Capitalism is resting on an increasingly weak foundation. The immense surplus value circulating globally is produced off the backs of a smaller and smaller percentage of workers. More and more workers are unable to purchase the commodities that are produced, either because they have been replaced in production by electronic technology or because they are paid wages that keep them and their families living in poverty. With fewer and fewer workers earning sufficient income to allow them to purchase commodities, the circuit of capital is threatened.

The declining rate of profits and the inability to turn over productive capital rapidly enough led to the rise of speculative capital as a means for investors to achieve higher rates of return.  Speculative capital began as a means to mitigate risk in the investment of productive capital. However, in a brief period of about forty years, speculation has come to dominate capital.

Global capital uses the American state to prop up the whole system of capital.  Together they serve to extend capitalism’s life as labor-replacing electronic technology in production breaks down the circuit of capital.  The global financial system, with the dollar as a key currency, creates the global credit and money necessary to sustain the activity of speculative capital.  It provides capital with an alternative return on capital in the face of declining rate of profit.

This extension of capitalism’s life in an era of instability provides a false sense of stability. The dominance of speculative capital exacerbates the economic instability and thus social and political instability.  It accelerates the increasing polarity between wealth and poverty and intensifies the severity of the inevitable global collapse.

The destruction of the economic foundations of capitalist society due to the fundamental breakdown in the circuit of capital is forcing millions into motion worldwide in defense of their survival. The conditions are emerging for political struggle and world revolution that will have to take as its task the destruction of all exploiting classes and the end of the capitalist system.

Speculative Capital

Just as the stage of monopoly capitalism and imperialism arose out of the quantitative stages of development of classic capitalism, speculative capital has emerged from finance capital as the dominant form of capital in the era of globalization. Classic finance capital, as described by Lenin, is the merger of bank capital and industrial capital under the control of the banks.  This bank capital is lent to business owners and corporations for investment in production of commodities. Thus, finance capital is an essential part of the circuit of capital.

Speculation is the act of trading financial instruments (such as foreign currencies, stocks, bonds, and various financial derivatives) with the goal of making money. The amounts involved are staggering. Over $25 trillion in currency moves through the world financial markets daily. Unlike finance capital, speculative capital is removed from the circuit of productive capital and does not create surplus value, but only “re-distributes” it. Speculative capital is not reinvested in hiring more workers, expanding plants and equipment, purchasing raw materials or new technology. Instead, these vast amounts are diverted into speculation where investors gamble on changes in the prices of financial instruments.

“Speculative capital is the culmination of the process of the formation of a general rate of profit, the overall system of capital that Marx talked about, where all capitalists partake in the exploitation of labor even if they do not directly produce use values. Speculative capital cannot exist independent of productive capital, but rides on the shoulders of productive capital, overseeing and controlling it.”  (Jim Davis, http://networksdialectics.blogspot.com/2006/06/speculative-capital-as-dominant-sector.html; See also, Jim Davis ”Speculative Capital” www.gocatgo.com/jdav.html).

The dynamic of speculative capital is that it requires more and more money to satisfy its demands. By massive injections of liquidity into the U.S. banking system, Alan Greenspan, former chairman of the Federal Reserve and a loyal servant of the global capitalist class, was key in feeding the stock market and housing bubbles that have kept speculative capital expanding. “Greenspan presided over the greatest expansion of speculative finance in history” Henry C.K. Lieu, chairman of a New York private investment group, wrote in a series of articles for Asia Times, “including a trillion-dollar hedge-fund industry, bloated Wall Street firm balance sheets approaching $2 trillion, a $3.3 trillion repurchase agreement market, and a global derivatives market with notational values surpassing an unfathomable $220trillion.”(http://www.atimes.com/atimes/others/bubbleland.html)

Pensions further feed the frenzy. At the end of 2003, retirement savings represented assets of over $10 trillion, nearly half of which was held in stocks.  These savings are by far the most important source of money on Wall Street. Speculative capital is stealing pensions from workers throughout Europe, Asia and the U.S. “[F]aced with a choice between living up to their pension promises or reporting higher net earnings, companies simply decided not to live up to their employee agreements.” (Michael Hudson, Harper’s, April, 2005).  The proposed privatization of Social Security will destroy a secure source of income for older Americans while providing $1.8 trillion to buoy up the stock market bubble.  The failure to pay pensions, and the aggressive attack on Social Security constitute a massive redistribution of wealth from working people to the capitalist class to continue its orgy of speculation.

The Federal Reserve, central banks, global economic institutions (such as the IMF, World Bank, and WTO), and the states of the major industrial countries work together to create the conditions for the expansion of speculative capital. The interests of an emerging global ruling class are served and protected by these national and international state institutions through a global system dominated militarily and politically by the U.S., as well as by U.S. domination of the global financial system through dollar hegemony.

U.S.Dominance of the Global Financial System

U.S. dominance of the world’s financial system has grown quantitatively since the end of World War II, setting the conditions for the qualitatively new world financial system of today. A brief history explains the unique position of the U.S. in the global economy.

The U.S. has dominated global finance since the end of WW II, when the major industrial powers established the institutions of global capital – the United Nations, GATT (precursor to WTO), the International Monetary Fund and World Bank. The Bretton Woods agreements (1944-1945)established a system of fixed exchange rates with the dollar pegged to gold at $35 an ounce that secured U.S. financial dominance in line with its political and military dominance.  Dollars became the reserve currency for the capitalist world.  As the U.S. became a debtor country with its military spending far exceeding its exports, the growth of the world’s monetary reserves came to depend on the foreign dollar balances created by the U.S. trade deficit.

In 1971, when international creditors lost confidence in the dollar and demanded payment for their dollars in gold, the U.S. defaulted on its payments, thus severing the link between gold and the dollar.  During the 1973 Middle East crisis, the U.S. forced the oil-producing nations to denominate the sale of oil in dollars. This meant that other countries had to acquire sufficient quantities of dollars in order to purchase essential supplies of oil.  The “petrodollars” accumulating in the hands of the oil producing countries were returned to the U.S. as investments, thus financing the U.S. deficit. Enabled by the international institutions of global finance, U.S. domination of the oil market and dollar hegemony, in a symbiotic relationship, have grown in significance over the years. The WTO imposes draconian free-market rules on everything except oil and currencies, and the IMF acts as the world’s policeman in defense of dollar hegemony.

Since the advent of electronic technology and the rise of globalization, U.S. dominance of global finance has entered a qualitatively new stage. The federal government bailed out the Savings and Loan companies (1989) and Chrysler Corporation (1979) because their failure could have caused financial crisis and even depression. In a similar way today, any signs of faltering in the U.S. economy or sharp changes in the value of the dollar are met with rapid and decisive actions by the IMF and central banks of Europe and Asia to protect the dollar and the U.S. economy. To do otherwise would put their own economies, and possibly the entire world economy, at risk of financial crisis and depression. “[T]he U.S. Treasury [has] run up an international debt of over $600 billion, using the balance-of-payments deficit to finance not only its widening trade deficit but its federal budget deficit as well. To the extent that these Treasury IOUs are being built into the world’s monetary base they will not have to be repaid, but are to be rolled over indefinitely. This feature is the essence of America’s free financial ride, a tax imposed at the entire globe’s expense.” (Michael Hudson, Super Imperialism, 2003).

Contrary to the rhetoric of market fundamentalism and free trade that it imposes on the rest of the world, the U.S. economy would be in its death throes if it had to live by the rules of the market and free trade.

The American market is an important source of profit for global capital. As wages decline and paychecks become inadequate to purchase the flood of commodities, consumer debt and fictitious wealth creation – through the stock market and housing bubbles – sustain the American consumer and the American market. Since the U.S. budget deficit is largely paid for by investment from foreign central banks, not by taxation, American corporations and labor have some protection from the intense competition of low-wage producing countries, such as China.

Economic Polarization and Instability

Whatever stability the global financial system derives from the combined interests of global capital and actions of the American state pales in comparison with the instability created by this extremely predatory system of transferring wealth from the poorest to the wealthiest.

We are living in an epoch of change brought about by the introduction of digital electronic technology into production. The difference between the economic reality of this period of time and previous times is that every advance of technology into production now is labor-replacing rather than labor enhancing. The introduction of electronics into production replaces human labor. When production can increase without an increase in labor, the value of labor power – and the value of life – begin to fall toward zero.  Employed workers globally are competing with a “robot” that is not paid wages.  Thus, capital is able to drive workers in production like slaves, with extended hours, intense exploitation, and starvation wages. 

Directly or indirectly, every manipulation of money capital to expand speculation is at the expense of labor and the new proletariat.  The interaction between speculative capital’s world of “making money from money” and the real world of the common people – those of us who have to pay our debts and bills and buy commodities in order to survive – always leaves the common people gasping for breath, fighting to stay alive. Capital’s insatiable drive for more credit creation destroys the livelihood of the stable American middle-income working population that provides ideological and political support for American capital, and threatens the staples of the American dream – a steady job with benefits, home ownership, and retirement with pension and Social Security. The state institutions respond to this economic reality with callous indifference to human need.  The inevitable social response is already underway worldwide. It is being – and will increasingly be – met with war, repression, and fascism.

An Epoch of Change

History teaches us that classes ultimately determine the direction of social development. The emerging global capitalist class, dominated by speculative capital, is leading the motion to create a society based on a new form of private property and exploitation. As part of this process, we can also see the outlines of the formation of a fascist state imperialism that can operate to guarantee the interests of the capitalist while repressing all that seeks to challenge its rule.

The very same process of technological change and the restructuring of production is also creating a new global proletariat from the workers and potential workers replaced in production by electronic technology. The objective demand of this new proletarian class is for the distribution of the wealth of society according to the needs of the peoples of the world. Their objective demand is for communism. Whether war can be stopped and fascism prevented – with society reorganized around communal ownership and distribution according to need – will depend on the class consciousness, vision, ideological commitment, and organizational skills of the new global proletariat.

 

August.2006.Vol16.Ed5
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