economic globalisation

P8475423 at vmsuser.acsu.unsw.EDU.AU P8475423 at vmsuser.acsu.unsw.EDU.AU
Tue Aug 22 00:15:44 MDT 1995

Thanks for the compliments Rakesh, and the reference--I am
writing a paper on the subject of Marx-Minsky links, so
that will be immediately useful.

As for your 3 questions:

|1. as govt deficits create  inflation to enables firms to remain solvent
|which would have otherwise gone bankrupt, what is the short- and long-term
|effect of keeping these firms around?

The deficits don't necessarily cause inflation--there were plenty of
deficits in the 87-91 period (both the USA and Australia are of course
still running them), and inflation hasn't even blimped.

The long-term effect of having these firms around is the product of
the short-term effect that they don't go bankrupt. Some of these firms
are houses of cards--institutions built by your Keating, our Skase--
and will unavoidably collapse because even during the boom, the
cash flows from their businesses wasn't enough to cover debt repayments.
The ones that government deficits keep going are those which, in the
main, wouldn't have been in trouble except for the bankruptcies of the

So what the government action does is prevent a "black-hole" of
bankruptcy developing; and a black hole is a pretty apt way of
describing what happened during the Great Depression.

|2.  though deficit spending in the 80s may have prevented debt deflation on
|the way to another Great Depression in the imperialist countries, what was
|the global effect of such deficit spending?

Avoiding deflation. The money supply in Australia was growing at 30%
per annum in the peak of the boom; in its aftermath, even with government
deficits, the rate of growth fell to about zero. Had the deficits not
been there, it would have been negative, exacerbating the impact of the
debt deflation.

The key to this line of thinking is that the money supply is endogenous.
It is a product of the entire system, and not something either controlled
by governments (the monetarist position, now pretty thoroughly
discredited) or given by conditions of commodity production (which I
think some people regard as marxist). Had the state side of the system
not intervened (or effectively not been there, as in the Great Depression),
the capitalist and banker side would have caused an implosion.

So the rate of growth of capitalist nations didn't fall as far as it
would have without those deficits, nor did it take as long for firms
to repay their debts.

|3. what are "the root causes of this cycle of financial instability."

Basically, that capitalist expectations are an increasing function
of stable economic times, so that in a classic dialectical turn of
phrase, Minsky says that "stability is destabilising". Unless
government taxation and spending is designed to counteract these
expectations--so that the rate of tax rises in a boom, rather than
being slashed as it was during the 80s, and the rate of spending
rises in a slump--then the cycles will maintain their current

Minsky is also much less optimistic that such instability can be
designed out of capitalism than with traditional Keynesians such
as Paul Davidson. In other words, to some extent he argues that
the root cause of financial instability is capitalism itself.


     --- from list marxism at ---


More information about the Marxism mailing list