Editor's Note: Political Report of the  League of Revolutionaries for a New America Standing Committee, September 2008.

In the new epoch of globalization Ð capitalism in the age of electronics Ð speculative capital has risen to a dominant status. Yet, speculative capital only accelerates the crisis within capitalism further restricting the capitalistsÕ maneuvering room. Each step the capitalists take only further undermines capitalism itself and creates the conditions for political crisis and revolutionary change.

Root of the problem

The fundamental law of motion that drives the development of capitalist commodity production is the maximization of profit. The source of value of all commodities created for exchange in the market is the socially necessary labor-time of the workers. Profit is realized from that unpaid portion, the surplus-value accrued in the exploitation of human labor. The capitalist is ever driven to intensify that exploitation and to increase that unpaid portion of the workersÕ labor-time.

The capitalist system must expand or die. Either by the intensification of the exploitation of the worker or by increasing production through the introduction of ever more efficient tools of production, the capitalist operates to expand value for exchange in order to realize profit. The contradiction inherent in the process, however, is that the more the labor-time is reduced in the production of commodities, the more the value contained in it is reduced, resulting in a falling rate of profit. This only exacerbates the mad rush to expand the mass of commodities produced in order to realize profit.

The drive to maximize profit has led to the introduction of a qualitatively new instrument of production Ð electronics, the digitization, automation and robotization of production. In other words, for the first time in human history, production without human labor is possible. Hence the value of the worker as a source of value approaches zero, and increasing numbers are permanently expelled from production.

All human labor is cheapened, and the polarization of absolute wealth and absolute poverty characterizes the new epoch. The contradiction inherent in capital becomes an open antagonism, hostile to the very law of value itself. Laborless production means production without value. Commodities cannot realize profit without being exchanged in the marketplace, and workers without money cannot consume the growing mass of products. The assault upon the law of value itself spells the end of commodity-production.

 

Role of Speculative Capital

 

Modern speculative capital developed in relation to these profound changes within the capitalist system. Capital must circulate. Laborless production means valueless production - and hence, profitless production. With laborless production, capital can no longer be utilized to create more value and more surplus value. So, capital is being shifted into purely speculative investment.  Speculative capital does not create value or realize surplus-value, but makes money largely from amassing vast sums based in debt.

There has been a massive expansion of speculative credit instruments for a globally leveraged speculative community. From 1987-2007 credit market debt quadrupled, from $11 trillion to $48 trillion, a private issuance of $37 trillion coupled with $11 trillion in federal, state and local government obligations. The financial services sector in the 1990s became the largest sector of the U.S. private economy.

The value of U.S. home mortgage debt increased by $3 trillion. The securitization of debt as well as the creation of other exotic and complex debt instruments became the new wealth machines, but wealth was created by moving money around, with the circulation of goods and services only a secondary by-product. 

With collateralized debt obligations (CDOs), asset-backed securities (ABS), and other debt instruments, speculative capital has been allowed to emerge as a ÒshadowÓ banking system, where mutual funds, non-bank lenders, hedge funds and securities, largely outside the existing financial regulatory structure, have become the new Òliquidity factories.Ó

The impact of the rise of speculative capital is becoming increasingly clear. On the one hand, the risk of catastrophe has been shifted onto the balance sheets of ordinary families. On the other hand, it has fed, and continues to feed, not only a growing global credit crisis, but a dangerous economic instability.

 

State plays key role

 

The U.S. state has a played an indispensable role in facilitating the development and dominance of speculative capital through state policies and practices that favor the financial sector over the industrial sector, and through dollar hegemony.

In 1971 the Federal Reserve ÒfloatedÓ the dollar, no longer pegging it to gold. In 1972 currency futures were launched, equity futures in 1973, T-bill futures and futures on mortgage-backed bonds in 1975, setting the stage for a new hedging and speculative universe.

And then the bad news began. In the 1980s there was the S&L mess and bailout, a rescue of Citibank by a Saudi prince, and the Federal Reserve bailout of junk bonds.

Following the October 1987 stock market crash, a President's Working Group on Financial Markets was formed, built around the Secretary of the Treasury and the Chairman of the Federal Reserve Board. Washington and the U.S. financial sector were tied even more closely together, collaborating to supply strategic direction, funding support and periodic Federal Reserve or U.S. Treasury bailouts.

Certainly, trillions have been amassed by a handful of individuals and corporations in the past period, but these have been nothing more than short-term results. They have not been able to stop the antagonism within the capitalist system that labor-replacing technology has created.

And now the latest speculative bubble has burst. The Federal Reserve has put $435 billion on the auction block to ease the credit crunch and provide liquidity. New York banks were issued $200 billion in liquidity this year, and Bear Stearns was rescued by a $30 billion emergency loan. AIG was bailed out to the tune of $85 billion, the government took over Fannie Mae and Freddie Mac, and has gone from assuming all the distressed assets or "bad debts" of Wall Street to practically a full-scale giveaway to financial institutions and corporations alike.

The underlying economic crisis set off by the introduction of electronic means of production has led to the current financial crisis that is in turn leading to a greater economic crisis threatening to engulf the entire world

 

Emerging regional blocs

 

The U.S. domination of the world is declining as the various regional blocs are developing. These blocs Ð some just in formation, some with longer ties Ð are collaborating to strengthen the protection of, or access to, other markets.

In 2003, China and other countries collaborated in what came to be known as a ÒBretton Woods IIÓ agreement to hold large central bank balances in U.S. Treasury debt in order to support the dollar. Concurrent with this has been the rise of Sovereign Wealth Funds, government-owned hedge fund equivalents, designed to maximize profits through direct foreign investment.

Of the five largest foreign currency reserves in the world, three are maintained by China , Russia and India . Sovereign wealth funds constitute a pool of $3 trillion currently, and are expected to rise to $12 trillion in 10 years. Over the past 12 months sovereign wealth funds have supplied $60 billion in liquidity to American financial institutions.

The new BRICs ( Brazil , Russia , India and China ) represent a seismic shift in the global economy and the development of political formations to correspond to it. Recently 12 South American nations came together to form a new continental parliament, called UNASUR.

The new Òseven sistersÓ of oil are now state-controlled Saudi Aramco, Gazprom (Russia), Petrochina, the National Iranian Oil Company, Petrobras (Brazil), Petronas (Malaysia), and Petroleos de Venezuela. These countries and the economic blocs they represent are the new Òaxes of oil.Ó The Shanghai Cooperation Organization is composed of Russia , China , and four other Asian republics.

Geopolitics follows economics. As these new blocs have arisen to contend with the economic supremacy of the U. S. , we see a high proportion of military strategies coalescing around the proximity to oil. The U.S. military has become increasingly an oil protection force. Thus we see the current quagmire in Iraq and Afghanistan , but also the increasing involvement of the U.S. military in Africa and South America , not to mention the plans to go ahead with the establishment of missile bases in Poland and Czechoslovakia . At the same time, both Russia and China are countering with a dramatic buildup in their military.

With the rise of new regional blocs within the global economy emerging to challenge U.S. economic global dominance, a contending for a re-division of the earth and the prospect of world war looms.

But the global crisis of capitalism also expresses itself as the open antagonism of absolute wealth and absolute poverty, and that raises the promise of world revolution as the new global proletariat arises to contend for its own redistribution of the earthÕs abundance on a cooperative basis.

Note: If readers would like to follow up on some of the facts and figures presented in this report, see Kevin Phillips, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, 2008; or search "speculative capital" at www.rallycomrades.net.

 

Dec.2008.Vol18.Ed6
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