Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Friday Stock Market CRASH Following Israel Attack on Iranian Nuclear Facilities - 19th Apr 24
All Measures to Combat Global Warming Are Smoke and Mirrors! - 18th Apr 24
Cisco Then vs. Nvidia Now - 18th Apr 24
Is the Biden Administration Trying To Destroy the Dollar? - 18th Apr 24
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

State-Corporate Decline And The Crisis

Stock-Markets / Financial Markets 2013 Feb 13, 2013 - 05:24 PM GMT

By: Andrew_McKillop

Stock-Markets

CAPITALISM VERSION 1.0
In a guest post to Zerohedge, 8 February, Charles Hugh-Smith starts: "The road for both global capital and the State is narrowing to a rocky trail that leads to a cliff.  We turn to cycles--business, solar, Kondratiev, etc.--to understand current events. But what if this era is not just a cycle but the terminal phase of Global Capitalism 1.0?"


What indeed! Somewhat like the rogue state business of Noam Chomsky, the straw man of Late Stage capitalism is a slippery mutating thing, changing in ways we do not expect. As Hugh-Smith says there are many unknowns in a process that is difficult to define, but among its symptoms we have the self-willed and programmed destruction of the State and its enforcement of ever more monopolistic cartels seeking a declining mix of economic rent and increasing mix of capital rent, on the less and less productive side of the coin. On the other parasitic consumption side of the coin we have vast social spending and the 'hoarding' or concentration of capital.
 
He calls this the road along which global capital and the State is trundling towards a rocky end, or even a sheer cliff. "Two sides of the same expansionist coin, neither can continue to expand in a world of diminishing returns, shrinking margins, surplus labor, declining wages and tax bases, higher input costs and a restive, entitled/high-expectations, urbanized and under-employed workforce".

CYCLE TIME
The cycling of ever less productive, ever more diluted or virtualized capital is shown by very simple indicators: in the 1960s, $1 invested in the US economy produced about 59 cents return. Since year 2000 the average return runs at about 18 cents. Inflation then makes the numbers even more lurid for the amounts needed to attain or achieve any growth of the economy; add in sovereign debt drag or its "servicing" costs, and we can be surprised there is any economic growth at all. But economic growth is vital for the State - although it is less than a side issue, even unwelcome for capital rentiers who, unlike economic rentiers thrive off the late stage, degenerate, declining economy.

This is characterized by stagnation or contraction, deflation, mass unemployment, social injustice and conspicuous consumption, huge surpluses of production capacity and its result of distressed assets on the chopping block at penny-on-the-dollar prices. Price distortion is rampant. Other characteristics or symptoms include currency wars, trade wars, civil wars and military adventure, that is military and colonial warfare.

Economists like Veblen and Schumpeter have extensively described the process. Kondratiev also described the process but from a much longer historical standpoint. His argument for what he called the Super Cycle is that this cycle of at least 350 years length started early in the 1600s, following the (very) early takeoff phase of European capitalism, that Charles Hugh-Smith, citing Fernand Braudel, Giovanni Arrighi and Immanuel Wallerstein describes like this: "Everything that characterizes modern global capitalism was already operational by 1500: stock and bond exchanges, hedging with derivatives and insurance, joint stock ventures, highly profitable global trade, commercial credit/paper, central States funding their wars with privately provided credit, etc".

For Kondratiev one key factor and possibly the decisive factor for launching his Long Cycle occurred about 1550-1605:  this was the immense amounts of gold and silver brought to Europe by Spanish and other European colonists in Central and South America. Kondratiev estimated the amount of gold that "washed ashore" in Europe through 55 years as possibly 40 000 tons: according to the World Gold Council the "official sector", mainly central banks held about 29 500 tons of gold at end 2011. The size of the world's population, at the time, was at least 15 times less than the present 7.1 billion, and to the extent that economic output can be compared, the world economy was at least 50-100 times smaller.

UNSURPRISING RESULTS
From 1600 the European economy mutated. Monetarily, it took at least two centuries for the Conquistador Gold to be be fully absorbed, lost, hoarded or used but the process started with massive monetary deflation and economic inflation. Today, we almost certainly have the exact and perfect opposite and, only using that basis for prediction and forecast, the post-2008 world should feature economic contraction, while increasingly desperate attempts are made to further inflate or "super inflate" world moneys to hide the reality of a contracting real economy and declining real wealth.

If it costs $100 or (with carbon taxes) $150 to fill a car tank with fuel "you are obviously rich". The fact the same amount of fuel for a similar fuel-burning car cost $7.50 in 1975 is "too complicated" for most couched potato consumer-voters to understand. Their governments tell them inflation is "2% a year" so why would they not believe? In fact, their money has been savagely devalued, but this is even more complicated than price inflation, for a couched potato. More complicated again, we have the "nuance" that monetary deflation and devaluation can operate interchangeably, under special conditions.

The very first writings on, and State threat response to monetary deflation were by Sir Thomas Gresham and Gerard de Malynes, money and finance advisers to Elizabeth 1 of England, whose official money had been completely undermined by conquistador gold. Gresham coined (to use a pun) the slogan that bad coins drive good coins out of circulation, called "Gresham's law", but this was due to very cheap gold becoming massively available and out of the control of monetary powers, leading to precipitous decline in the value (and circulation) of official coins. Elizabeth's response and reaction was what we might expect: the heads of executed "counterfeiters" were exhibited on spikes near the Royal Mints of the realm, but this in no way prevented people preferring real gold, to overvalued bimetallic, even trimetallic State tokens with an effigy of the Queen stamped on them. Economic instability became endemic in the later years of Elizabeth's reign, and surely helped create the conditions for Oliver Cromwell's military putsch from the 1630s, followed by his junta rule. After his death in 1658, Royalist restorers of monarchic rule had his body exhumed, beheaded, and hung in chains.

Monetary deflation and its counterpart of economic inflation is, we repeat, so different from what we have today that we can have problems imagining the results. One early result, certainly in the period of about 1575-1625 was however the same as what we have today: general economic deflation and very slow economic growth. In today's conditions, the deflation is only hidden by fantastic issuance, or in fact dumping of paper and electronic money with close to zero real purchasing power - or any real economic role. This is Token Money, like Elizabeth's cheap metallic token coins with a picture of her stamped on them!

Also in the Europe of the early 17th century, and like today, the monetary economy and the 'physical or real' economy were and are heavily de-linked or disconnected.  They operate along parallel but separate pathways. In the early 17th century surplus capital drove the foundation of the early capital rent economy. Since 1980, but especially since 2008, the same process is all powerful.

The tale of Elizabethan monetary crisis can be called "devaluation shock". Across Europe, from the early 17th century, monetary devaluation can be considered as essentially the same process as monetary deflation (for example through declined velocity of circulation), but again for diametrically different reasons from today's rampant monetary crisis called "devaluation war" or "currency war". The results, also, were diametrically different: the period of about 1675-1800, in Europe, was marked by rising real economic growth. To be sure this included "one off" special factors, notably the early Industrial Revolution and coal mining expansion, and this real growth slowed the previous fast and dominant growth of "pure play" capital rent on the back of very slow economic growth. Also, it pushed forward the date of the next major Crisis of Capitalism, to about 1875-95.

Since 1980, we have ever declining "trend rates" of economic growth, reflecting the yawning gap or massive disconnect between the monetary economy and the real economy, or the capital rent economy and the productive economy. This is a major crisis of capitalism.

CRISIS MODEL AND PROCESS
As Hugh-Smith says, everything was in place for the casino-type degenerative phase of the capitalist model by about 1500 in Europe - but without traders huddled at their 24/7 on-line playstation consoles "discovering new value". Hedging, derivatives trading, risk cover, insurance bets, bond/debt issues, credit creation and trading were all in place in the early 16th century, albeit in a rudimentary form not able to be operated round the clock and worldwide.

The monetary devaluation/deflation shock hitting official moneys and dated by Kondratiev to the 1550-1600 period created conditions resulting in a shift of operating mode for economic rentiers - who became capital rentiers. The underlying asset - the real economy - expanded at a slower rate, that is it underperformed, generating declining rates of return for classicl or conventional economic rent.

The overlying and purely parasitic superstructure of the capital rent economy was transformed into the dominant model, with capital concentration or 'hoarding' replacing capital formation and creation. This process advanced very fast with "high gain positive feedback" through at least 50 years in the period of about 1600-1675. Non-economic results included numerous civil wars (such as Oliver Cromwell's military putsch in England), colonial wars such as Cromwell's gory military adventures in Ireland and early European military rivalry for possessions in Africa, religious pogroms and massacres across Europe, and formal international wars between European powers. The real economy stagnated.

Monetary crisis was rife and longterm - Kondratiev also estimated that perhaps 400 000 tons of silver had been brought to Europe, along with the gold booty, in the same hinge period of 1550-1605. The role of 'fiat' or paper money rapidly expanded. This was especially in the form of credits and trade-related paper, company stock, bonds, insurance, and all other tradable non-coin or non-physical 'specie' with high potential for extracting "super profits". This was the enabler and focus of capital rentiers operating their early version of today's casino economy, with the sole objective, then as now, of capital hoarding as distinct from money hoarding.

Well before 1700 the parasitic superstructure of European capitalism, that had grown like a cancer in the preceding century, was in regression due to a combination of factors including population growth, scientific discovery and technological innovation leading to much faster expansion of the real economy. Other factors most certainly included mass migrations, uprisings, civil wars, religious conflicts and international wars. They may also have included climate change, notably the Maunder and Sporer Minimum of very low or no sunspot activity, declining from a 30-year average number of about 45 000, to less than 100, that was most intense about 1640-1695. It was associated with the tail end of Europe's "little ice age" depressing food production and causing frequent famines for several decades.

The present "triumph of capital rent" is a stepwise process starting about 1980, with several phases or stages of intensification, most recently and intensely since 2008. As Hugh-Smith says: " The standard business cycle has no answer to these structural quandries, and even the credit expansion/renunciation Kondratiev cycle does not provide a model for the next global system, or perhaps non-system". He rightly continues that technology cannot provide the "solution" because it has already replaced labor-intensive business models with new low-labor models generating the maximum possible "super profit" extraction, from industry. The capital rent economy is now "the only game in town", for profit gougers.

Because it has no inbuilt self-limiting mechanism, removing this parasitic outgrowth can only be achieved through the classic or proven means - political mass mobilization, civil war and international war. Anarchic and socialist political phases are certain. The constant intensification of the terminal capital rent phase of Capitalism 1.0 can only result in terminal crisis, after which there is reversal from monetary expansion/real economy contraction, to the opposite. Capitalism, as a process, can only and will only continue.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in