According to Marx the root cause of crisis always lies in the inequality of wealth engendered by the commoditisation of labour power. If he was right it follows that the globalisation of commodity relations must lead to a crisis on a corresponding global scale unless the growth in inequality is held in check. The fact that it was not checked but allowed to reach epic proportions by the time the global financial crisis broke out is for many people confirmation that Marx was right. This chapter seeks to give weight to this view by explaining the new mechanism through which the effects of exploitation are transmitted into crisis: prevented from finding expression in an excess supply of products in GDP space, these effects have instead found expression in an excess demand for securities in capital market space. Most economists put the major blame for the financial crisis on the banks because it was they who created the toxic securities that caused the financial system to seize up. My interpretation is different. The banks certainly overreached themselves in creating these securities but the principal reason why they did so was to augment the wealth storage capacity of existing securities stocks in order to accommodate the build-up of private wealth.
The subprime crisis exposed a flaw in post-Keynesian stock-flow models, namely their concession to mainstream macroeconomic theory that financial markets obey a price-clearing rule. Two reasons lie behind this concession. The first is the assumption that investors give priority to the price dimension of securities and only secondary importance to their quantity dimension. This paper argues that following recent structural changes in domestic economies the securities markets are now dominated by investors who give co-priority to the price and quantity dimensions of securities, for which reason these markets now operate to the same demand-led quantity adjustment process as do all other markets. The second and more fundamental reason is that post-Keynesian stock-flow models lack a micro-foundational unit of analysis from which can be derived an overarching methodological framework that is not only externally realistic but also internally coherent. This paper argues that the unit of analysis that best fits this purpose is the ‘commodity’, a term that will be used both exclusively, to denote only those entities that are priced to a market standard, and inclusively, to denote not only the outcomes of human activities but also the capacities for activity that are subject to pricing standards.
John Grahl and Photis Lysandrou
In February 2015, the European Commission published a Green Paper in which it put forward the goal to ‘build a true single market for capital’ for all European Union member states by 2019. The present paper argues that there is no realistic prospect of achieving this goal given that the Green Paper omits any reference to a formidable impediment blocking a European capital-market union: the German government's stance on debt. The inescapable fact is that this government's reluctance to increase the supply of its bonds is depriving the European capital market of one of the essential ingredients necessary to its enlargement on the one hand and to the efficiency of its operation on the other: the former because capital-market enlargement crucially depends on attracting institutional investors who must hold a substantial proportion of their bond portfolios in the form of safe government bonds; the latter because the efficient functioning of the capital markets crucially depends on the efficiency of the money markets where safe government bonds are by far the most important form of collateral.