful items into a general need for money. To the extent a country engages in world trade, and in proportion to this, the particular use values traded are converted in values determined not by the currency of the country, but by the world market values denominated in dollars. But, the goods exchanged, to the extent they must take on the form of dollars, converts the domination of money over individuals into the domination of Washington over the world market — leading to concentration of global social power in the hands of the fascist state.

The average rate of profit in these countries is determined, not only by economic conditions within the countries themselves, but also by the average of the world market as a whole; including the rate of profits enjoyed by the US owing to its privileged position. The expansion of world trade is, therefore, simultaneously the expansion of the social power of the fascist state within the world market.

The exchange rate of any currency against the dollar is, at base, determined solely by the average rate of profit within the world market as a whole. The currency is, similar to a piece of land or a machine, priced in dollar terms by its use value, and, as with land or a machine, the useful quality of the currency is that it is the means for the self-expansion of capital, for combining labor power with the other means of production to produce surplus value, profit.

Unlike most other components of capital, however, labor power and money appear directly as components of the labor process no matter what form this labor process assumes. Capital — self-expanding value — is, therefore, essentially these two elements — money and labor power. The role of money in the process of capital’s self-expanding process is a matter of critical importance.

It would appear, given this, that what determines the flows of capital through the world market is the price of labor power. Indeed, this is the argument of those who oppose free trade with low wage nations, but this is a fallacy. To understand why this is a fallacy, we only need consider that the capitalist does not pay the wages of the worker. The worker pays her own wages, and pays the capitalist for the privilege of exploiting her, i.e. produces a profit for him. What determines how the capitalist employs his capital is not the price of labor power (wages), but the return on his investment, profit. Thus, the flows of capital throughout the world market are not in the least determined by the price of labor power, but by the rate and mass of profits which can be squeezed from the working classes of the various countries within the world market.

The exchange rate between one currency and another is determined by this as well; it is only the reciprocal of the former, I think. A nation with a lower than average rate of profit will have a currency that is relatively dearer in dollar terms while a nation with a higher than average rate of profit will appear devalued against the dollar.

If this were not true, I think, currency devaluation and legal counterfeiting (money creation) could not work to increase capital investment. The price of labor power purchased to do the same job in two different countries may at first appear to determine capital flows; however, this is only looking at one side of the equation.

It is true given two different labor powers with two different wages to perform the same job, the lower of the two appears to be the bargain. But, we have to consider not only the production of surplus value but also its realization. The result of buying the labor power with the lower wages is not unlike cutting the wages of an existing labor force. Wages are reduced, but so is demand for wage goods — leading not to increased profits, but falling profits.

Since, the capitalist does not actually pay for wages he is not concerned about wages but his profit. The capitalist process is structured in such a way that money wage reductions are not enough solve a crisis; to increase the mass of profits requires a reduction not simply in money wages, but the actual value of wages. Indeed, if the actual value of the wage is reduced, the money wage need not change at all — this is what Keynes discovered.

Capital is thus forced to continually reduce the portion of the working day required to keep the worker alive and fit for work. And, this reduction must take place even if nominal wages are rising. This actually highlights Europe’s dilemma: how to keep nominal wage stable, while reducing the real value of those wages, in order to avoid a monetary crisis.

The Keynesian solution is to inflate prices generally, and leave the working class to shoulder this burden. But, with world market prices denominated in dollars, this is a dangerous solution, since Euro-capital must experience a profit squeeze. Rising domestic prices in the Eurozone have no effect on world market prices, which are denominated in dollars, not euros. The dollar, in this case, is acting as if it were a commodity money standard; an independent expression of value, despite it being worthless. Unlike a commodity money standard, however, it is the arbitrary exercise of power by Washington as issuer of the world reserve currency.

The European Central bank can, should it choose, drive up domestic prices within the eurozone and thus deflate the value of the workers’ wages. But, doing so would only deflate the value of its profits, leading to the devaluation of capital generally, since rising domestic prices cannot be realized in higher world market prices.

By contrast, Washington is free to raise the domestic inflation rate, as this also increases prices in the world market; but this must result in generally higher prices for imports into the eurozone, which again must also squeeze euro denominated profits, and devalue capital.

There is, in effect, no way out for European capital from this dead end; it is finished. All that is left is for it to negotiate the terms of its surrender to Washington — to the IMF as the American mafia enforcer.

But, I think, time is running out.

Categories: political-economy
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