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The insights of Karl Marx on capitalist crises, especially speculation and financial crises, were sophisticated for his time. The first part of this article discusses Marx's concepts of crises and fictitious capital in the current international financial climate.


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It relies on my doctoral study, which was published in , Marx's Concept of Money: the god of commodities Routledge, London. Many contemporary commentators focus on what might be done to remedy the situation. Instead the second part starts from the premise that the current crisis illustrates the very destructive and inhumane nature of capitalism and argues for instituting a humane and ecologically sustainable world without money.

This second part draws from my site, Money Free Zone. Marx stressed that stocks and shares are often exchanged at 'prices' at variance with the value of the real assets that they represent. In other words, financial capital circulates relatively autonomously of the productive process from which it arises and on which it depends, an endless tango, contributing to capitalist cycles and financial crises.

A not-for-profit world beyond capitalism and economic growth?

The current speculative boom in the USA has focused on housing investments. A pass-the-parcel style of lending evolved. Lenders were so cocky that borrowers would repay unabated, successive interests enthusiastically bought in down the line through mortgage-backed securities. This has led to a domino-like fall of credit once repayments seized up and as defaults rose.

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Hyman Minsky 1 has elaborated on this model of lending and its role in capitalist crises. Repayments were jeopardised by wild lending practices, which meant that home loans were provided to many borrowers who had little hope of repaying. In a neo-conservative policy climate, it was assumed that the market, lending institutions, would price such loans for risk through insurance. Though less severe than in the USA, in Australia lending was characterised by greater quantities and varieties of household credit see Steve Keen's Oz Debtwatch site.

This kind of lending has strongly contributed to the current international financial crisis, in terms of over-speculation. It reaches its maximum again as soon as the new crisis breaks out, credit suddenly dries up, payments congeal, the reproduction process is paralysed and With mortgage-backed securities both borrower and lender rely on the houses' maintaining their value.

Everything is inclined to tumble if either house prices fall or borrowers' incomes are threatened enough to compromise their ability to keep making loan repayments. In fact, defaults and falling prices tend to stimulate one another, setting up a negative dynamic. Basically, all investment lays bets on future returns.

Investment is always a gamble. Indeed the rationale for capitalists' making profits is embedded in return for risk.

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If the risk doesn't pay off, they lose their money. So be it. Of course, this accepted reward for risk is turned on its head if those responsible for over-lending are 'bailed-out' by the US and so many other, including Australian, governments. At first glance, therefore, the entire crisis presents itself as simply a credit and monetary crisis On top of this, however, a tremendous number of It is clear that this entire artificial system of forced expansion of the reproduction process cannot be cured by now allowing one bank, e. Moreover, everything here appears upside down, since in this paper world the real price and its real elements are nowhere to be seen This distortion is particularly evident in centres such as London, where the monetary business of an entire country is concentrated Today, of course, we have an international economy and one of the prime financial centres in question is Wall Street, New York.

However, as Marx stressed, the irony of the ideal of the individual in capitalism is in the omnipotence of the economic system over capitalists and workers and the dependence of our whole society and politics on growth. Thus we cannot afford to let the swindlers go to hell, because they will drag us there with them while we cling to capitalism. For Marx, economic crises were endemic and exogenous features of capitalism, which occurred at any time of substantial or widespread interruption to the production or circulation of commodities.

Because capitalists act independently, indeed competitively, the result is a constant tendency to crises. Demand and supply is unorganised at every level individual firms, particular sectors and national capital and there is the constant necessity for generalised growth, based on profits invested capital , which might not eventuate. Thus the precarious material bases of capitalism sensitised the system to crises resulting from imbalances of demand and supply between different sectors of production, overproduction or underconsumption workers not being paid enough to buy the products they create and speculation.

Palgrave Macmillan Studies in Banking and Financial Institutions

Speculation or unwise investment appears after the fact in all these cases. At the same time, overinvestment - too many people wanting to invest and gain returns from the available capitalist activities - also leads to bubbles or boom. Then they burst or bust. So, while poor regulation or lack of regulation of lending institutions might exaggerate a crisis, no specific regulation of banks could avert the general and constant phenomenon of capitalist crises.

Today, too, many commentators are arguing that throwing money at Wall Street and lenders not only means throwing proverbial good money after bad but might not solve the problem because it is not simply a credit crisis. One argument has been that the 'bail out' must provide 'little' people with mortgage repayment support, not for reasons of social justice but because such support is critical in material terms to overcome the basis of the crisis.

Home purchasers must be supported so they can keep repaying their mortgages and keep the lenders solvent. This way the crisis finds some floor, or safety net. Paul Krugman. Lords of Finance. Liaquat Ahamed. Crisis Economics. Nouriel Roubini.


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Available in shop from just two hours, subject to availability. Your order is now being processed and we have sent a confirmation email to you at. Add to Wishlist. USD Sign in to Purchase Instantly. The author offers his views on the factors which led to this global financial catastrophe and how it could have been avoided. About the Author Dimitris N. More than 8, banking, industrial and government executives participated in his seminars in the United States, England, Germany, Italy, other European countries, Asia and Latin America.

Chorafas is the author of books, translated into several languages world-wide. Average Review.

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The book outlines the long history of concern about these issues, going back to preparations for the Bretton Woods agreement.