znet/weisbrot on deflation - critique?,

Jurriaan Bendien bendien at tomaatnet.nl
Fri Jul 11 04:37:31 MDT 2003

I am not an economist, but I would put it this way. Deflation means the
reduction of price inflation (to zero or even below zero), so that prices
for the same goods and services remain stable over time, or decline. You can
achieve that through a regime change within capitalism, manipulating the
money supply, credit facilities, interest rates, the capacity for labour to
organise, social engineering and so forth. The fall in the general price
level, which is the effect of deflationary policies, reflects ultimately the
increase in the productivity of labour and the consequent devaluation of
commodity values, and in a sense the devaluation of money. Capitalism
generates an ever greater mass of commodities with an ever lower unit-cost
of production, i.e. the value of commodity units declines. Ultimately
therefore prices must fall.  This can be masked however by monetary
developments and manipulations, which acquire a certain amount of autonomy
(or even a very great autonomy, a great deal of flexibility), but in the
last analysis the "fictitious" economy (the overvaluation of assets, goods
and currency, the creation of demand which does not correspond to value
added) depends on the real economy, and then we are back to labour values
again, even although the conventional economists don't buy the argument.

To increase the general price level, basically you need to find a way to
raise the level of demand by consumers and producers, in a careful way, so
that it does not get out of hand and implode again. Ernest Mandel once
investigated the possibility of a new ""gold rush", the discovery of new
stocks of gold, as a possible way to crank up the price level. I do not
think it works that way anymore, but I think ultimately you need some new
resource that everybody needs, or some new technological revolution, but of
a specific type, which does not change the structure of human culture
significantly or erodes private property, which creates employment rather
the increasing unemployment. In the meantime, you try to develop new markets
like mad where you can, to commercialise whatever you can commercialise, you
try to convert everything you can into a saleable object. The idea that the
bourgeoisie is working on, is that you have these "strategic resources", and
if you can exploit those, then you might get some sort of cumulative
"multiplier effect", so that employment takes off again cumulatively. The
main thing in the meantime is to ensure that any rebellion is smashed.
Capitalism may take a dip, but if you can hold on long enough, the upturn
will come again. People will be forced to cooperate, there will not be any
other way.

It is quite easy to specify what those ""Schumpeterian" resources or
technological revolutions might be (and when I talk about technological
revolutions, I am not so much talking about innovations but rather about the
generalisation or widespread application of innovations that already exist).
All you need to do is talk to the Green Party and its supporters, they have
all the alternative resources and alternative technologies already. The
problem however is that the policies pursued by the US government and the EU
and Japan are diametrically opposed to what is really required to raise the
general price level, in the long term. The generalised use of new resources
or new technologies is heavily obstructed by private property relations
(including intellectual property), the maldistribution of incomes, and by
militarism. The dynamic of late capitalism indeed gravitates towards the
maximum of excess capital that is not productively utilised, and the maximum
underutilisation of resources, including potential resources (resources
which could be used or developed but aren't because of lack of monetarily
effective demand). Relatively speaking, human productivity has reached the
level of superabundance, technically speaking everybody on the planet can
have a fantastic life, and then some. But it is not happening, the opposite
is happening. Instead you get increasing social stratification and
increasing unemployment.

The fall in the general price level that they talk about in the article can
of course be overcome in the short term, because there are of course a range
of techniques to raise the level of consumer and producer demand. So it is
just a conjunctural problem to which an answer can be found, if you get the
politics of it right (that is a problem apart). Somehow, you have to have a
way of distributing buying power to consumers which does not conflict with
capitalist private property and with capitalist interests, i.e. you have to
reinvent some kind of social reformism in some way. But the general fall in
the price level remains a longterm historic problem for the capitalist

The question which Ernest Mandel raised in his crisis theories is: how low
can you go in your capitalist "dip", how low do you go, and how long might
it take before you get an upturn again ? He suggests you might still have
some episodic upturns in some regions, a few bubbles, but globally speaking
the general trend is gradually downwards. That was his assessment.

Well, really the ultimate answer to that is the ability of the capitalist
class to force the working class to cooperate with the capitalist class, to
rebuild capitalism again, we must all work together to rebuild capitalism
along the Lula model or something similar, whatever works. Bush cannot
create a lot of extra market demand, except through expenditure on weapons
and luxury consumption of the rich. But the Lula type can, they can actually
get gullible people to produce real consumer goods and services, creating
jobs and demand. What counts for the capitalist class these days most of all
is therefore your political ability to get people to cooperate with you. If
the Lula-type doesn't do the job, then maybe some military guy, or some
fascist guy. We've got to get these guys who know how to get people to
cooperate and work for us, that is the slogan. But this is also highly
contradictory, because we want to get people to cooperate to rebuild
capitalism, but we do not want them to cooperate in any other way. But
anyway what you will see in the management literature is that the guy who is
highly praised is the guy who gets the maximum number of people to

The ultimate problem here however is financial capital, the manipulation of
credit, speculation, information economics, that sort of thing. People must
have a material stake in rebuilding capitalism. Why invest in expanding the
base of production, creating new employment, if the rate of return in
non-productive activity, the sex industry or the luxury sector is much
higher ? Have you checked out the rate of interest in Brazil ? You somehow
have to have or create a vested interest (incentive) in cumulative
job-creating economic growth, but that is difficult to realise for many
reasons, unless you cut off all other options for investment. You cannot
talk about free trade, and then prevent people investing where they like,
and in fact you cannot stop investors from investing where they like, that
was the whole problem with Keynesianism in the first place. So anyway, you
have to get back to the very basis of where it all comes from,
enterpreneurial confidence, the willingness to take risks, the ability to
get people to cooperate, and so on. These are the values the bourgeoisie
likes to see. For the rest, the other long-term options are various kinds of

Another possibility is simply another series of wars, that stimulates
production, and allows you to regiment people in a good way. That is the
idea of ""permanent war" mooted by the US government, in a war situation you
can make a lot of changes and make a lot of profits, generate new demand
also, but you don't have to justify anything.



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