ON THE FAILURE OF THE MAINSTREAM ECONOMY
AND HOW NOTHING WAS LEARNED FROM THE FINANCIAL AND ECONOMIC CRISIS

By Heinz J. Bontrup

[This article is translated from the German on the Internet, http://www2.bdwi.de/uploads/werbeflyer-sh7.pdf. Heinz Bontrup is an economist active in alternative economic theory. With the help of the historical development of economics, Heinz Bontrup shows how neoclassicism and later neoliberalism contributed to the latest financial and economic crisis and that economic policy is again practiced as before the crisis.]

The neoliberal mainstream economy and its political consultation have experienced their Waterloo with the most grievous worldwide financial and economic crisis in eight decades. “Everything that we now experience was intentional by politics, banks and the economy and did not come over us,” the chairperson of the German state bank bailout fund SoFFin Hannes Rehm said. [1] Since the middle of the 1970s and intensified following the collapse of the Soviet Union, the capitalist forces, the monopolist and oligopolist capitalist markets, were unleashed in a liberalized and globalized world. The dominant state-monopoly style of a “predator capitalism” (Helmut Schmidt) was released on the pressure of international financial capital and the wealthy clauses (plutocrats) in individual countries. The capitalist transformation of large parts of China and essential technological changes like new transportation- and communication systems have fueled the capitalist accumulation process driven by the profit rate.

The Keynesianism intervening in the market with its welfare state stabilization- and distribution-policy that relied on an active strong state and could become established in the western world at least after the Second World War up to the 1974/75 worldwide economic crisis was increasingly replaced by a Schumpeter competition state. This new “activating” state type should merely support the social “participation” of economic subjects in free market events whose distribution results must be accepted.

Crises were always system-immanent to capitalism independent of the practiced economic paradigm. This is especially true for financial market crises. Since the 17th century, there have been 38 such crises. [2] The system ru9led by capital will also survive the serious present crisis. However capitalism is not the “end of history,” as Francis Fukuyama claimed. On the contrary, the system’s threatening distribution crises in particular countries are increasing within the classes and not only between capital and labor. “One capitalist kills many others” (Karl Marx). The interests of dependent employees and the unemployed are hardly homogenous and develop differently in crisis. Distribution conflicts over raw materials, an improved environment and the appropriation of profits between national economies massively increase. The question presses: who receives how much from the respective surplus produced by the division of labor?

THE “DEADLY SIN” OF ECONOMICS

This question is like a central threat throu9gh the historical development of economics. [3] If the classical system of theories (from Adam Smith to Karl Marx) was still based on an objective labor theory of value, the new value or surplus value arising in production (profit, interests and ground rent) are only derived from human workers and consumption of nature. The economy analyzed and criticized as to distribution was seen under capitalist property relations. Neoliberalism toward the end of the 19th century distanced itself with a “deadly sin” (Otto Conrad). [4] The main focus was only on a subjective theory of value and the position of the economic subject in the exchange process on the market through the relative prices of goods and a subjective (egoistic) marginal utility concept (developed by the German economist Hermann Heinrich Gossen). But neoclassicism in its system of theories raises surplus value to the same level of social-moral respect as the work income also counted in value creation. Its marginal productivity theory – developed by the US economist John Bates Clark – assigns its own value amount (the so-called marginal value product). The respective factor is paid according to its marginal productivity. The higher the marginal product of a factor relative to others, the greater its share in the value creation and vice versa. Each of the production factors receives its “worth.” With this theoretical mystification, the exploitation of the factor labor was eliminated from neoclassical theory.

The distribution of the growing value creation is also based exclusively on the theorem of marginal productivity theory according to which real wages should rise with the rate of productivity. This only corresponds to distribution neutrality. The aggregate wage- and profit rate remains constant. Dependent workers do not receive any redistribution element that could lead to an increase of the wage rate and the lot of those who have nothing would not be improved, as Oswald von Neil-Bruning showed. [5] They are limited to the consumer goods sphere as “prisoners” with their wage (exchange value of their labor). Without receiving the full value of their work, they are additionally dependent on the use of profit that is only defined by the investment monopoly of capital (Erich Presser) and the profit rate expected in the present. Firstly, a wage- and working hours policy oriented in productivity is necessary to break out of this capitalist connection. A policy of reducing working hours is necessary in times of mass unemployment. Secondly, redistribution to the benefit of dependent workers through a genuine participation of profits and capital and thirdly, an equal joint-distribution in businesses are needed.

NEOLIBERALISM AS A CLASS PROJECT

The turn to neoliberalism in the middle of the 1970s occurred since the profit rates in the capitalist world could only be carried out in a brief full employment phase with strong unions that gained redistribution wages to increase the wage rate. A developed welfare state was put under pressure and no longer accepted by the ruling capital forces and plutocrats. They wanted and want only one thing as a class project (David Harvey): reversing the redistribution from the profit rate to the wage rate. The necessary prerequisite for that reversal was mass unemployment as a result of production- and productivity gaps developing more and more in industrial countries. In wage negotiations, unions emphasized the productivity-growth too much for wage increases and too little for reducing working hours. They still do this today. The jobless masses force down wages more and more. Normal working conditions are dismantled in the arising precariousness through the structural change toward a service society. Work is offered with falling wages (normal neoclassical work supply function). Work offers are expanded when the wage is very low, a vicious circle.

Since the beginning of the 1990s, the shareholder value doctrine has massively contributed to the decline of wages and redistribution through the dominance of financial investors. On one hand, the shareholder doctrine forced gigantic national and international mergers and concentration processes (including outsourcing). This was connected with considerable job losses. On the other side, the respective business management in the real economy was forced to increase profit as much as possible from the work of employees. A redistribution to the benefit of profit and a reversal of the capitalist logic occur. Profit or the profit rate became a high double-digit factor determined and demanded by capital.

REDISTRIBUTION FROM BOTTOM TO TOP AS A CAUSE OF CRISIS

Finally, the decisive cause for the latest financial- and economic crisis is manifest in this whole process. Worldwide the income distribution in the last thirty years has shifted more or less to asset income (profit, interest and ground rent) in the core countries of capital. This leads to great economic imbalances. Every greater sums of money are lacking at the bottom and concentrate at the top of the income pyramid. This limits mass purchasing power, the demand for products and results in production capacities not running at capacity and unemployment. The additional money-capital – as a surplus product – concentrated in the top income and asset groups was not fed into the productive economic cycle as investments in real capital but flowed to the increasingly liberalized (deregulated) financial markets for spectacular intrigues. In addition, “forced savings” occurred through expansion of old age pension systems.

This was not only speculation on increased value of existing assets. We witness today the bursting of an enormous financial bubble. This damages the financial markets and affects the so-called real economy, the production of goods and services and obviously jobs and work incomes. [9] An unequal distribution of assets grows out of the unequal distribution of income. This is obvious and has often been empirically documented. [10] Assets concentrate with the few who can enjoy all the advantages of their assets (above all security and independence) and gain even more money capital on the financial markets through the compound interest effect which despite the financial crisis is still not adequately regulated by the state.

NO HELP ULTIMATELY COMES FROM ABROAD

At the end the demand produced through wages is not enough to sell the production expanded through increased productivity at constant prices. The economic rationality trap opens here. What is rational to the individual entrepreneur, increasing profit at the expense of wages, falls into a trap for the aggregate economy. Still there is a solution on the international plane for individual countries (at least in the medium term). This lies in selling goods abroad for which there is not enough demand at home. The solution has a certain elegance because it reconciles two conflicting goals at home (cost reduction and increased demand). Productivity increases as well as reduced wages and reduced social services lead to cost reductions and higher potential profit margins. The breakdown of domestic demand brought about by the same measures is balanced by the additional foreign demand. This leads to possible profits actually realized through the cost reductions.

The double character of wages as a cost-factor (that must be kept as low as possible) and as the most important demand aggregate is solved. For the exporting business, wages are only costs that must be kept down with all means. [11] In the long-term, this is obviously not a solution. The export profits of one are the deficits of other countries that must become heavily indebted – and at the end insolvent – as the Greek crisis shows. [12]

STATE AND ECONOMY

More equable balance of payments between the countries are urgently necessary on the international plane. The domestic economy of the surplus countries must be strengthened through a redistribution from top to bottom. This is true both for the market-based primary distribution and for a state redistributing fiscal and tax policy. The Alternative Economic Policy study group offers detailed proposals in its annual memorandums. [13] However the opposite of this economic policy is practiced. Capital and the wealthy classes do not want to lose the gross profit increases realized on the market5s by a higher gross wage rate through taxes and fees. Thus they demand tax cuts corresponds to dominant policy and the abolition of equal financing and a sinking of the social state to reduce their social security contributions and in addition the privatization of public services and enterprises.


Obviously nothing has changed in this neoliberal course on the nation-state plane. Worldwide the dominant policy of capital with the new International Monetary Fund (Dominique Strauss Kahn) relies on liberalization, deregulation and privatization. [6] The mainstream economy has long been completely in force after the brief “return of the state to avoid a capitalist core meltdown.” The short-lived Keynesian “call for the state” was only used by neoliberals to socialize the private losses threatened by the crisis through state indebtedness. However the repatriation of debts – on account of the European and German debt brakes – through necessary increases of taxes and fees on recipients of surplus incomes and their asset inventory will obviously not lower state spending in the first place, especially the social spending. So the failure of the mainstream economy disastrously goes to the next round – even for the alleged winners today.

RELATED LINKS:
Aditya Chakrabortty , Bankers and politicians have turned food into a betting game, June 7, 2011
http://www.guardian.co.uk/commentisfree/2011/jun/07/bankers-politicians-food-betting-game?INTCMP=SRCH

Rosa Luxemburg Foundation,
The Crisis of Financial Market Capitalism as a Challenge for the Left,” March 2009
http://portland.indymedia.org/en/2011/07/409313.shtml

Whitney, Mike, “Create More Jobs or Resign,” July 2011
http://globalresearch.ca/index.php?context=va&aid=25585

1
Zitiert bei: Scheuermann, Arnold: „Bankenretter attackiert die Branche”, in: Hannoversche Allgemeine
Zeitung vom 21.08.2009, 11.
2
Vgl.: Deutschmann, Christoph, 2008: „Der kollektive ›Buddenbrooks-Effekt‹. Die Finanzmärkte und
die Mittelschichten”, in: Working Paper 08/05 des Max-Planck-Institut für Gesellschaftsforschung,
Köln, 5.
3
Vgl. dazu ausführlich die drei Bände von: Hofmann, Werner, 1964: Wert- und Preislehre, Bd. 1, Berlin,
1965: Einkommenstheorie, Bd. 2, Berlin und 1966: Theorie der Wirtschaftsentwicklung, Bd. 3, Berlin.
4
Vgl.: Conrad, Otto, 1934: Die Todsünde der Nationalökonomie, Leipzig und Wien.
5
Vgl.: von Nell-Breuning, Oswald, 1960: Kapitalismus und gerechter Lohn, Freiburg i. Br., 140f.
6
Vgl.: Bontrup, Heinz-J. / Niggemeyer, Lars / Melz, Jörg, 2007: Arbeitfairteilen. Massenarbeitslosigkeit
überwinden, Hamburg.
7
Vgl. ausführlich zu den drei Punkten: Bontrup, Heinz-J., 2010: Arbeit, Kapital und Staat. Plädoyer für
eine demokratische Wirtschaft, 4. Aufl., Köln.
8
Eine ausführliche historische Ableitung und Kritik zum Neoliberalismus findet sich u.|a. bei: Butterwegge,
Christoph / Lösch, Bettina / Ptak, Ralf, 2007: Kritik des Neoliberalismus, Wiesbaden , sowie
bei: Goldschmidt, Werner / Klein, Dieter / Steinitz, Klaus (Hg.), 2000: Neoliberalismus, Hegemonie
ohne Perspektive, Heilbronn.
9
Huffschmid, Jörg, 2010: „Die Aktualität des marxistischen Denkens”, in: Z. Zeitschrift Marxistische
Erneuerung, Nr. 81/März, 8 – 10.
10
Vgl.: DIW-Wochenbericht Nr. 4/2009 und DIW-Wochenbericht Nr. 24/2010.
11
Huffschmid, Jörg, 1994: „Kein Ausweg aus der Weltmarktfalle?”, in: Blätter für deutsche und
internationale Politik, Heft 6, 734f. 733 – 746.
12
Vgl.: Dullien, Sebastian, 2010: „Von der Griechenlandkrise zum Euro-Kollaps?”, in: Blätter für deutsche
und internationale Politik, Heft 6, 9–12.
13
Vgl.: Arbeitsgruppe Alternative Wirtschaftspolitik, 2010: Sondermemorandum, Politik hat nichts gelernt
– das Umverteilen von unten nach oben geht weiter, Bremen im August, siehe zur Steuerpolitik
auch: Hickel, Rudolf, 2010: „Milliardenverbrechen Steuerhinterziehung”, in: Blätter für deutsche und
internationale Politik, Heft 9, 57–64.

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