In essence, the industrial cycle is one of surplus value creation in production, the only place it can be created; the realization of this surplus through sale; the reflux of now expanded funds into the production process, expansion of production including greater mass of fixed capital... By formula this would be (M)oney-(C)ommodities (labour-power, materials, means of production)-(P)roduction-(C')product, commodities of expanded value-(S)ale-(M')oney, expanded quantity... Or, shorter form, M-C-M'... You can see that this is not just a representation of production but also REproduction and increasing accumulation of capital. Within this there is also inter-firm competition, i.e. a drive by each firm to maximize its particular profit so also introduce labour saving technologies (that in some cases, and for a period, can allow appropriation of a technological rent, a surplus profit). In any event, competition drives an increase in fixed capital on one hand and relative diminishment of living labour on the other. As this progresses, as the reproduction process continues to unfold, overaccumulation of capital gradually comes to develop, i.e. the mass of capital exceeds the mass of surplus value available. From this moment on, the system enters into a contractionary phase evidenced by a falling profit rate, rising unemployment, sectoral disproportionalities that had been hidden in and exacerbated by the expansion begin to become evident...finally it is called a recession or, depending on the degree of overaccumulation, a depression. Prior to the advent of crisis management become permanent crisis management, the contractionary side almost always saw a falling away of prices, a generalized deflation. Overaccumulated capital is devalorized, destroyed as capital, and a new upswing can commence. NB that none of this is dependent on (credit)money expansion. That is, the cycle - which is really a rate of profit and accumulation cycle - is inherent to the capital system with or without credit. Credit, though, permits a greater than would otherwise be the case overaccumulation, can both mitigate recession and make the contraction more severe, particularly when as was noted in the Minneapolis Feds 1974 Annual Report: "we have substituted credit expansion for savings as the means to finance the growth of consumer and business spending." Which was to say that we had substituted credit expansion for an insufficiency of economic profit and wages. And, you know, we have continued to do so...the system is not merely addicted to this but completely dependent on it...dependent on what can only be inherently limited, i.e. there can be no infinite credit expansion at required rates. From this perspective, counter-cyclic policies mitigate by displacing crisis. Or, such policies, whether Keynesian or Monetarist cannot cure what they are part of. Sorry that this is so reductionist but I don't feel inclined to write an epistle.
Correct me if Im wrong. But wouldn't such an increase in accumulation of capital cause interest rates to fall, and an expansion of credit?
What planet does this happen on? Only a moron would throw away market position like that. In the real world, without the government stepping in, the giant would simply buy up the competition, hold back the advancement. Hey, that's one of the ways Microsoft got to its position. "Revenge of the Nerds" you say? I think you may have been watching the films, instead of the 3 part documentary. Free market you say? Ideas were stolen left and right, competitors screwed, individuals defrauded. Even when I was in High School I was able to catch that. Fairy land theories, nothing more. Ideal conditions like this do not exist without an overbearing government. So the free market proponents complain. But remove the government restrictions, and the games begin. It's not so clear cut. You can make assumptions Hard to have a serious discussion with those that can only base their argument on theories, with little recollection of history (especially from a financial perspective). There are centuries of history behind this, many failed experiments by the biggest proponents, because they can't think outside the theory. Not new stuff you are saying, nor am I. World Trade Organization. Look it up. Huge promoter of free market trade zones. Great stuff. Sweatshops where you are not even allowed to go to the bathroom for 8 hours straight without docked pay. Huge environmental issues, no concern for the ecology whatsoever.
Which was to say that we had substituted credit expansion for an insufficiency of economic profit and wages. And, you know, we have continued to do so...the system is not merely addicted to this but completely dependent on it...dependent on what can only be inherently limited, i.e. there can be no infinite credit expansion at required rates. From this perspective, counter-cyclic policies mitigate by displacing crisis. Or, such policies, whether Keynesian or Monetarist cannot cure. New sources of credit or bubbles must be created to sustain this system.
Actually the moron is got a name. IBM and Xerox, in that case, but there where other greater morons before them, like the railroad companies at the turn of the century, they had the chance to take the aviation industry but they thought that it was only a fashion, not an industry that would change transportation. Or Spain thinking that they where richer than Brittain because they had more gold stored in their vaults {while brittain was industrializing}. Is not uncommon for the giant to miss on crucial details, since the small guy is much more motivated to find a weakness in the giant than the giant to find weaknesses in all the small guys. That´s why you´ll never see a perfectly monopolistic market... there´s always plenty of contenders that will take the monopolists head off when given the chance.
Yes, with passage into a condition of overaccumlated production capital and declining rate of profit, slower or declining rate of real investment, money capital which would otherwise be used for further expansion becomes freed and can help expand the more strictly financial side. Interest rates should then be lower but that rate decline can be partially offset by demand for what might be called 'survival loans' as firms seek to avoid bankruptcy. Only 'partially' since lenders tend to tighten standards for these firms, or, as they come to depend on borrowing they also begin to find this more expensive to obtain. Liquidity can dry up for some but, especially since the late 1980s, system wide potential liquidity can expand at the same time...there can be an overproduction of loan capital, and this is especially the case when we have non-bank banks, Government Sponsored Enterprises, old line banks, international/global banks, structured finance...all interacting to create what, in 2001, Larry Lindsey termed 'nuclear credit fission'. Too often people think that we're still in the old banking system centred era when that's been left in the dust. Doug Noland has, over the last years, done an excellent job of documenting/commenting/explaining this development which, in its essence, has been the basis for asset price inflation. Doug, I believe, has come to see the financial, rather than the real and productive, as determinant. On the other hand, I see these two, the financial and the real, as inter-determinant with emphasis on the side of the real, since no society can effectively reproduce itself soley on the basis of gambling. It's also possible to see this in terms of rate of profit differentials, i.e. a low average rate of profit in the productive sectors pushes funds from these towards the more speculative and financial so long as these latter evidence higher relative returns; there's a push out of and a pull into, but the greater the accumulation of debt the more new credit and debt must be created the more difficult it becomes to service this bloated mass -- it can only self-levitate for so long and then comes the krach. (For profit rate differentials, see Duménil and Levy; The Real and Financial Components of Profitability; 2001. In general, they move contrary to one another, diverging, converging, diverging again) Pardon the jumbled quality of the above but it's very hard to reduce the movement of the capital system to a few sentences and moreso when compressing history into a necessarily partial explanation. --- Nevada - My basic understanding derives from the three volumes of Marx's Das Kapital, as he wrote it not as interpeted by others. Then as well, classics such as Adam Smith, David Ricardo, S. Sismondi, T. Malthus, J. B. Say, etc, including more modern political economists such as E. Mandel, von Mises, Hayek, Schumpeter, Fisher, Keynes, M. Kalecki, I. Meszaros, etc. Right now I'm working my way through Meszaros' "The Power of Ideology". In short, generally Marxist but not a 'true believer'.
Makes sense not to tax what is scarce and contributes to production, but a consumption tax is not compatible with real or true freedom, and it also creates distortions. If u can fix my computer for 100$ I have to pay u 110$. If I can charge an employer 109$ for the amount of time it takes me to fix the computer myself, I will be best of fixing it myself. I earn 110$ instead of 109$ on my use of time, but I end up doing a job others do more efficient than me. Labor is wasted..