Capitalism’s Currency Crises and Fetishes from Asia to United States, bosses can’t control results of their competition

By Jack Barnes, 7 November 1992, Militant, Vol. 62, no. 35, 5 October 1998

The following excerpt is from The vote for Ross Perot and Patrick Buchanan’s ‘Culture War’: What the 1992 Elections Revealed, a talk by Jack Barnes, the national secretary of the Socialist Workers Party. It was presented on November 7, 1992, four days after the presidential elections. The entire talk will be published in Capitalism’s World Disorder, coming in December from Pathfinder. This excerpt is copyright (c) by Pathfinder Press, and reprinted by permission. Subheadings are by the Militant.

International capitalism’s stock, bond, and currency markets today are indeed, as widely proclaimed, becoming more and more interconnected and, partly as a result, they are also becoming more unstable. Just a little over five years ago, the world’s stock markets crashed. In just two days in October 1987, the stock market in the United States plunged nearly 25 percent. The crash sent shock waves through the international bourgeoisie, and working people sensed it was the harbinger of a deepening social crisis worldwide. It was the first sharp public signal of an accelerated decline in the post-World War II curve of capitalist development—the first signal that a worldwide depression had become inevitable.

Now we have seen the Japanese stock market decline by more than half since the beginning of 1990. There is a chronic credit and banking crisis facing finance capital in Japan—a deep deflationary crisis. You may have read in the late 1980s that the value in dollar terms of a relatively small portion of real estate in Tokyo had shot up to more than that of all the real estate in the state of California. What did you think when you read that? Even a person who is the most bedazzled by the fetishism of capitalism, even the most zealous worshipper at the altar of the commodity, knew that was a little much; it boded trouble.

It is important to remember that private banks, not the government, create almost all the money that circulates. They do it by granting loans. And in case problems develop, banks are supposed to have assets with real value to stand behind all those checking balances they crank out. In Japan, the estimated market value of real estate makes up a big portion of those bank reserves, and the shifting ticker prices of stocks—yes, common stocks!—make up another big hunk. Land and stock prices puffed up like a giant balloon throughout the 1980s in Japan and have been plummeting just as sharply ever since, creating big problems for Japanese banks.(1)

The post-World War II capitalist land reform in Japan—imposed by U.S. occupation authorities under Gen. Douglas McArthur—was designed from the outset to serve the interests not of working farmers, but the restoration of a stable bourgeois state. It was nothing like the Homestead Acts coming out of the Civil War in the United States, or the land reforms in much of Europe following the French Revolution and revolutions of 1848—even with all their bourgeois limitations. Japan also never went through a bourgeois banking reform like that carried out in the United States in the wake of bank failures at the opening of the Great Depression of the 1930s.

Washington and its rivals

Today U.S. capitalism accounts for a little over a quarter of manufactured goods worldwide, and more than 15 percent of world exports. This represents a relative decline from what Wall Street and Washington had established in the decade or so after the close of World War II. But the enormous absolute size of U.S. imperialism’s wealth and productive capacity, however, has meant that the effects of the deepening world capitalist crisis are hitting its German and Japanese rivals substantially harder. For some time now, the relative position of German and Japanese capital has been slipping in the world imperialist system. Since the mid-1980s, U.S. capital’s share of the world export market has been rising a bit once again, while Tokyo’s and especially Bonn’s shares have been falling. U.S. businesses have taken back markets in computer chips and hardware, machine tools, automobiles, and other industrial goods. And this trend will likely continue until the world bourgeoisie faces some cataclysmic crisis.

The U.S. rulers continue to suck in capital from all over the world, even though German long-term interest rates are several points higher than comparable U.S. rates. We should ask ourselves: Why do the biggest banks in Japan, Germany, and elsewhere transfer capital to North America to buy up pieces of paper—Treasury bonds—from the U.S. government? Why do they buy up these pieces of paper that promise to give you dollars thirty years from now, no matter what they are worth by then? It is certainly not that the U.S. capitalist economy is so rosy. Bankers around the world know what happened on Wall Street in October 1987, and they know the shape of the U.S. banking system. But they also know the much shakier condition of the banks in Japan, and what has been happening in Germany since reunification. Bankers put their money where they anticipate it will be safer. But these enormous currency transfers increasingly turn the day-to-day business of banking into speculation, further destabilizing the world capitalist system.

Unimaginable sums of money are traded back and forth every day. With the development of computers and telecommunications, the speed and quantity of international transactions in a single twenty-four hours is mind-boggling. It is like keeping all the slots in Vegas working by long- distance touch-tone, multiplied by an order of god knows what!

In fact, the total dollar value of all the transactions on all the foreign currency markets for just seven business days equals the dollar value of world capitalist trade for a full year. The main function of world currency trading throughout most of the history of capitalism has been to balance out import and export deficits and surpluses between countries and repatriate the profits of superexploitation. As recently as the early 1970s, annual currency trading across borders was still only a fraction of world trade. Today, however, no government or big business statistical agency really knows the exact scope and size of this currency trading, although most public estimates put it at more than $1 trillion each day.

Crisis as profit rates decline

As profit rates decline, capitalists look for more and more ways of using money to make money. Investing in plants and equipment does not bring them sufficiently competitive returns, so they keep inventing new kinds of paper instruments to trade and speculate with, including accelerated currency speculation.

Capitalists have faced a long-run decline in profit rates at least three times before in the history of world capitalism, and each time it has led to a deep crisis before it could be turned around. But the speed of international communication today, the enormity of the monetary amounts involved, and the percentage of the world’s working people brought under capitalist exploitation since the post-World War II decolonization make the potential scope and explosiveness of the coming crisis truly staggering.

Earlier I mentioned the recent run on the pound by international finance, which forced a substantial de facto devaluation in Britain. It is not that the Bank of England did too little in attempting to stop the fall; it laid out $27 billion in the effort. But the quantitative scope of the assault on the pound was beyond the bank’s capacity to reverse, possibly, even if it exhausted all its reserves.

Governments and national banks no longer have much control over their currencies. And it is not just London—Washington, too, exercises very little control over the dollar. World currency markets are awash with dollars. Dollars are held in massive quantities by corporations all over the globe, including by many owned in full or in part by U.S. capital. In fact, some 50 percent of all private financial wealth in the world is held in dollars, as well as more than half of all exchange reserves in the vaults of foreign central banks.(2) In Russia, and even Eastern Europe to some degree, the dollar is the only real store of value today.

The conflicting national capitalist classes ultimately cannot control the results of their intensifying competition—and not because their actions are irrational. Deep social crises result from acts that are completely rational for the profit maximization of particular capitalists competing with other capitalists and with other particular national capitals. The consequences of all these separate rational, short-term, and pragmatic decisions, however, further destabilize the world imperialist system.

Capitalist governments try to buffer some of these unanticipated consequences. In a manner of speaking, they resort to a kind of socialism—the socialism of the bourgeoisie, the socialization of their losses. Clinton says he will introduce a national health plan, for example. But it is really a plan to socialize a corporate expense item through increased taxes on workers’ wages and boost the profits of the biggest insurance companies.(3)

The financial press wags its finger at General Motors management today, saying it would be filing for bankruptcy protection if it were a small business and that it got that way by making short-run, revenue-maximizing decisions instead of long-run investment decisions. But that is what all owners of capital do, all the more so when their profit rate is declining and their mass of profits is stagnating. When profit rates get low enough, the owners of capital consider it better to cut costs—to downsize—than to invest in the expansion of capacity with no foreseeable competitive returns. And it is not enough for capitalist governments to try to keep interest rates low either. Capitalists are not going to borrow to invest unless anticipated profits make that a more lucrative use of their money than some alternative—like currency speculation, for example. So the decisions by GM management in recent years are neither a plot nor a mistake—they are simply profit maximization.

Confidence in bourgeois officials falls

Instability and sharpening conflicts will continue to mark the imperialist world. There will be more banking and credit crises in the years ahead. And along with them, confidence in the bourgeois leaderships of the imperialist countries will continue declining, too. We should note the tendency today for prime ministers, presidents, and other bourgeois officeholders to be elected with a steadily decreasing percentage of the populace having any confidence that these political figures will be able to turn things around.

This is an important economic fact, not just a political fact. Because workers should not ever fall for the ultimate fetish of money—the notion that there is something objective that determines the worth of a currency. There is nothing objective about it. The paper currency of a nation- state under capitalism is only as strong as the confidence of the population, of the rulers themselves, and of international bankers in the stability and future of that ruling class and the competence of its leading figures.

Notes

1. Some four years after this talk was given, in mid-1997, land prices in Tokyo were still more than 50 percent below their level at the opening of the decade. By the Japanese government’s own estimates, banks held $250 billion in bad loans in the first half of 1997, and private estimates range up to $1 trillion. And the Japanese stock market in July 1997 was still some 47 percent off its 1989 peak.

2. Pointing to a time as recently as the mid-1970s when 80 percent of world foreign exchange reserves were held in U.S. currency, financial writer James Grant observed in May 1995 that, In some important sense, the dollar has lost caste as an international store of value. Grant quickly added, however: Checking the field, there is no obvious successor to the dollar as a reserve currency. There are too few francs and marks, and the Japanese have no naval power. At the moment, the Japanese have no banking power either.

3. Clinton dropped his plan in early 1994 in face of opposition within both the Democratic and Republican parties and among sections of U.S. capital-including those with big stakes in pharmaceuticals and hospital management-who believed they would lose out to the big insurance interests and so-called Health Maintenance Organizations in the competition for profits from health care.