Home > political-economy > At best it sometimes rhymes: Dumenil’s and Levy’s “The Crisis of Neoliberalism”

At best it sometimes rhymes: Dumenil’s and Levy’s “The Crisis of Neoliberalism”

As part of my continuing occupation of the Marxist Academy, I have been looking at various Marxist theories of the crisis of neoliberalism. In this current post I will be spending some time critiquing “The Crisis of Neoliberalism” by Gerard Dumenil and Dominique Levy, first published, it appears, in 2009. I am using the 2011 version of the book. This is part one of my critique.

“Everything that needs to be said has already been said. But since no one was listening, everything must be said again.”

André Gide

In part one of their book, “The Crisis of Neoliberalism”, Dumenil and Levy argue neoliberalism is a new phase in the evolution of capitalism. So what is a phase of capitalism? I am not altogether clear on this, but, apparently, neoliberalism is the third such phase of capitalism in the 20th Century. These three “social orders” “jointly constitute modern capitalism, that is, capitalism since the turn of the twentieth century.”

Each phase is dated by a major crisis.

The authors tell us dating the emergence of the neoliberal social order is all very very complex:

Neoliberalism is a multifaceted phenomenon, the outcome of a whole set of converging historical determinants, and it is difficult to precisely determine its beginnings. Actually, the earliest expressions of the new trends were evident from the end of World War II when the basic features of the postwar society and economy were defined. Various developments surrounding the crisis of the dollar in the early 1970s, such as the floatation of exchange rates, or the policies enacted during the dictatorships in Latin America in the 1970s, can be considered early manifestations. Simplifying to some extent, one can contend, however, that neoliberalism was first established in the United States and the United Kingdom at the end of the 1970s, a crisis decade, a few years later in continental Europe, and then around the globe. The year 1979, when the Federal Reserve decided to raise interest rates to any level allegedly required to curb inflation, is emblematic of the entrance into the new period.

Okay so the dating thing may be a little shaky, so let’s switch back to the definition thingy:

…the overall dynamics of capitalism under neoliberalism, both nationally and internationally, were determined by new class objectives that worked to the benefit of the highest income brackets, capitalist owners, and the upper fractions of management. The greater concentration of income in favor of a privileged minority was a crucial achievement of the new social order. Income statement data make this apparent. In this respect, a social order is also a power configuration, and implicit in this latter notion is “class” power. National accounting frameworks add to this observation that a large and increasing fraction of U.S. capital income comes from outside of the United States. Not only class relations are involved, but also imperial hierarchies, a permanent feature of capitalism.

Yes, that’s it, “new class objectives”. Mo’ money for the rich and well-to-do was “a crucial achievement of the new social order.” And, we can prove this with our chart porn — the rich got richer! This just goes to demonstrate neoliberalism is also a “power configuration“. (Yes, that sounds all dialectical and shit.) And, implicit in this “power configuration” is “Class power.” And, don’t ya’ know, more and more of this increased income comes from outside the United States. So not only is “class power” involved here, “but also imperial hierarchies, a permanent feature of capitalism.”

Okay, so sometime between the end of World War II and Reagan’s elections we experienced the birth of a new social order” which was a power configuration involving class power and imperial hierarchies, producing “mo’ money, mo’ money, mo’ money” for rich folks. In addition to the above well stated thesis we must add the US was running everything not flying a red flag — then the Soviet Bloc died. So, somehow, the upshot of all this is the dollar is the world reserve currency. Thus globalization was imposed throughout the world at the cost of severe crises using economic violence, corruption, subversion and war.

Well, I don’t know about you folks but I am pretty much all learned up after reading this.

Surplus extraction

The writers state:

Economically, the purpose of this domination is the extraction of a “surplus” through the imposition of low prices of natural resources and investment abroad, be it portfolio or foreign direct investment. That countries of the periphery want to sell their natural resources and are eager to receive foreign investment does not change the nature of the relations of domination, just as when, within a given country, workers want to sell their labor power, the ultimate source of profit.

For some reason, Duménil and Levy put the term surplus in quotes — as if it is not really surplus but something else. And, then they limit the sources of this “surplus” to pricing commodities below their value, and capital export. Is there no US direct investment and direct exploitation of the working classes of other nations? Moreover, are these three the only source of surplus extraction operating in the world market? It is as though Dumenil and Levy forgot they argued in the previous paragraph that a completely worthless dollar is reserve currency. Which means, according to the research done by the proponents of modern money theory, the US can create whatever quantity of “purchasing power” is needed to buy any commodities for sale in the world market. Everything the US imports, therefore, is unpaid for value, commodities for which no payment is made whatsoever. The US doesn’t “pay” to import oil — it simply creates the money it needs — which is why it will never be free of imported oil. The same is true for imports from China, and everywhere else. That’s why Washington made it clear at the beginning of this crisis the dollar’s role as world reserve currency will not be challenged. As the New York Times explained in 2010, prior to Obama’s Meeting with French President Sarkozy:

Troublingly to some, Mr. Obama said this year, in reference to Afghanistan, he does not hold classical views of what constitutes America winning or losing a war. But he has never gotten into the business of reinforcing widespread assumptions of an American acceptance of multipolarity — a notional world of “equal” and competing powers in which the United States concedes loss of its primacy, whatever its many qualifications.

The dollar is not just a symbol of that primacy. The surrender of its prerogatives would damage the United States’ position in the financial and monetary worlds, and very possibly impair America’s military commitment to its allies in Europe and Asia.

Modern Capitalism 

Dumenil and Levy take up this thing they call modern capitalism, by which they mean 20th Century capitalism. In the late 19th Century the depression led to the formation of cartels and other forms of social management of capital. Dumenil and Levy argue the development of these forms were “…an attempt to confront rising competitive pressures.”

The major depression that struck the U.S. economy during the 1890s, originally known as the “Great Depression” prior to the greater one in the 1930s, played a central role in the establishment of this new framework. The previous decades had witnessed the rise of trusts, pools, and cartels in an attempt to confront rising competitive pressures. The crisis of the 1890s was blamed on excess competition and increased the incentive to seek protection against cutthroat competition. The loose agreements between enterprises, which remained independent entities, to share markets or profits were prohibited by the Sherman Act. The act, passed in 1890, was the first federal legislation pertaining to competition.

How does shit like this get past other Marxist writers? Why aren’t these two called out on this? Who blamed the 1890s depression on excess competition? As a matter of fact, what Marxist has ever blamed any depression on competition in any period of capitalism? What Dumenil and Levy do in the above sentence is employ the passive voice to slip their lack of an argument past the reader on the causes of increasing socialization of management toward the end of the 19th Century. Rather than telling us, “Our analysis leads us to conclude the 1890 depression was caused by excess competition.”, or, “XYZ, in her work, ‘BLAH, BLAH, BLAH’ concluded the depression of 1890 resulted from excess competition.”, they play games with the reader.

Duménil and Levy need to tell us when, in Marxist literature, a depression was ever caused by excess competition and not excess accumulation of capital. Perhaps they can classify known depressions by those caused by excessive accumulation of capital and those caused by excessive competition. But, this crap argument has served its purpose: just as some Marxists employ the idea of a Keynesian social compromise to allow them to skip the Great Depression, debasement of currency and World War II and segue immediately to neoliberalism of the 70s, so Dumenil and Levy employ this “excess competition” idea to get us to monopoly capitalism — which is vital to their weak argument if they are now going to explain “state-led monopoly capitalism”, i.e., the fascist state.

So, instead of a growing number of capitals that are unable to continue functioning as capital, and who are as a result forced out of productive employment as capitals — the increasing scale of operation that becomes necessary, the concentration and centralization of capital the necessary increase in speculative capitals forced to engage in purely fictional activity (all of which were already predicted by Marx and Engels at least 20 years before) — Dumenil and Levy argue the “three revolutions” are the result of the Sherman Act of 1890.

This is what passes in the Marxist academy for historical materialist analysis? In 1880, fully ten years before the Sherman Act, Engels is already saying trust and joint stock organizations have rendered the entire capitalist class obsolete. Somehow, this obsolete class of parasites becomes crucial to Dumenil’s and Levy’s analysis of neoliberalism. What we have here is not an analysis of the capitalist mode of production — which has already rendered these capitalist superfluous — but an analysis of a handful of parasites and their speculative activities.

…a new institutional configuration was built at the turn of the twentieth century, with big capitalist families holding large portfolios of shares and bonds, potentially diversified among various industries, and with a financial sector playing a major role in the financing of accumulation and the exercise of the prerogatives attached to ownership. The notion of Finance is crucial to the analysis of neoliberalism. The power of capitalist classes and financial institutions in this social order cannot, however, be separated from the progress of management-notably, though not exclusively, financial management-which gained considerable importance. Thus, the early twentieth century marked the culmination of social trends already under way during the nineteenth century, whose emblematic figures were the rentier bourgeois class, a ” leisure class” as in Thorstein Veblen’s terminology, and the new managerial classes.

Marxism has decayed from engaging in an analysis of a mode of production to contemplation of “Lifestyles of the Rich and Famous”. Dumenil and Levy distract us from the mode of production which is now functioning autonomously from the capitalist and direct our attention to the activities of these superfluous parasites who are now forced into speculation, particularly finance capital. What was for Engels a class of parasites reduced to clipping coupons, becomes for Dumenil and Levy,

…the establishment of a bourgeois class less connected to individual enterprises. The ownership of the means of production was supported by the holding of securities.

They focus on, “new types of relationships in which the power of the upper fractions of capitalist classes relied heavily on financial institutions”, i.e., on fictional capital. Modern capitalism thus rests,

…on a new institutional configuration […] built at the turn of the twentieth century, with big capitalist families holding large portfolios of shares and bonds, potentially diversified among various industries, and with a financial sector playing a major role in the financing of accumulation and the exercise of the prerogatives attached to ownership.

A New Class Structure

On the basis of this superfluous capital and the swelling of purely speculative capital, Dumenil and Levy outline a new class structure of society. It does not matter finance capital is just capital no longer able to engage in productive self-expansion, we now get a new “middle class”. This new middle class is composed of managers who can be further divided into upper and lower management.

Central to the analysis here is the observation that modern capitalism coincided with the establishment of new class patterns more complex than the simple distinction between capitalists and production workers. Besides traditional middle classes of small peasants, shopkeepers, and craftsmen, modern capitalism saw the expansion of managers and clerical personnel.”

So, I guess, we now have three classes constituting the capitalist mode of production? Proles, Parasites and Managers. Okay, fine.

And, with these three classes, we have three “social orders” within capitalism in the 20th Century. The first runs from 1900 or so to the Great Depression, the second roughly from the Great Depression to the 1980s. the last until 2008. In the first and third “social orders” this superfluous mass of capital — Dumenil and Levy call it Finance — ran the economy unchecked. So, just as Hilferding argued, finance capital has pretty much managed the economy for most of the 20th Century. There is, of course, a small window — from the Great Depression until the late 1970s — where this is not so. This “social order” is the “Keynesian Compromise” — but the writers have a problem with this terminology. (I wonder what the problem is?) At no point in these three sequences of 20th Century capitalism does the capitalist mode of production and its laws of development actually make an appearance. Everything is determined by political development — that is by what is happening with the capital thrown off and rendered superfluous to the mode of production.

So what are the features of this bizarre and unexplained break in the finance hegemony that characterized most of the 20th Century? Dumenil and Levy argue the Keynesian compromise had three facets:

  1. enhanced managerial autonomy from the capitalist class, up to and including state intervention in the “macro-economy” including monetary and fiscal policy, limitations on international trade and capital mobility;
  2. a gradual state commitment to the “popular classes”, including increased “purchasing power, policies in favor of full employment, and the establishment of the so-called welfare state”;
  3. “containment of financial (or capitalist) interests”, involving a managed financial sector, management aiming for capital accumulation rather than speculation, and (“possibly”) diminished profitability from rising labor costs.

Despite my caustic comments here, however, I admit of all the Marxists I have read so far, Dumenil and Levy actually try to reverse engineer the so-called Keynesian compromise. Unfortunately, they too ignore critical features of both the Great Depression and World War II. But, it is impossible to understand the so-called Keynesian compromise without understanding the depression and the two wars for redivision and at least they make an attempt in this direction.

The two wars and Great Depression arise from the same cause as Finance capital: chronic overaccumulation. All of the national capital are coming to maturation around the same time, and the productive forces have swollen magnificently. This is causing increased competition as capitals scramble for their place in productive employment. National capital are subject to the same forces as determine the behavior of private capitalists. They are engaged in a scramble to redivide the world market among themselves. Upstarts like Germany can only expand if they replace older national capitals like England. You get the first war, which ends in the defeat and partial dismemberment of Germany, but does not resolve the conflict. All nations together experience the Great Depression, and in all of them the state seizes management of the economy. The national economies are thus directly turned into engines for production of means of national capital expansion. This ends with the end of World War II and the US is last man standing with its productive capacity fully intact and swollen by war profits.

None of this appear in Dumenil’s and Levy’s argument — in global competition for expansion only the US survived and profited. Imagine, for a moment, you’re in vicious competition with ten or twenty other producers and your competitors cripple or entirely destroy each other — how’s business now? Plus, they need your help to rebuild their broken economies and only you can finance them and supply them commodities. But, they now have to accept your worthless currency on credit to buy from you. And you are willing to buy from them, and serve as a market for them, but only if they accept more of your worthless currency. So where is the fucking compromise?

Of course, the currency is worthless because you debased it, and cut the wages of your working class by 70% — was that also a compromise? So the Keynesian “compromise” begins with a 70% across the board wage cut and ends with all of your competitors begging to buy your stuff.

How does all of this continue to be written out of the Marxist historical record? Can someone tell me when that meeting was held? At what point did Marxists take a vote not to mention 20 years of world history? Most of all, why didn’t I get a ballot?

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  1. March 15, 2012 at 10:15 am

    I’ve seen it suggested by Marxists that the Great Depression ended only because of the number of prols that lost their lives in WWII. Do you agree? In other words, do you consider the, well, murder, of so many European working class folks via WWII as part of the explanation for an end to overaccumulation? I assume this is at least part of what you mean when you say that Europe no longer had it’s “productive capacity intact” like the US did following the war.

    I ask because it occurs to me that as an alternative to reducing work hours, killing off masses of workers (as in WWII) can make a big dent in global production, which seems to “solve” if only for a time, overaccumulation. On the other hand, this slaughter doesn’t necessarily change surplus labor per laborer (which, in my limited understanding, is the real culprit in overaccumulation).

    • March 15, 2012 at 10:46 am

      Ha! Well, that is somewhat oddly put I think. But, I do think the depression could not have ended within capitalist limits unless a significant portion of the the productive capacity of industrialized nations were compelled to stand idle in some fashion. (But note here the use of the phrase within capitalist limits.) This is the key to understanding the contradictory character of the capitalist mode of production.

      For the working class, the depression could have been ended without any damage to the productive forces, nor any loss of life simply by reducing hours of work. We should not be the least bit concerned about resolving any crisis within the limits of the capitalist mode of production.

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