globalization/fixed capital

jones/bhandari djones at
Thu Sep 28 11:36:47 MDT 1995

Jim Devine was kind enough to answer some of my questions posed in a post
which I also sent to the progressive economists' line.  Here is Jim's reply
from that line; he raises the theoretical work of Tugan-Baranowsky.
Perhaps someone may want to comment on this classic work, as well as Jim's
theory of the instability of booms driven by capital goods.

I hope that people found interesting the analysis from Mattick (in my last
post) of why crisis may take the form of realization difficulties, in
particular the overproduction of fixed capital in the capitalistically
developed nations and how unequal exchange against the underdeveloped world
compunds the shortage of surplus value, requring capital to intensify the
rate of exploitation if sufficient value is to be created to underwrite the
next export boom.

Here is Jim's reply:

Rakesh writes:>>1) exactly why is the demand for capital goods
and industrial supplies a relatively variable component of
foreign demand?<<

Investment spending, like most spending on durable goods, is
"lumpy" (involving a big lay-out of funds all at once) and easy
to delay. It is also possible for a durable-goods market to
become and stay saturated for awhile, because the durables
depreciate slowly or are scrapped only in desperation.

>>2) why is the US becoming increasingly reliant on exports which
are "driven by a relatively variable component of foreign
demand"? That is, why is US capital subjecting itself to such
variability?   <<

US economics and politics typically reflect the fact that
capitalists usually go for what's profitable rather than what
serves their long-term class interests (e.g., the Gingritch
nonsense). The exception here is of course on the rock-bottom
level of protecting private property in capital goods and
money-capital, where capitalists will drop short-term intererts
to protect their societal privilege.

>>3) what are the consequences on US employment and American
society in general if exports are driven increasingly by capital
goods and industrial suppliers?  Are they as labor-intensive as
consumer goods?  <<

My understanding is that capital goods typically have a more
labor-intensive production process than means of subsistence do
(please correct me if I'm wrong). However, that labor may be more
skilled. Or the components may be made by less-skilled labor in
low-wage areas outside the US.

>>4) if dollar depreciation does not explain past export booms,
what reforms must US exporters push for in order to stimulate
global investment?<<


>>5) what are the consequences for world employment be if a
global investment boom is to lead to the import and use of
presumably more advanced, labor-displacing capital goods and
industrial supplies?  Will there be enough capital widening to
compensate for the relative increase in the capital/labor ratio?

It depends on how much of a demand boom there is overall: a
greater demand boom (relative to labor productivity growth)
implies greater growth in employment. However, if this demand
boom is increasingly dependent on investment rather than
consumption, the boom becomes increasingly unstable (because
investment is typically more unstable than consumption -- see

>>6) what are the limits on global investment demand? Relatedly,
how are we to explain the *realization* difficulties faced by US
exporters of capital goods and industrial suppliers?  <<

Tugan-Baranowsky argued that there are no limits, since
investment follows profitability rather than serving consumption.
An investment boom _can_ involve building machines to build more
machines (and maybe something like this happened in the US during
the late 1920s).  But this "Tugan-Baranowsky path" becomes
increasingly unstable (see #5), i.e., there is increasing
likelihood that a pause in the investment boom will cause the
whole process to collapse. Since shocks to investor expectations
of the future are a normal part of capitalism's operations, this
means that a collapse is well-nigh inevitable (though government
stimulus might delay the collapse).

(BTW, by collapse, I don't mean the end of capitalism. Capitalism
won't end if there's no broad-based political movement aiming to
replace it with something else.)

For more on this topic, see my article in the 1994 RESEARCH IN

in pen-l solidarity,

Jim Devine   jdevine at
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950
"Segui il tuo corso, e lascia dir le genti." (Go your own way
and let people talk.) -- K. Marx, paraphrasing Dante A.

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