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September 2002 (Volume 54, Number 4)

Notes from the Editors

The growth and eventual bursting of financial bubbles is an inherent feature of capitalist accumulation, as can be seen in the long history of such crises from the South Sea Bubble of the early eighteenth century to the financial blowouts of the present day. In the first half of the summer a dramatic bubble-bursting decline in the U.S. and European stock exchanges wiped out the stock market gains of the previous five years—a period characterized by manic speculation.

This dramatic turnaround in the fortunes of Wall Street has been widely attributed to “corporate greed” and to the criminal behavior of certain CEOs. Yet, the sudden discovery of financial irregularities after a financial meltdown is just as much a “natural law” of capitalist accumulation as financial crisis itself. At such times considerable public effort is devoted to finding a few corporate criminals on which to lay the blame. This steers attention away from the real problems of the capitalist economy.

If the recent steep slide in the stock market seems to be more chock-full of corporate crooks than usual this has more to do with the increased magnitude of the systems economic travails than anything else. As stated in The Wall Street Journal (June 20, 2002), “Every decade has king-size corporate villains. In the 1970s, Robert Vesco was indicted for looting the Investors Overseas Services mutual fund. In the 1980s, arbitrageur Ivan Boesky and junk-bond investor Michael Milken went to jail. But the scope and scale of the corporate transgressions of the late 1990s, now coming to light, exceeds anything that the U.S. has witnessed since the years preceding the Great Depression.”

The similarity to the 1930s goes much deeper than the sudden uncovering of accounting irregularities of a prodigious scale, but can be seen also in the relation of financial speculation to production. In The General Theory of Employment, Interest and Money, published in 1936 during the Great Depression, John Maynard Keynes declared, “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Today production is in decline relative to finance within the economy as a whole due to the general slowdown in economic growth over the last few decades, together with the search for new outlets for economic surplus within the realm of pure speculation. In this respect the situation is not unlike what Keynes ironically described with the experiences of the 1920s and 1930s in mind. Productive enterprise is today fast becoming a “bubble on a whirlpool of speculation.”

To be sure, the viewpoint presented by the Bush administration and most establishment commentators could not be more different from the one outlined here. Speaking to the National Association of Manufacturers on July 25, Treasury Secretary Paul O’Neill declared that “In our history we have seen times when there is a disconnect between the stock market and the fundamental productive power of our economy. This is such a time but, over time, the market will again focus on our economys fundamentals.” The logic of this position is that as long as the financial euphoria lasted it reflected the strong “fundamentals” of the U.S. economy, and only when it turned into financial panic did a “disconnect” between the economy and financial markets emerge. This “disconnect,” the Bush administration insists, is nothing more than the general loss of public confidence engendered by the illegal actions of a few corporate villainsand the problem can therefore be solved through the passage of tougher corporate crime legislation. No economic fundamentals are involved, they remain strong.

Such views represent mere exercises in self-delusionif not out-and-out attempts to deceive the public. As we have often pointed out in this space, the disconnect between financial markets and economic fundamentals is a long-standing problem of the capitalist economy that was only intensified in the go-go financial years of the late 1990s, during which the speculative bubble kept on expanding on top of an economy characterized by long-term slow growth. The latest bursting of the bubble was not therefore the beginning of a disconnect between the productive base of the economy and the financial superstructure but reflected the progressive development of a serious contradiction at the heart of contemporary capitalism. One thing is clear, the full repercussions of this disconnection between production and finance in the most recent phase of capitalist accumulation have yet to be seen.

An error appeared on page 10 of Sam Gindin’s article, “Social Justice and Globalization,” in the June issue of MR. Kananaskis, Ontario should have been Kananaskis, Alberta. The error was ours and not Sam Gindin’s.

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