[Marxism] The pulse of capitalism

Jurriaan Bendien andromeda246 at hetnet.nl
Tue Jul 13 12:10:40 MDT 2004

On another query I found an interesting discussion of the current US
international investment position, at:

In another issue of this journal, Caughey provides an succinct summary of
some of the basic economic problems:

"As the 20th century closed, it became ever more difficult to find
productive uses for capital. Mature industries financed over 75 percent of
their investment from internal sources. Overseas investment proved in many
countries to be a losing venture because those countries could not earn the
money in a competitive world economy needed to repay the money they
borrowed. The one sector that was growing - information technology - was
inundated with "venture capital" only to end in a bubble that burst with the
loss of $ billions of that capital. The effects of this collapse are still
Two direct measures of the declining return on capital can be cited. From
1982 to 2001, the S&P 500 dividend/price ratio fell from 5.81 percent to
1.32 percent, and the earnings/price ratio fell from 11.60 to 3.63.
Additionally, short term Treasury rates, at 1.75 percent, are the lowest
since 1955, and actually negative when inflation and taxes are factored in.
The result is that persons with capital to invest, both a little and a lot,
find it difficult to obtain yields above the inflation rate without
resorting to speculation. The supply of capital has simply swamped the
demand in most markets.

These two measures really reflect the consequences of declining growth on
the capital markets. Conventional opinion still assumes that growth is
inherent and unending - a concept that is obviously absurd. Resources are
limited and, equally important, growth only occurs if capital can increase
itself. What would it take to assure more growth? Some new discovery or new
technology that would "creatively destroy" our present way of living much as
the industrial revolution did in the 18th century. Failing that, we need to
devise ways of living that will flourish with or without growth - hardly a
disturbing prospect except to those whose minds are set in concrete.

With consensus on growth, the public and private sectors concentrated on the
expansion of demand. The public sector used some overt policies such as tax
cuts, distorted accounting rules for calculating profits such as accelerated
depreciation, deductibility of interest, etc. But the main focus has been on
expansion of debt. From 1960 to 2000, nonfinancial debt as a percent of
nominal GDP rose from 137.3 to 185.6, for an annual increase in debt of $440
billion, which augmented demand along with income growth.

Until the 1970s, the developed economies still had currencies with some tie
to gold, which inhibited the growth of debt and money, but since then they
have had fiat currencies and the change has been striking. Few remember that
the extension of consumer credit was once tightly controlled by the federal
government. The fear then was that excess credit would increase demand so
much that rapid inflation would result. Today, we use every enticement to
induce people to buy on credit, even if their credit card debt is already
"atrocious", to quote a popular commercial. If their credit card limit has
been reached, they are urged to cash in whatever home equity may exist. And,
in the case of automobile purchases, they are paid a "cash rebate" for
incurring the obligation to pay for a new vehicle. The old time bankers must
shudder in disbelief!

We have already cited the disparity between the growth of debt and the
growth of income on a national level but even more strikingly on a household
level and on a business level. These divergences sustained the economic boom
by spurring demand. But they are also unsustainable. Like the current
automobile rebates and zero financing, they spur current consumption at the
cost of reduced future consumption. Since debt servicing must be paid from
income, a point must be reached when debt levels can no longer grow, and
thus the basis for the boom is undermined. Logically, this should result in
a protracted period of reduced consumption and little or no economic

Complete article at: http://www.comw.org/poc/0210.html

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