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June 2009 (Volume 61, Number 2)

The grim state of the U.S. economy in early 2009 was brought into sharp relief by economic data released at the end of April. Industrial production in the first quarter of this year dropped by an annual rate of 20 percent, while manufacturing capacity utilization (the operating rate of manufacturing plant and equipment) sank to 65.8 percent in March, the lowest level since the Federal Reserve Board series was introduced in 1948 (industrial capacity utilization as a whole is currently at 69.3 percent, its lowest point since that measurement began in 1967). So serious is the economic illness revealed by these figures that some mainstream analysts themselves are now turning from financial to production indicators and from short-term to long-term factors, in their search for explanations of the depth of the present crisis. Rather than simply representing a short-term financial shock, as was commonly supposed, there is now increasing suspicion, even among conventional economists, that the current economic crisis is embedded in some way in the real economy, raising more fundamental questions about the capital accumulation process.

A case in point is “Just How Big a Problem is Falling Capacity Utilisation?” by Izabella Kaminska, a Financial Times reporter. The Web site, where the piece was posted on April 27, 2009, has plausibly become the most interesting forum in mainstream financial journalism for the discussion of the crisis. Kaminska quotes Merrill Lynch research as indicating that “utilization rates have collapsed for a broad range of industries such as motor vehicles, semiconductors or chemicals.” Seeking to ascertain the causes she notes that “economist Josef Steindl was among the most prominent academics to tie growing spare capacity, unemployment and general economic deterioration together. He did so in specific reference to the Great Depression.” Kaminiska herself seems to have only indirect acquaintance with Steindl’s work, and does not refer directly to his magnum opus Maturity and Stagnation in American Capitalism (Blackwell, 1952; expanded edition Monthly Review Press, 1976). She mistakenly identifies him as a member of the conservative “Austrian School” of economics, rather than as an Austrian economist who rejected the traditions of the Austrian School, in which he was raised, in favor of the traditions of Marx and Kalecki. Still, she relies as her main source with regard to Steindl on the excellent work of historian Michael A. Bernstein, who dealt extensively with the work of Steindl (and with Paul Sweezy, amongst others) in his book The Great Depression (Cambridge University Press, 1987), and on his article “The Great Depression as Historical Problem,” OAH Magazine of History (Summer 2001).

Using what she calls “a neat summary” of Steindl’s theory in Bernstein’s article, Kaminska underscores “three factors” in the modern accumulation process as described by Steindl, which, in her words, can be seen as “influencing each other in snow-ball type effect”: (1) the fact that prices are largely stuck in the downward direction in oligopolistic (monopoly capitalist) markets, leading firms to compensate for demand declines by reducing their capacity utilization rather than lowering prices; (2) the close correspondence between declining capacity utilization and stagnant investment, with the growth in excess capacity creating a cumulative process inhibiting further investment (capacity expansion); and (3) the reality that individual giant corporations, in reducing investment to prevent further build-up of excess capacity within their own firms, only intensify the economy-wide problem of rising excess capacity and declining investment. For Steindl (and for Paul Baran and Paul Sweezy in Monopoly Capital) the snowball effect of the interaction of these three factors helped to account for the economic stagnation of the 1930s. Kaminska uses this to highlight what she calls the “synergies between what is happening now and what happened back then,” i.e., in the Great Depression.

But Steindl’s conclusion that this process is the unavoidable result of the concentration of capital, is a stretch too far for our intrepid FT reporter, as indeed it was for Michael Bernstein. Instead, the problem of growing excess capacity is presented as crucially arising from disproportionalities between some sectors such as manufacturing, where excess capacity is extremely high, and other sectors such as energy (mining, petroleum, crude processing, and utilities), where it is lower. The remedy then is to redirect investment from the former to the latter, a process Kaminska calls “green rebalancing.”

This glimmer of recognition of the basic stagnation problem in a major crisis, followed by a quick retreat once the larger implications are grasped, would hardly have surprised Steindl. As he wrote in the mid-1980s: “Neoclassicism [in economics] lacks the candid innocence of the classics who maintained that poverty was necessary to make people work. Conscious of guilt and always on the defensive, it is purely apologetic. Its basic strategy is to eliminate history and society from the subject and reduce it to a mathematical exercise—an optimization problem. In this way capitalism is made to appear everlasting and unchanging” (“Reflections on the Present State of Economics,” Monthly Review, February 1985). On occasion, particularly in response to a major crisis, the best of mainstream economic analysts may cut through the ideological fog to see systemic, historical causes. But insofar as these put the system itself in question, a quick retreat is made to “optimizing” arguments, such as the need for a “green rebalancing,” as answers to such systemic problems of production. That the relations of power that reproduce the system are inconsistent with such spurious “solutions” is clear enough to us at MR from the history of our times, but unsurprisingly less so at the FT.

Still, we naturally hope that those with the courage to engage in the confrontation of reality with reason will be drawn by the hard facts of the economic collapse to reconsider Steindl’s Maturity and Stagnation in American Capitalism. It can be purchased online from Monthly Review Press. For a treatment of the current crisis that builds on the work of Steindl and Baran and Sweezy see John Bellamy Foster and Fred Magdoff, The Great Financial Crisis: Causes and Consequences (New York: Monthly Review Press, 2009).

Correction: a proofreading error occurred on page 4 (print edition) of “Capitalism in Wonderland” by Richard York, Brett Clark, and John Bellamy Foster in the May issue of Monthly Review. “Milton Freedom” should be “Milton Friedman.”

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2009, Volume 61, Issue 02 (June)
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