Practical Economics NICVA June 2014 - Markets and the Financial Crash

Capitalism is first and foremost a historical social system.

Markets and the Financial Crash

2007-2014

Dr. Conor McCabeUCD School of Social Justice25 June 2014

[Lehman collapse, 15 September 2008 - headlines 16 Sep 2008]

Economics is a social subject.

It’s the interactions and relationships between people that make the economy go around.

Debates over economic issues are not technical debates where expertise alone settles the day. They are deeply political debates.

Economics is a social subject.

It’s the interactions and relationships between people that make the economy go around.

Debates over economic issues are not technical debates where expertise alone settles the day. They are deeply political debates.

A society in which ordinary people know more about economics, and recognize the often conflicting interests at stake in the economy, is a society in which more people will feel confident deciding for themselves what’s best – instead of trusting the experts. It will be a more democratic society.

Economics is a social subject.

It’s the interactions and relationships between people that make the economy go around.

Debates over economic issues are not technical debates where expertise alone settles the day. They are deeply political debates.

A society in which ordinary people know more about economics, and recognize the often conflicting interests at stake in the economy, is a society in which more people will feel confident deciding for themselves what’s best – instead of trusting the experts. It will be a more democratic society.

Quite apart from whether you think capitalism is good or bad, capitalism is something we must study. It’s the economy we live in, the economy we know.

DREAM…

INNOVATION

Capitalism is first and foremost a historical social system.

What distinguishes the historical social system we are calling historical capitalism is that in this historical system capital came to be used (invested) in a very special way. It came to be used with the primary objective or intent of self-expansion.

Capitalism is first and foremost a historical social system.

What distinguishes the historical social system we are calling historical capitalism is that in this historical system capital came to be used (invested) in a very special way. It came to be used with the primary objective or intent of self-expansion.

It was this relentless and curiously self-regarding goal of the holder of capital, the accumulation of still more capital, and the relations this holder of capital had therefore to establish with other persons in order to achieve this goal, which we denominate as capitalism.

“Capitalism only triumphs when it becomes identified with the state, when it is the state.

In its first great phase, that of the Italian city-states of Venice, Genoa and Florence, power lay in the hands of the moneyed elite. In seventeenth-century Holland the aristocracy of the Regents governed for the benefit and even according to the directives of the businessmen, merchants, and money-lenders.

Likewise, in England the Glorious Revolution of 1688 marked the accession of business similar to that in Holland.” (Braudel 1977)

The fusion of state and capital was the vital ingredient in the emergence of a distinctly capitalist layer on top of, and in antithesis to, the layer of market economy.

Over the last quarter of a century something fundamental seems to have changed in the way in which capitalism works.

The tendency since 1970 has been towards greater geographical mobility of capital.

Rather than being a modest helper to the capital accumulation process, [finance] gradually turned into a driving force. Speculative finance became a kind of secondary engine for growth given the weakness in the primary engine, productive investment.

Rather than being a modest helper to the capital accumulation process, [finance] gradually turned into a driving force. Speculative finance became a kind of secondary engine for growth given the weakness in the primary engine, productive investment.

The result was an acceleration of the process of debt build-up – going beyond mere speculative orgies that historically came at the peak of business cycles, becoming instead a permanent, institutionalized feature of the economy.

Rather than being a modest helper to the capital accumulation process, [finance] gradually turned into a driving force. Speculative finance became a kind of secondary engine for growth given the weakness in the primary engine, productive investment.

The result was an acceleration of the process of debt build-up – going beyond mere speculative orgies that historically came at the peak of business cycles, becoming instead a permanent, institutionalized feature of the economy.

The search by capital for profitable outlets for its surplus despite the stagnation of investment opportunities within production, coupled with the belief that asset prices as a whole went only one way – up – generated a secular financial explosion. (p.18)

Financialization refers to the increasing importance of financial markets, financial motives, financial institutions and financial elites in the operation of the economy and its governing institutions, both at the national and international levels.

Gerald Epstein (2002) Financialization, Rentier Interests, and Central Bank Policy’

“In the case of the United States, financialization during the 1990s led to a closer alignment of large industrial and financial firms in the U.S., leading to a greater emphasis by Alan Greenspan and the U.S. Federal Reserve in financial asset appreciation as a goal of monetary policy.”

Gerald Epstein (2002) ‘Financialization, Rentier Interests, and Central Bank Policy ‘

1970s – The Monetarist revolution

1980s – war on labour

1990s – Credit as a substitute for wage increases

2000s – Credit solution for wage stagnation fails

Present day – open conflict over monetary policy once again

“Part of the reason people get less giddy about the Dow than they did five years ago is that they have learnt a bit about inequality.

what looks like a recovery, a rally or an increase in consumer confidence may just be the effect of elites passing money among themselves.“

Christopher Caldwell, FT 9 March 2013