The scarcity in capitalist abundance

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Read a commentary on the most recent book by Luiz Gonzaga Belluzzo and Gabriel Galípolo and an excerpt from the book

By Ilan Lapyda*

In times of flat earthism and the hegemony of orthodox economic thought, it never hurts to make an “appeal to reality” and recover the contributions of science to understanding the world we live in, especially when the economic debate is disfigured by a profusion of papers based on juggling equations and abstract models.

That is precisely the purpose of The scarcity in capitalist abundance (Countercurrent/Facamp), the most recent book by Luiz Gonzaga Belluzzo, one of the greatest exponents of heterodox economic thought, co-authored with Gabriel Galípolo. By pointing to the “intellectual capture” to which economists in general are subjected, they explain that “in economics, conclusions can come first, with economists gravitating towards a thesis that fits their moral view of the world” (p. 9) .

In this sense, the “scarcity” present in the title of the work refers, on the one hand, directly to the material dimension, brilliantly understood by Karl Marx as a product of the contradictions of the capitalist system itself: it is the other face of an abundance produced by an enormous development of the productive forces under the logic of capital and the private appropriation of the fruits of social work.

On the other hand, there is the intellectual dimension, given the impoverishment of the economic debate, often reduced to the justifying and mythologizing ideology of the neoliberal order – which is also a product of the dynamics of capitalism, understood as not only an economic system, but also a political, social one. and cultural. This sense of “scarcity” is even more present in Belluzzo and Galípolo's book than the first one (deeper in works such as Capital in the XNUMXst century, by Thomas Piketty, on inequality of income and wealth, quoted by the authors themselves).

Just as Marx did not stop at the vulgate of the bourgeois thought of his time, but carried out a profound dialectical critique of the classics (such as Adam Smith and David Ricardo), the authors do not limit themselves to pointing out the current intellectual shortage. They criticize the assumptions of neoclassical theory itself in its different aspects, revealing its failures in explaining, and even describing, reality.

Thus, in the first two chapters, an attempt is made to “identify the moments of rupture and continuity that marked the development of Political Economy” (p.15), taking a tour of different authors and currents of economic thought, from the XNUMXth century physiocrats – passing through utilitarianism, the marginalist revolution and the “rebellion of the historicists” of the late XNUMXth and early XNUMXth centuries – to the main inflections of the XNUMXth century (especially the neoliberalism of Friedrich Hayek and Ludwig von Mises). Given the conciseness and density of a resume like this, the non-specialized reader may encounter some difficulty. However, the two main objectives are clear: to question the “quartet naturalism, individualism, rationalism e balance, scientific mimicry of the so-called mainstream” (p.15); and to show how economics and politics are inseparable, so that the latter permeates the intellectual productions and clashes related to the former.

The counterpoint appears in chapters 3 and 4, respectively on Nietzsche and Marx, “the pair of most radical critics of the values ​​and pretensions of modern bourgeois society” (p.56). Incomparably more extensive and in-depth, the chapter on Marx not only presents fundamental concepts ofThe capital, such as formulations of floorplans (text less known to the general public) that are closely related to fundamental contemporary issues, such as technological revolutions, globalization, financialization, monopolization and hyper-industrialization.

Entering the diagnosis of the present, the authors argue that, in addition to the basic mechanisms, contemporary scarcity is produced both by the unlimited creation of needs (“consumerism”) and by the indebtedness of families and the appreciation of fictitious capital. Renting thus gains prominence as a means of appropriating other people's wealth and is not temporary, as it is rooted in the current configuration of financialized capitalism: “financialization is not a deformation of capitalism, but an 'improvement' of its nature” ( p. 91).

After the conceptual discussion on Marx and his articulations with the present, chapter 5 constitutes the 'positive' part of the book, in which alternative conceptions are presented (fundamentally based on Marx, Kalecki and Keynes) for thinking about macroeconomics. Necessarily more technical, important issues are discussed there: the determinants of investment, the credit system and banks, currency and money, exchange rate, the nature of crises (mainly financial), deregulation and financial innovations, always with aimed at opposing, directly or indirectly, neoclassical assumptions (balance, rational decisions, information symmetry, currency neutrality, etc.) and criticizing rentism.

The chapter ends with brief considerations on the Brazilian case in the 1990s – the moment of the neoliberal turn in the country – regarding the exchange rate, vulnerability and systemic risk. The return of foreign capital flows in the period put pressure on the exchange rate towards appreciation, contributing “decisively”, according to the authors, to the end of high inflation. The counterpart, however, was the expansion of the trade and current account deficit, leading to the need to finance the balance of payments. This created, especially after the crises in Mexico, Asia and Russia, a situation of vulnerability that culminated in the devaluation of the real and the change in the exchange rate regime.

This discussion is essential, both because the financialization of our economy continues to cause external vulnerability and because the exchange rate issue remains vital for the country's industrialization (or to avoid the ongoing deindustrialization), as advocated by the “new developmentalist” theses( Cf. Luiz Carlos Bresser Pereira, “New developmental theory: a synthesis.” In: Development Notebooks) – a counterpoint to the neoliberal economic policy that has been fighting for its space.

The issue is taken up again later, when the fact is highlighted that the flow of capital to emerging countries in recent decades (with the exception of China) has not stimulated export-oriented projects, promoted 'predatory' imports and increased the foreign presence in domestic capital. This was particularly the case in Brazil. China, on the contrary, promoted the combination of competitive real exchange rate, dominance of state-owned banks in the offer of credit, low interest rates for infrastructure, absorption of technology with gains in scale and scope, densification of industrial chains and growth in exports. In other words, it moved significantly away from the economic booklet preached by neoliberalism.

The last chapter is dedicated to the most recent process of globalization, whose “true meaning”, according to the authors, “is the intensification of competition between companies, workers and nations, inserted in a monetarily hierarchical global financial structure, commanded by the power of the dollar” (p.193), and from which the common economic ills in the periphery increasingly devastate the center. The parallel established between the contemporary social and economic environment and the period of the 1920s and 1930s of the last century – a demonstration of the creative and destructive power of capitalism, monopolization of capital and the practice of protectionism, currency instability and unemployment – ​​is the key to the understanding of the factors that make up the political-economic context in which the current rise of the extreme right takes place in several countries.

In summary, these factors represent the “fracture of the geoeconomic arrangement erected in the last 40 years” (p.196). This arrangement was the result of the collapse of Fordism, the Welfare State and the Bretton Woods Accords in the central countries, and the implementation of the Washington Consensus and the cooling off of development initiatives in most of the 'emerging countries'.

The post-war capitalism described as “social” and “international” became “global”, “financialized” and “unequal” capitalism, in which “convinced of their freedom, free individuals surrender their destiny to the shackles of competition and the illusions of meritocracy. Upset by their faults, the losers accommodate themselves to the torments of exclusion and inequality” (p.194). Since the 2008 crisis, we have seen what could be configured as a new phase in the unfolding of the contradictions of world capitalism. Belluzzo and Galípolo's book brings theoretical and analytical contributions to decipher it.

*Ilan Lapyda He holds a PhD in sociology from the University of São Paulo

Book excerpt The scarcity in capitalist abundance

Metamorphoses of capitalist wealth and the advance of rentism

The financial crisis that broke out in 2008 cannot be attributed to an incident of mismanagement by the relevant players in the market game – large financial institutions and internationalized corporations. Mainstream economists use the concepts of market failures determined by information asymmetry, moral hazard, etc. to explain the crisis. As the Italian economist Giancarlo Bertocco points out, the crisis is born of the endogenous transformations promoted by the capitalist dynamics that led to the exacerbation of financial, productive imbalances and in the distribution of income and wealth between countries, companies and families.

The book Thomas Piketty, Capital in the XNUMXth century, will be taken as a reference to analyze the metamorphoses of wealth and its distributive effects. Piketty, it is known, treads the paths of the relationship between wealth and income from the predominance of land wealth – whose decline was imposed by the forces of mercantilist policies to encourage manufacturing – to the contemporary arrangements seized by financial patrimonialism and the concentration of capital in the large oligopolies that dominate all sectors of industry and services in the global arena. The transformations that took place in the financial system unleashed free and brutal competition in capitalism by large companies and large financial institutions.

Here we will deal with the transformations that occurred between the 70s and the financial crisis in 2008.

In his pilgrimage, Piketty presents a concept of capital that apparently disregards Marx's theoretical formulations regarding capitalist production relations and their connections with the nature of the productive forces adequate to the development of this production regime.

However, by aggregating the various types of assets and discussing the changes in their composition, Piketty reconstructs Marx's trajectory in The capital : reaffirms the “nature” of the capital regime as a historical modality whose purpose is the accumulation of monetary, abstract wealth; thus opens space for understanding the predominance of interest-bearing capital and fictitious capital, as forms of wealth and enrichment derived from ownership of capital  and not the innovative and luxurious activity of the capitalist entrepreneur. This unfolding necessary of capitalist wealth in its most “advanced” modalities, confirms the investigations of Marx, Schumpeter, Keynes and Minsky regarding the laws of motion that govern the relationship between wealth and value creation (income).

In capitalism charged with all its determinations, aggregate wealth is the stock of reproductive assets, property rights over these assets and their earnings (shares) and debt securities generated over several cycles of value creation. Financial assets – stocks and debt securities – are valued daily in specialized markets.

In Book III of The capital, Marx establishes the connection between the expansion of credit and the appreciation of financial assets: “As the available money capital develops, so does the mass of profitable securities, government bonds, shares, etc. But at the same time, the demand for available money capital increases, since those who speculate in bonds and securities play a fundamental role in the money market... If all the purchases and sales of these securities were nothing more than the expression of real capital investments, it would be fair to say that they do not influence the demand for loan capital” (The capital, Book III, p. 479).

As a general rule, the distribution of wealth is much more concentrated than the distribution of income. Thus, the greater “propensity to save” of those in the upper strata of the income distribution contributes to depressing the “propensity to spend” of the private sector.

The frugality of the rich expands the role of inheritance in the reproduction and accumulation of wealth, which belies the meritocratic and “competitive” character of enrichment alleged by liberals. By unfolding wealth in the ways in which it transmuted over the course of three centuries of history, Piketty makes reappear in the proscenium of economic life the “natural” tendency of capitalism towards the preeminence of capital-property and the valuation of already existing assets over the adventures of the past. productive investment.

When the entrepreneur inevitably tends to become a “rentier”, dominant over those who only have their own work, capital reproduces faster than the increase in production and the past devours the future. , Thomas Piketty and Gabriel Zucman reveal the evolution of the relationship between wealth and income since the 200th century. Looking at the world's eight largest developed economies, the share of aggregate wealth rises from approximately 300% to 1970% in 400 to 600% to XNUMX% today.

The curve that expresses the evolution of this relationship has a “U” shape, with a sharp drop in the share of aggregate wealth over income in the period comprising the two world wars and the Great Depression. The trend reversed more sharply from the 70s onwards. According to the authors “world wars and anti-capital policies destroyed a large fraction of the world capital stock and reduced the market value of private wealth, which is unlikely to happen again in the era of deregulated markets. By contrast, if there is a reduction in income growth in the decades ahead, then wealth-income ratios could become high virtually everywhere in the world”.

In this paragraph, Piketty deals with the “devaluation of wealth” as a phenomenon that accompanied the accumulation cycles of industry and finance under capitalism in the XNUMXth century and in the first half of the XNUMXth century. The devaluation of wealth is part of the ever-revolutionary movement towards the expansion of capitalism, described by Schumpeter as “creative destruction”. Marx treated crises as episodes of devaluation of existing capital, a phenomenon that is born from the depths of accumulation, necessary to purge the weight of old wealth and drive a new cycle of expansion,

In the post-war period, economic policies were forged under the fear of repeating the social and economic disaster that occurred in the Great Depression, aiming to stabilize an economy with strong inclinations towards instability. “asset devaluation” crises. But by guaranteeing the value of existing stocks of wealth, stabilization actions have expanded the role of Wealth Markets assessment criteria in business, consumer and government decisions.

Last-resort interventions by central banks and National Treasuries, designed to prevent asset deflation, encouraged the conservation and enhancement of wealth in its most sterile, abstract form, which, in contrast to the acquisition of machinery and equipment, does not carry any expectation of generating new value, of employing living work. What was a way to avoid the destruction of abstract wealth is causing the necrosis of the economic fabric.

The history of capitalism is plagued with episodes of liquidity crises, always triggered after an expansion of credit created ex nihilo by the banking system. When euphoria turns into fear and uncertainty, rational agents become a herd of enraged buffaloes in search of “liquidity”, that is, the capture of money in its essential determination of value and wealth in general.

These increasingly frequent episodes would be at the tail of the probability distribution. The so-called “tail events” – such as, for example, the appreciation (and collapse) of the prices of assets backed by mortgages (“asset backed securities”) – cannot be considered amplified versions of small fluctuations. This is because episodes of contagious euphoria and the desperate search for liquidity distort the very distribution of probabilities.

Tormented by the mysteries and contradictions of finance, troubled souls like Olivier Blanchard (former IMF Chief Economist) and Lawrence Summers (former Bill Clinton Treasury Secretary) confessed: in the euphoria of self-congratulation, the choruses of Dynamic models General Equilibrium Stochastics forgot to include banks, credit and the volatile moods of the markets that trade debt securities and stocks in their models.

 The two recognize, in his text “Rethinking Stabilization Policy: Back to the Future” (October 2017): “For decades, Hyman Minsky has warned of the consequences of building financial risks… unresolved: first, given that asset bubbles burst and that their interaction with excessive leverage is crucial to understanding financial crises, what is the relative importance of the different mechanisms? One mechanism is the loss of capital by financial intermediaries who respond by contracting credit and bringing down economic activity.”

 The regretters conclude: “the events of the last ten years have called into question the presumption that economies are capable of self-stabilizing, raised again the question of whether temporary shocks produce permanent effects, and demonstrated the importance of non-linearities”.

It is worth remembering that in general equilibrium models, the agents' rationality is exercised in a space of “real” relative prices that guarantee ex-ante the equilibrium of transactions on all dates and contingencies.

In the hypotheses of the Austrian school, from von Mises to Hayek, the “market process” is not based on the formalism of general equilibrium, but stems from the fluency and availability of information for all individual-protagonists. The dynamics of the system is subject to the crucial and intertemporal decision that defines the preference of individual agents between present consumption and future consumption.

The division of income by the public between consumption and saving depends on the natural rate of interest. The natural rate reflects the “productivity of capital” in the sense of Wicksell, Böhm-Bawerk and other Austrian School economists. This is the rate that expresses the relationship between present consumption and future consumption, that is, between the use of real resources in the present (consumption) or in the future (savings/investment). Investment is a long and indirect process of access to consumption (roundaboutness), deferred consumption.

The theory of loanable funds (savings accumulated in bank deposits) is based on the assumption that banks are mere intermediaries between savers and “spenders”. Credit operations, mediated by the natural rate of interest, only redistribute positions between creditors and debtors, reflecting different preferences between present consumption and future consumption (investment) without any effect on macroeconomic stability. It is simply a redistribution of wealth. A's debt is B's credit: the balance sheets change symmetrically and thus there would be no possibility of a “credit crunch” caused by excessive leverage.

Claudio Borio warns that “savings and financing are not equivalent (…). They are equivalent in the model, but not in general and, more to the point, in the real world (...) such interpretations of finance are largely based on textbooks on lending funds (...) this is an excessively narrow and restricted view of finance , as it ignores the role of monetary credit (…) saving and financing are not equivalent in general. In a monetary economy, the resource (real) constraint and the cash flow (monetary) constraint differ, because goods are not exchanged for goods, but for money or the demand for it (credit). So credit and debt are not realized by the exchange of real resources, but by financial claims on these resources”.

Piketty's studies on the role of public debt in the composition of private wealth in the early days of capitalism show the importance of assets-liabilities issued by governments in the transition from assets fixed in land to mobile and liquid wealth. Thus, the Bank of England mediated the trepidations and expropriations of primitive accumulation.

In the “financialized” capitalism of the XNUMXst century, the appropriation of “rentier” income is closely associated with the swelling of national public debts. In order to understand the “new dynamics” of enrichment and inequality, it is necessary to evaluate, following Piketty, the role of public debt in the valuation of fictitious capital and in the transmission of wealth between generations.

Government bonds constitute the “last resort ballast” of “securitized” global financial markets. With regard to security and liquidity, there is a hierarchy between sovereign bonds issued by different countries, supposedly built on the basis of “national” fiscal foundations. But this hierarchical scale reflects, above all, the hierarchy of national currencies, expressed in the risk and liquidity premiums added to the basic interest rates of non-convertible currency countries.

The difference in interest rates between those prevailing in the “periphery” and those prevailing in “developed” countries is determined by the “degree of confidence” that global markets are willing to give to the national policies of clients that manage currencies that lack international reputation.

The scarcity in capitalist abundance

Luiz Gonzaga Belluzzo and Gabriel Galípolo

Contracurrent Publisher/Facamp

250 pp.

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