Did I ruffle a few feathers? :)

Chris M. Sciabarra sciabrrc at is2.NYU.EDU
Thu Sep 21 16:06:11 MDT 1995


On Thu, 21 Sep 1995, jones/bhandari wrote:

> But the question is why corporate America itself has become dependent upon
> this wider welfare system. In Late Capitalism Ernest Mandel attempts to
> show why certain forms of government intervention are necessary for capital
> in the face of the quicker turnover of the fixed capital.  Schumpeter would
> argue that monopolization was necessary to control the pace of turn-over,
> that monopolism was a necessity at an advanced stage of accumulation.
> Mandel attempts to show why capital requires that government avoid serious
> deflations as that would make it impossible to amortize the massive
> investment in fixed capital, as well as conduct the  R and D required in an
> environment of rapid turnover and innovative improvement of fixed capital.
> Of course deflations may help winnow out inefficient firms,but even the
> most efficient ones cannot allow a free fall (I think that the basic idea
> is that of John Maurice Clark, that overhead costs render firms less
> flexible to respond to price falls with curtailment of supply), though this
> had  been the mechanism by which big capital had gorged itself on small
> fish before--I think that this is Mandel's argument.
>  The basic point is that government intervention and monopolism cannot be
> dismissed as avoidable pathologies of a capitalist system, something a
> disinterested observer can hope for the elimination of along with
> intervention for poor dependents.  Indeed the capitalist system can indeed
> dispense with welfare for the poor and environmental regulation but not
> with the wider welfare system for corporate America.

	I am not saying that they are "avoidable" -- I tend to doubt that
such "interventions" can be totally eliminated as long as the state has
the power to coercively use and initiate force on behalf of specific
interests.  And since we've not had a government in history that is
"class-neutral," it is difficult to conceive of one.  Nevertheless, I
think it is a mistake to view such intervention as necessary to social
cohesion.  My whole point is that it engenders internal contradictions;
corporations and individuals in search of more control turn to an agency
whose actions create a dynamic that inevitably leads to LESS control over
peoples' destinies.  State action discoordinates the price structure, and
ultimately undermines and distorts economic development. Moreover, it has
a tendency to fragment the society even further, into warring
pressure groups that vie for special privileges at each others' expense.
And no individual is safe outside of such group affiliations.  People
relate to one another only insofar as they are members of groups seeking
privileges -- along economic, political, cultural, linguistic, ethnic,
racial, gender, and sexual lines.  If this process is bemoaned by
Marxists who yearn for class consciousness, you can imagine how it
affects more individualistic types like yours truly.  But to the extent
that the state is involved in this process, it is inevitable.  I guess at
this point in history, it is then, a question of degree.

> I cannot take this on faith; what is the relation between financial and
> industrial monopoly?  If your assertion about financial monopoly is true,
> it seems that socialism would be a rather easy affair--all that is needed
> would be more democratic control of the central bank. The workers' own
> class struggle seems dispensable.

	Once again, the issue here is not simply who makes decisions, or
who is in control.  My point is that the state-banking nexus has
leverage, but it doesn't have "control."  The interventionist dynamic is
not a source of stability; it is, in my view, a source of instability.
So whether it is controlled by corporations or workers is rather beside
the point.  Without markets and a structure of relative prices that are
helpful to entrepreneurial actors, calculational chaos is inevitable.

> So why do capital-intensive industries turn to this state-banking nexus? Is
> capitalism possible without rising capital intensity and what are its
> consequences?

	Ultimately, capital-intensive industries have the greatest demand
for investment, and they get their money for investment through loans in
many cases.  When interest rates are manipulated downward due to an
inflation of the money supply, it sends out a false message to
prospective investors that more money is available at cheaper rates for
investment purposes.  This spurs investment for sure, but it is almost
always investment in areas that would not be sustained in the absence of
a genuine consumer demand for such products.  The investments are
Mal-investments, and when the boom is over, and consumer demand does not
materialize, the investing firms are usually forced to liquidate, causing
a predictable downturn.  The situation is complicated further because the
central bank never stops inflating, albeit at different rates.  And whole
hosts of networks are created to bail-out poor investors (Lockheed,
Chrysler, S&L's), so that the truly inefficient are never completely
weeded out.

> >> In particular, the question is what the effect would be of higher interest
> >> rates and lower wages at this stage in capitalist development.
> >        I don't know if that will in fact, BE the effect.  I just don't
> >know, because there are too many factors to consider here.
> Does Hayek consider them?
	No, but plenty of Austrians do; I would have to delve into the
literature a bit.

					- Chris
==================================================
Dr. Chris M. Sciabarra
Visiting Scholar, NYU Department of Politics
INTERNET:  sciabrrc at is2.nyu.edu
==================================================


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