Geoff Mann raises some vital issues in this comment, and notwithstanding his generous characterization of my argument in ‘The Subprime Crisis’, on some important points he actually misconstrues it.footnote1 I agree with him, firstly, that value theory, properly understood, supplies an essential conceptual framework for analysing the crisis; and, secondly, contrary to what he suggests, I do not think that regulation alone has any hope of providing a solution. While the measures that I very briefly referenced in the last few paragraphs of my article were far from fully socialist, nor were they simply aimed at rescuing capitalism. I prefer to put them in the framework of transitional measures that address the deep crisis in effective ways—reviving credit by specific acts of expropriation which would benefit new collective and democratic institutions, in the shape of a network of social funds. By itself such a network does not suppress capitalism; yet it aims to use capitalist property forms in order to transcend them and socialize capital.
I placed my account in the context of the trenchant analyses of the bubble economics of the global imbalances published in these pages (and in their recent books) by Robert Brenner, Andrew Glyn and Giovanni Arrighi. This dialogic body of work, with its agreements and differences, directly engages the world-economic conjuncture but, while clearly Marxisant in inspiration, it is not couched in value-theory terms. However it is not difficult to suggest ways in which there is a value-scaffolding to their arguments. I have also found the conceptual elaborations of value offered by Kojin Karatani and Slavoj Žižek, and of ‘fictitious capital’ by David Harvey, very helpful in grasping the extraordinary crisis we now confront.footnote2 Karatani and Žižek have reminded us that the value of commodities is ultimately determined by the amount of ‘socially necessary’ labour time that they embody. Žižek urges that we should constantly bear in mind the determination of value by the double optic of production and consumption—what he calls the ‘parallax view’. As I understand it, they are making the simple but vital point that labour time expended upon a product is not valorized as ‘socially useful’ until a sale occurs. Karatani has been very clear that this requires that we do not imagine the ‘point of production’ as some self-sufficient realm. It also underlines that exploitation takes time and that some capitalists seek to anticipate its results. Thus capitalist investment necessarily has a ‘fictitious’ character, rooted in hopes and anticipations until such time as surplus-value is actually realized and the new commodities resulting from the investment are sold. The value of shares is itself no more than the discounted present value of future profits. While the psychology of capitalists can create visions of profit from the most flawed and unlikely scenarios, in the end they will be exposed if they cannot generate the real article. The great unevenness, the inequalities and uncertainties that result from capitalist accumulation will themselves prick the bubble, and the resulting crisis brings about a destruction of fictitious value—which, if allowed to go ahead, may clear the way for a new round.
Certainly the current crisis has dramatized as never before that the awesome inequalities generated by capitalism will themselves fatally sabotage the accumulation process. Indeed if we allow ourselves some salutary ‘crude thinking’ (I mean Brecht’s plumpes Denken) we see that the root cause of the crisis was, quite simply, poverty. If Chinese direct producers had been better paid they would have furnished a larger and growing market, in ways that would have benefited the prc’s trading partners. While I made a brief reference to this in ‘The Subprime Crisis’, the argument is developed very effectively by Graham Turner in The Credit Crunch.footnote3 This author makes no reference to Marx’s value theory, but it takes very little elaboration to cast his argument and evidence as one relating to super-exploitation and the eventual difficulty of realizing surplus-value.
While the move from ‘subprime crisis’ to full-scale ‘credit crunch’ has involved many speculative processes, the crisis itself could best be solved by starting with measures that address the poverty which generated the defaults and imbalances. The us Treasury and Federal Reserve have shovelled trillions of dollars into the stricken financial system with precious little to show for it. If instead this money, or a serious chunk of it, had initially been used to help subprime mortgagees pay off their mortgages—a ‘bail out from below’—the result would have been dramatic. The mortgage brokers and banks would have been back in business, and the new home-owners would have been more inclined to spend. House prices, although at a lower level, would have stabilized and the task of establishing a price-discovery mechanism for asset-backed securities would be facilitated. Likewise, if Chinese workers and small producers were better rewarded, a growing Chinese domestic market could help to lift the global economy. Their ability to exercise civic rights of association and labour organizing would be likely to promote such better remuneration.
If a ‘parallax view’ is required to grasp value, then the same goes for the ‘fictitious capital’ which Marx and—following Marx—David Harvey have held to be a crucial component of the accumulation process.footnote4 At a given moment in time such ‘fictitious capital’ may be quite unreal; but that does not mean that it is entirely spurious. The capitalist who makes an investment is thereby committing real claims on resources—his own claims or those of his backers—but his judgement will not be validated until the investment pays off in the creation of a viable and flourishing business. At no time has this been so clear as the present. The columns of the financial press teem with commentators claiming that the ‘business model’ of such and such an industry is ‘broken’—the motor industry, steel making, airlines, newspapers, publishing, the music business and investment banking itself are all now spoken of in this way. Moreover, the out-sourcing of laborious tasks even threatens services like accountancy and law. As Mann points out, there is no lack of capital; but there is a lack of capitalists prepared to undertake the necessarily uncertain investments that would begin to lever the major economies out of the hole into which they have dug themselves.
Before considering immediate measures that address the crisis, a few more words on the concept of the ‘fictitious’. Novels are fiction, yet it would be absurd to deny them any truth and to suppose, like the coffee trader in Eduard Douwes Dekker’s marvellous satire, that their authors are simply out to hoodwink their readers.footnote5 The us Populists were radically suspicious of the pit traders and their financial instruments. They helped to inspire a Congressional inquiry into futures trading—‘fictitious agricultural products’. The Chicago pit traders, it was urged, were just elaborate frauds—they were not farmers, nor did they have any pork bellies or wheat. They were simply parasitical speculators. In 1905 the us Supreme Court was asked to rule on whether futures and all derivative contracts were inherently deceptive and fraudulent. In their ruling on the issue, Oliver Wendell Holmes and his colleagues legitimated the buying and selling of futures on the Chicago Exchange. Holmes had been influenced by the thinking of his friend, William James, who had metaphorically placed such considerations at the heart of his philosophy when he wrote:
Truth lives, for the most part, on a credit system. Our thoughts and beliefs ‘pass’, so long as nothing challenges them, just as bank notes pass so long as nobody refuses them. But this all points to direct face-to-face verification somewhere, without which the fabric of truth collapses like a financial system with no cash-basis whatever. You accept my verification of one theory, I yours of another. We trade on each other’s truth. But beliefs verified concretely by somebody are the posts of the whole superstructure.footnote6