Cyrus Bina, Distinguished Research Professor of Economics at the University of Minnesota (Morris Campus), USA is a prominent Marxist political economist. His work, The Economics of the Oil Crisis (New York: St. Martin’s Press, 1985) pioneered a Marxist understanding of the political economy of the oil sector. In this book and his subsequent papers he has developed a value-theoretic approach towards the energy sector, OPEC, oil rent and oil crises. He has co-edited Modern Capitalism and Islamic Ideology in Iran, London: Macmillan, 1991 and Beyond Survival: Wage Labor in the Late Twentieth Century, Armonk, New York: M.E. Sharpe, 1996. He has worked on value theory, rent theory, theory of imperialism, globalisation theory, capitalist competition, technology and skill formation, Iran’s political economy, and US foreign policy, among others, over the last three decades. He has been a longstanding member of the editorial board of the Review of Radical Political Economics (RRPE).

“To plague th’ inventor: this evenhanded justice
Commends th’ ingredients of our poisoned chalice
To our own lips. He’s here in double trust:
First, as I am his kinsman and his subject,
Strong both against the deed; then, as his host,
Who should against his murderer shut the door,
Not bear the knife myself.”
William Shakespeare (1605), Macbeth, Act 1, Scene 7

“In every stock-jobbing swindle everyone knows that
some time or other the crash must come, but everyone
hopes that it may fall on the head of his neighbor, after
he himself has caught the shower of gold and placed it
in safety.”
Karl Marx (1867), Capital, Vol. 1

Pratyush Chandra (PC): Opinion seems to be divided on the meaning and import of the so-called Dubai Crisis. On the one hand, a major section of experts don’t find it worth losing their sleep on as it is nothing more than the bursting of a real estate bubble, while on the other, the banking sector strategists think it can lead to “a major sovereign-default problem,”resonating across “global emerging markets.”  How will you describe this crisis? Is it simply another multiplicative, rather late, effect of the US housing bubble burst? Is it another moment in the unfolding of the general crisis of capitalism? What is your assessment of the global impact of Dubai Crisis, particularly in the global south?

Cyrus Bina (CB): This conversation needs an enhanced conceptual context that underpins all these concrete queries and that allow me to respond to them somewhat systematically. Thus, I would attempt, at the outset, to identify the meaning and universality of capitalist crises from the standpoint of Marx’s value-theoretic framework. It goes without saying that I am sceptical about any version of the crisis that is being displayed in ad hoc improvisation by the left and the right; an “inventiveness” that correspondingly may have pedigree in tautological reading of “finance capital” and the “infallibility of human nature.”

Photo by Judy R Korn,
University of Minnesota (Morris Campus), May 3 2010

To answer this apt and multi-layered question, I imagine an epochal context within which such crises are possible and, while the motivation for personal gains and egotism is a necessary condition that is not sufficient for a satisfactory explication of what has so far been experienced across the global economy. For, if the question is couched in either the actions of few rotten apples on Wall Street and its counterparts, say, in London, Paris or Reykjavik, thus blaming the fallibility of “human nature,” then, one may not need to bother investigating the empirics of this systemic possibility and might as well relegate this important task to the Bible-babbling preachers of the “original sin.” In other words, we need to go beyond individual parts to be able to touch the heart of the system as a whole. This insight, while absolutely scientific, is not exclusively Marxian. For instance, one need not be a Marxist to accept the premise that unemployment in capitalism is far from voluntary, despite the fact that certain individuals in this system may wish to slough off – the very fact that escaped the intellect of the pre-Keynesian (laissez-faire) economists of the pre-“Great Depression” period. Therefore, the attempt to indict individual wrongdoers in this debacle, along with their “weapons of mass destruction” (an apt phrase by American financier Warren Buffet describing the financial derivatives), while essential, does not seem to alleviate the faulty built-in dynamics of the system as a whole.  Understanding capitalism and its recurring crises cannot be reduced to any human behaviour, real or imagined. And hiding behind the “fallacy of composition” and “methodological individualism” is an immature way of changing the conversation in this and other matters in economics.

Therefore, while no one should deny the ample opportunism, if not the criminality, of a sizeable segment of finance capital, which conspired so blatantly with notorious market fundamentalists – such as the former Chairman of the US Federal Reserve Alan Greenspan – within the US government, the real focus should be on assessment of the crisis within worldwide accumulation of capital across the landscape. Such an assessment must inevitably include the dynamics of capital accumulation, necessity of the crisis, and the renewal and rejuvenation of the system with respect to redistribution of wealth and, especially, nature of class polarisation across the global economy. The current crisis is the first full-fledged crisis of the new epoch, which was inaugurated without much notice in the early 1980s; an epoch that emerged from the implosion of the Pax Americana (1945-1979) and decline of American hegemony, a good decade before the fall of the Soviet Union.  I identify this epoch as “globalisation,” that is to say, the epoch of transnationalised social relations in which “national capitals” not only lost their personality but also effectively shed their nationalityacross the board. The latter in their transformed and obfuscated form may act in flag-waving, influence-peddling in the territories of their origin or engage in xenophobic and bigoted activities in  contexts of one’s nations-states, but when it comes to the real stuff that matters for global accumulation, they operate essentially like a nation-less entity – i.e., a transnational. Let me point out parenthetically those arguments to the contrary, which take the globalisation of capital to Marx’s time (for instance, by alluding to his phrase “chasing across the world market”), not only romanticise the globalisation of capital before the globalisation of capital but also idealise Marx’s theory of value and misrepresent the characteristic of our present epoch. Marx’s theory is a materialist theory compatible with real historical development.

The epochal quality of globalisation cannot, however, be reduced to a neoliberal policy – as many on the liberal/radical left would like us to believe – for two reasons: (1) that similar to imperialism, globalisation is not a policy but a representation of an all-encompassing structure that manifests the universalisation of Marx’s law of value and (2) that any such corporate strategies or neo-liberal policies (including their timing and their ideological persistence) are more cogently explicable by a systematic articulation and enunciation within this epochal context alone. With regard to the crisis, while the liberal/radical left tends to illuminate the dangers of total reliance on markets and thus the necessity of state intervention, they (including many self-proclaimed Marxists) nevertheless display little or no understanding with respect to globalization (i.e., a universalisation of capitalist social relations) and global accumulation beyond a mere policy or a “national” economic strategy. And when it does, it rather tautologically focuses on the United States, as a purported global hegemon and its postwar paraphernalia, the World Bank and the IMF, bizarre proxies for today’s “globalisation.”  To be sure, these institutions are now passé; these are the dinosaurs that fit in with the now defunct era of the Pax Americana. While on this subject, let me digress a bit for the sake of clarity. In my opinion, these and other relics are objects of obsession for the doctrinaire and dogmatic left that seem to have been stuck in Lenin’s era, while wishing to win the world they don’t have the faintest idea of what it is or how it has come about.  These traditional leftists – in diverse tendencies, such as Stalinism, Trotskyism, Maoism, etc.- are our best, sincere and committed kinds on the block, so to speak, but they haven’t been grown up enough to change themselves before getting ready to change the world. That is why the traditional left has nothing to point to except the windmills like the IMF, the World Bank, and the crumbling façade of the immediate past, namely, “the US Empire.” Another tragic example are the so-called postmodernists, those who are brandishing Antonio Negri and Michael Hardt’s Empire and clumsily loose nearly on every conversation that requires empirical verification, despite their insinuation towards “concrete.” To be sure, I personally do not put the latter in the same category as the traditional left with whom I share a number of viewpoints. I just wanted to make my position clear.

In other words, the left routinely treats the transnational social capital (i.e., hegemonic social relations beyond any one nation-state) as an entity dominated by the United States rather than appreciating the fact that the latter should be considered as the much transformed outcome of the former. This epochal implication in the age of maturity of capitalism, notwithstanding the now defunct Pax Americana and depleted status of American hegemony, has been lost on many radical leftists and even self-proclaimed Marxists today. Therefore, the so-called anti-globalists on the left, through fabricating the illusion of “Americanisation” by allusion to neoliberalism, helped reinforce the neoconservative idea of the “Next American Century,” set forth by the most reactionary segment of the ruling class in the United States. Since, for the ultra-right, “globalisation” is none other than Americanisation in both corporate and colonial dimensions. And this, I think, is a predicament of the left, which has long been regurgitating this anachronistic rightwing theory and thus, not unlike Don Quixote, setting itself up against the windmills and other fictitious objects such as crumbling institutions.

Capitalism is a historically specific system with particular reorganisation and renewal mechanisms. It is also “over-determined” and open, with universal uncertainty written all over it. The role of human ingenuity (and stupidity), ideology (and prejudice), and above all “progress” and class struggle in this system is also such that it makes it appear as if there is a natural perpetuity at work.  Hence, relying on the face value (i.e., phenomenal form) of factors is critically deceptive where it comes to the analysis of economic crises, in general, and the question of current global crisis, in particular. To be sure, crises in capitalism are a mechanism for restructuring and renewal and thus, necessarily, a part and parcel of the dynamics of reproduction.  That is why we would never envisage a crisis-less capitalism, except in the figment of our imagination. And the fact that the modern “mainstream” economic theory is utterly mute on the necessity of a formal theory of crisis, except in obscure randomised overtones, should tell us something about the arbitrary nature and panoramic artifice of this field of inquiry, from top to bottom. In fact, crises are a part of the DNA of capitalism and, as such, would constitute a distinguishing feature of this system in its uniqueness and historical specificity. However, a reasonable methodological materialist (i.e., someone who requires the priority of concrete phenomena over their ideas) needs to start off with crisis in concrete by investigating thepossibility of crisis and the way in which it may turn into actuality. In this sense, the current global crisis is unique, even though it must be the very outcome of general tendencies of capitalist accumulation as a whole. Another crucial point about the economic crises is that they possibly will not automatically lead to “breakdown” of capitalism. Thus, the so-called breakdown theory (with all due respect to the theorists behind it) is neither adequately informed of Marx’s theory of value nor sufficiently attentive to the role of class struggle in the transformation of history. In other words, all economic breakdowns must be necessarily met with counter-restructuring political struggles that are deeply aware of the across-the-board polarising power of capitalism and that are willing and able to provide a reasonable, feasible and visionary alternative to the post-capitalist future. Consequently, this is the most critical question that would not go away for the radical left across the globe for many years to come.

This crisis is manifold, multi-layered, and universal: it started in the US housing market, then banking system, investment and credit underwriting institutions, asset-backed commercial papers, collateralised debt obligations, credit-swap obligations, before engulfing the visible universe of money, traditional commercial credit underwriting, and individual credit market, among others. Then, the credit-swap derivatives, which were hidden from the public eye and thus floating in the invisible and unregulated side of fictitious capital, have begun to appear on our radio telescope. Why do I say: radio telescope? Since no one, to this date, has seen or been able to calculate precisely the volume or size of these derivatives accurately. This, of course, is half of the story as it is not directly coupled with the origination of surplus value (i.e., the source of profit) and the fast-moving tectonic plates of real capital (i.e., the production process). Moreover, the cauldron of worldwide accumulation, along fast-paced technological change, is not without abrupt, violent and antagonistic frictions in the process of (social) capital’s restructuring.  This is the arena in which commodities are produced and up-to-the-minute technology and skills are being created and destroyed in the blink of an eye somewhere around the globe. This is how the new value – hence the importance of Marx’s value theory – is being formed and being destroyed in the battle of competition across the globe.  In this arena, time is money, so to speak, as the rapid change in technology sets the pace for both “creative destruction” – (creation and destruction of use-value, a la Joseph Schumpeter [1883-1950]) – and “destructive creation” – (preemptive destruction of exchange value via ever newer technology, a la Bina) – in my (value-theoretic) synthesis of the two, with ever-increasing rapidity.

This is how Karl Marx (1818-1883) is already here in the 21st century with a vengeance. And this is how the engine of change and origin of time-is-money fairly and squarely emerges from the production of surplus value. The role of fictitious capital is to act for the preservation of this existing value (i.e., capital in money form) by churning and stretching it through the sphere of exchange by any means necessary – even by creation of IOU upon IOU in limitless (and unregulated) issuance of fiat credit swap obligations (CSOs). The higher the pace of technological change – and thus the rapidity in the creation and destruction of value in production – the more appetite (and desperation) for preservation of value (of money) in the sphere of exchange.  And just because the latter is able to stretch the existing value (i.e., the previously produced value in price terms) in money form, credit form or in notional derivative form, it neither should give finance (capital) an arbitrary “hegemony” over reproduction of capital nor exempt it from the constraint of surplus value production. As a result, despite finance capital’s malleability and semi-autonomous outlook, one should not fall for finance-fetish arguments, which are either anachronistically revolving around Lenin’s epoch of finance capital or else superficially hanging onto the fragmented view of prevalent reality.

According to Marx, fictitious capital, while real (as you and I who walk to work back and forth), is rather fictitious in that it cannot produce surplus value from thin air; it is only capable of churning, i.e., stretching the time for the fast-evaporating value of capital in circulation. Finance is a sphere in which the representation of a given value changes its form, say, from cold cash to stocks, without adding to productive capacity or wealth of society. It only manages to redistribute wealth similar to a gambling casino, only lager in magnitude and stranger in outcome. That’s why individuals who work in occupations associated with finance are identified as unproductive labour, despite their stressful, say, a 16-hour work day and their likely heart attack at the age of 50 or 52. A good question is why capitalism in an objective manner (itself!) should classify such a dull, dry and depressing activity as unproductive. And I would say, with Marx, because it does not add to the origin of profit, except by churning and change of hands through the sphere of exchange alone. Hence, the claptrap in Wall Street financial lingo, about this “product” or that financial “instrument” having been oversold beyond its purpose. And Karl Marx, as a keen observer, agrees with capitalism! For, there shall be no accumulation either in capitalism, or in any other socio-economic system worthy of the name, if churning of the readily-produced value were to create new value. This is an important distinction in political economy; a distinction that is lost on vulgar economists and finance junkies whose interest and whose uncritical intellect force them to look at a fragmented picture of finance, divorced from the unified circuit of social capital.

While being on the subject, I want to take issue with certain finance buffs-turned-political scientists, who keep banging on Marx’s theory of value and its core – abstract labour. Parenthetically, I should point out that abstract labour is not an axiom (i.e., a pre-given abstract) but rather an outcome of the very real process that concretely calibrates the worth of all reproducible commodities within the interface of production and circulation in everyday exchange. And this is an inescapable phenomenon for an overwhelming majority of Earth’s inhabitants on a daily basis. Here, a commonality of all concrete labours within these concretecommodities – produced and circulated within the act of exchange against one another in market exchange – is measurable in socially necessary labour (SNL). The SNL is a real magnitude established by the real labour time in the real battle of competition. In other words, abstract labour, being the outcome of a concrete social process, is as real as capitalism itself. Consequently, I am dumbfounded by the fakery (and, indeed, audacity) of individuals who put Marx’s abstract labour in the same category as that of the neoclassical “utility function,” and then insinuate rather jubilantly that they had to reject them both, before they come up with a so-called third alternative: “capital as power.” The detailed examination of such claptrap need not detain us here, yet we have to be cognisant of the trap of circularity associated with the point of departure and the point of return in such “inventive” propositions, which define “power” by itself, i.e., “power” through the sleight of hand and self-promoting gesticulation for attention. This also shows that how serious publishers themselves have developed a weak spot for vanity and fallen victim to such spectacles in this day and age.  To be sure, such “third alternatives” are counting on their squeaky wheels to get popular attention in the time when the world is muddled and the traditional left is out to lunch in the early 20th century.

As I have indicated above, this crisis is a moment in the unfolding of the general crisis of capitalism worldwide, which has turned from a possibility to an actuality and which has triggered and engulfed the entire global economy, industry by industry, sector by sector, sphere by sphere, country by country, and continent by continent in one hell of a sweeping domino. The way that this crisis had spread – from the US housing sector to its counterparts in London, Dublin, Delhi, etc.,- and the manner in which it had swept in destruction and devaluation of “fictitious” as well as “real” capital across the geography of production and exchange must be an indicative of a unique epochal occurrence worthy of observation. Here, as can be observed vividly, globalisation is not an empty word.  Those who have not yet been touched shall be touched in time and as a matter of course. Firstly, transnationalisation of capital is not a fancy (academic) phrase that could be nicknamed as a substitute for “big national capitals” and erroneously referred to – as many leftists, even self-proclaimed Marxists still do – as  “multinational corporations.” Secondly, transnationalisation, beyond the raw (i.e., unmediated) geography, is the very outcome of the synthesis of capital (as a social relation) and (synthesised) geography. In other words, in present epoch we no longer have one “logic of capital” and a different “logic of territory, ” as David Harvey informs us lately. The so-called territory has already been synthesised under the logic of capitalist social relations, for example oil rent, a modern phenomenon which is the creation of capital itself. Thirdly, transnationalisation is well beyond the conspiratorial effect of “national cartels,” which used to be doing the dirty works of the great powers – for instance in Lenin’s era in which more than two-thirds of humanity had no idea what capitalism was, let alone to have lived in it. Fourthly, transnationalisation is not “revocable,” in the manner of a neoliberal policy, by repentant and realistic policymakers. Finally, faulty trigger-points that had led to this worldwide crisis are all preconditioned upon the authenticity (and necessity) of crisis-ridden fault-lines,  which have their ancestry in primordial fabric of capitalism and which are now in need of violent display of universal restructuring.

The fact that we had the 2010 earthquake, measured 7.0 in Haiti, in 2010, or a tsunami that was triggered by a 9.3 undersea earthquake that hit Banda Aceh in 2004, does not tell us when we’re going to be hit again at these trigger-points.  We need to examine Haiti’s and Aceh’s predicaments within a larger framework that extends beyond Earth’s cosmology and geology by studying Earth’s core and the materialisation of turbulence associated with such calamities. Crises in capitalism should be studied in the same manner and with a parallel specificity of causes and effects. By the same token, a deterministic view of crisis, which often relies on idealistic symmetry and simplistic parallels, proves incapable of articulating a materialist theory of crisis. On the other hand, voluntarism and an idealistic approach to crisis tend to scratch the surface by putting the blame on deregulation, few rotten apples, financiers in cahoots with government officials and neoliberalism, without any inkling about the social fabric of capitalism. This approach often blames the “human nature” rather than the freaking system, as the market-fundamentalist Alan Greenspan would have us believe. Consequently, truth is the first casualty in this three-way quarrel between the epochal parallelism of radical left (e.g., the parallelism between “finance” in Lenin’s era and “finance” today), petty-bourgeois voluntarism of the liberal centre, and the market-fundamentalist/sinful-human-nature view of the far right.

Given the above outline, the arena of the current crisis is the globe itself, the underpinning of which interlinks the spheres of production and circulation that in turn reproduces the necessity of wholesale destruction of capital, first in financial and subsequently in “real” sectors of the economy. The so-called Dubai Crisis, therefore, is a symptom of what is known as too-big-to-fail, thus illustrating how derivative-driven financial institutions similar to AIG can go haywire on delivery and bring the economy to standstill. The delivery of the promise that is embedded in the structure and meaning of collateralised debt obligations (CDOs) in trillions upon trillions of dollars of credit swaps by these perpetual credit-printing institutions. The tragedy is that thousands upon thousands of financial and non-financial companies had already purchased these so-called CDOs and duly amalgamated them within their asset portfolios, trusting that they can turn it to real assets as the economy expands without limit. In other words, these companies relied on the myth of the “free market” in which sky is the limit. Moreover, these fellow capitalists thought that Dubais and AIGs of the world are able to honour their word to their own without passing the begging-bowl to their respective (and foreign) governments. Yet, we know for a fact that these AIGs of the world (sovereign and non-sovereign alike) not only proved unable to honour their total obligation to creditors but also remained insolvent even by a fraction of their debt at the height of the crisis. And if they had gone bankrupt on their own officially, the many holders of their “toxic assets” would have gone belly up along with them as well. Speaking of these so-called toxic assets, the alleged toxicity must refer not only to the loss of value of such assets – due to the systemic default associated with the chain-reaction within the credit system – but also to the fundamental design flaw of such derivatives, including unregulated acceleration of credit and limitless financial claim by fiat.  This is indeed equivalent, in conventional terms, to debasing of the currency by printing money non-stop.

Speaking of the debasement of currency (and credit), I wish to return for a moment to Alan Greenspan, who had a deliberate hand in this fiasco because of either sheer negligence or display of naked ideology, so that I shall not be guilty of dispensing with the role of policy. That is why the study of concrete contexts is a prerequisite for any theory of crisis in Marxian sense. The mysterious whispers of the three witches- Jevons, Menger, Walras – in Greenspan’s ears were misunderstood. The maestro’s predisposition to Ayn Rand’s crude authoritarianism, plus his religious conviction in crisis-free laissez-faire, gave him a degree of hubris unequalled in the history of the US Federal Reserve. He believed that Great Birnam Wood shall never be moved to Dunsinane. He had no imagination to look at the previous economic crises in American history. His faith in laissez-faire and the power of Wall Street was unshakable. He had no idea that capitalism operates like a double-edged sword. He had no stomach for the dynamics. Greenspan just looked at the crooked and cooked-up balance sheets of too-big-to-fail financial institutions, looked the other way, and faithfully kept his fingers crossed. But little did he know that the Birnam Wood has moved with a vengeance, tree by tree, inch by inch, sector by sector, country by country, and region by region, across the bloody landscape, to Dunsinane in one hell of a sweep. And it is pitiful that our Macbeth is still oblivious as to what has happened in the economic system and what had hit him so gruelingly in this grand tragedy.

The lack of distinction between calculable risk and incalculable uncertainty is at the heart of this particular crisis, which – among other forms – revealed itself as credit crisis. This is a question of “to be or not to be”; that is to say, a Shakespearian make-or-break between “to be” able to apply probability (i.e., a chance of occurrence) to some future event or “not to be” able to. And similarly in Hamlet, as we have seen so far, it may become a matter of life and death.  The calculability of risk unquestionably depends on the existence of prior distribution of such risk. For instance, the risk of issuing a life insurance policy is only calculable upon the availability of the probability distribution of such risks associated with the targeted population. In contrast, it would be next to impossible to know, in probabilistic terms, where the next earthquake will hit and with what frequency and intensity. We simply are not in the possession of systematic data that would provide us with the probability distribution of these occurrences. Therefore, to all intents and purposes no one is able to calculate the occurrence of the next earthquake across the planet.  In the meantime, the pattern of so many events in our everyday life does not follow linear progression and linear changes in accordance with Newton’s law of motion. In other words, a change in an “initial condition” of a particular motion (or occurrence) may not transmit with same magnitude at its termination point. Therefore, any attempt at extrapolation from a known magnitude of change to measuring an unknown change in the future, via probability, is bound to be deceptive.

This is the essence of Chaos Theory, a phenomenon that was discovered by meteorologist Edward Lorenz (1917-2008) of MIT in the early 1960s and, as the bedrock of many sciences, revolutionised our view of nature, environment, ecosystem, economic system, and the cosmos, to name a few. It also manifests the very core of dialectical change, from quantitative to qualitative change.  The occurrences, such as earthquakes (or weather patterns), are the stuff of uncertainty, i.e., a different kettle of fish altogether. Financial derivatives, such as unregulated credit swap defaults (CSDs) belong to the latter category and thus amenable to no probability calculus. Piling up CSDs upon CSDs (i.e., changing quantity) is bound to lead to change in quality, which neither is known as before nor is measurable quantitatively due to changed characteristics. It is not unlike getting to the “event horizon” in cosmological terms and knowing little about the Black Hole that’s about to gobble you down to oblivion. Therefore, when one hears the phrase, “distribution of risk,” by either Wall Street financiers or the US Department Treasury or the Federal Reserve authorities, one wonders whether all these market fundamentalists were playing dumb in unison or they themselves are victims of unrelenting cult of priesthood in mainstream economics. Come to think of it, this very simple point was lost on Larry Summers (and his immediate boss, US Secretary of the Treasury Robert Rubin and former CEO of Goldman Sachs) when it came to regulation of financial derivatives during the Clinton administration. This is what a typical mainstream (and, in the Summers’ case, very typical) economist will do, or not do, when it comes to matters that would make a hell of a difference, so to speak. The latter is a school of thought whose ideological tentacles these days extend into many social sciences for the sake of influence and universality; yet, it is embarrassingly mute on things that matter, like this very crisis, as it has no theory of crisis in the view of its crisis-ridden subject, the economy.  At any rate, this fiasco should speak broadly on hollow and ignorant state of economic theory espoused by mainstream economists and their little relevance to complexities of today’s capitalism.

Besides, not only the lax regulation but indeed the lack of any regulation in the ambience of boast and bravado on Wall Street (and its counterparts elsewhere) created monstrous shell-games unprecedented in the history of finance capital. For instance, Lehman Brothers has not been content even with its own ideological siblings in the White House. Apparently, even the most promising revolving door between the US Congress and Wall Street lobbyists did not prove sufficient for the appetite of these investment banks. Therefore, referring to conflict of interest alone would not cut the mustard here. Lehman created a dummy corporation in its shadow, in 2001, when IBEX Capital Markets was purchased before being renamed Hudson Castle. A recent front-page expose reveals: “Hudson Castle created at least four separate legal entities to borrow money in the markets by issuing short-term i.o.u.’s to investors. It then used that money to make loans to Lehman and other financial companies ….” (New York Times, April 13, 2010)  In other words, Lehman was in charge of creating IOU without limit in the dark alleys of banking deregulation, with a blind eye from US Federal Reserve under Greenspan-who brashly, after the Titanic is resting at the bottom of the ocean and so many lives lost, claims: “I was right 70 percent of the time.” He has yet to understand that resorting to percentages (and probability) in negligence of such colossal magnitude has no meaning; he fails to see that 70 percent is good for birds. Incidentally, this was the time that Timothy Geithner (current US Secretary of the Treasury) was the governor of the Federal Reserve Bank of New York, a heartbeat away from this and similar debacles. This is just a tiny example of outright swindle that has happened in every one of these financial institutions (Goldman Sachs, JP Morgan Chase, etc.) and that should make even unscrupulous (“creative”) accountants blush to their bellybutton – and, thanks to loopholes, it is not illegal. On the top of all this, the recent crude, cowardly, and criminal conduct of Goldman Sachs, done after the financial debacle and caught (April 2010) by the US Securities and Exchange Commission, should be an indication as to how blatant these outfits are turned out to behave.

Finally, the impact of the global crisis on “global south,” an apt reference to the extremely uneven and excruciating asymmetrical segment of the globe, is of course more unsettling. This can be observed in a one-two punch of the class polarisation, first through further destruction of whatever means remained of “self-sufficiency,” associated with a lesser commoditised traditional communities, and then by means of universal uneven development across the vast landscape. Therefore, from the standpoint of accumulation of capital, one has to make a distinction between the tip of the iceberg (of globalisation) – with respect to the “poverty-reducing” capitalist innovations and development of higher-paid jobs – and the nine-tenths that sows the seeds of further class polarisation via future crises, hidden from immediate view. To be sure, class polarisation can be detected through this very crisis in both the global North and the global South rather visibly and universally today.

PC: You have written extensively on the political economy of the oil sector, while developing a Marxist theory of rent. What role do the peculiarities of the Middle Eastern economies, which have been built around this sector, play in fomenting such crises? How are such crises related to specific social relations of capitalism, as perfected in these economies?

CB: Since the 1970s, the globalisation of crude oil sector instigated, more or less, an organic association and commonality among major oil exporting countries, including those in the Persian Gulf and North Africa.  The economies of these countries virtually rise and fall with the price of oil and the extent of their crude oil exports. The price of oil, of course, is determined by global (spot and futures) markets, which is but symptomatic of globalisation of the oil sector itself. Oil revenues are the major segment of state’s budget and the main source of export earnings in the majority of these countries. These revenues are indeed differential oil rents based on the differential quality (i.e., differential productivity and thus differential profitability) of crude oil across the globe – and, as such, are price-determined, not price-determining.  Consequently, whatever happens to this globalised sector will have to have a direct impact on the economies of these oil-exporting countries. In this globalised, post-cartelised  epoch of oil production, global interdependence cuts both ways: (1) the globalised oil sector no longer consists of national oil cartels (under the now defunct International Petroleum Cartel), which once divided the world oil in the vertically-integrated  Achnacarry Agreement (1928-1972), (2) the post-war (WWII) US foreign policy of the country being in cahoots with the national cartels is no longer an option, (3) the colonial oil concessions are long relegated to the museum of pre-capital’s history in these countries, (4) the de-cartelisation of oil led to sovereignty (i.e., ownership as opposed to leasehold) over oil and gas reserves in these countries, and (5) the oil-exporting countries have no control over pricing of oil – (except in the case of self-injurious political opportunism, such as Saudi Arabia’s action in the mid-1980s in support of Saddam Hussein and against Iran) – since the formation of value (and thus global price) belongs to a larger (transnational) arena and thus out of anyone’s hand.

Yet, tragically, the US policymakers (aided by ignorant liberals and dogmatic traditional left) and oil-exporting governments themselves tend to play on mutuality of their nostalgic past, despite the crystal-clarity of evidence in respect of the objectivity (and irreversibility) of the globalisation of oil. For instance, you should remember the former Saudi Ambassador to the United States, Prince Bandar, who had visited US President George Bush in Crawford, Texas, back in the summer of 2004, and who, among others, pledged to bring down oil prices by the November of 2004, so that George Bush’s chance for re-election would increase. Now, you go back to check the oil prices in the November of 2004 to see for yourself. It takes two to tango, and, indeed, two to carry on with the nostalgia of US colonial policy in oil. But this nostalgia, as pathetic as it may seem, is taken rather assiduously as a fact by the popular media. The oil-exporting countries are doubly entwined with world market: (1) through the universal transnationalisation of capital across the board and (2) via their direct and organic union with the turbulent global oil industry itself.

The business of myth-making concerning “the control of oil,” the mystery of “access,” and other popular and prevalent gimmicks, however, goes beyond the official channels. The official theory, perpetrated by conservatives, liberals, and even radical left (including many self-proclaimed Marxists), claims that today’s global oil is a monopoly and OPEC is a cartel, despite the industry’s  evolutionary de-cartelisation and eventual (competitive) globalisation since the 1970s, and contrary to the wealth of empirical evidence. Yet, there are different nuances throughout the bourgeois political spectrum. US conservatives, who religiously stick to their gospel of “free market” in capitalism, pray rather single-mindedly to a different god when it comes to the market for oil.  These market fundamentalists pay homage to the US government as their patron saint in order to dispel the curse of “foreign oil.” They play dumb by ignoring the universality of global oil market in order to conceal their xenophobic attitude and their racist mindset under the rubric of energy “self-sufficiency.” In other words, right-wingers are two-faced about their market-mongering.  A notable example of this is T Boone Pickens (a self-interested Texan oil tycoon), who has recently been energised by the power of racism and xenophobia in the United States, and who simply jumped on the bandwagon of “energy self-sufficiency” in the United States. He is currently running TV commercials in the United States, cursing the Arabs (and others) for high US oil imports from the Middle East; he claims he is planning to eliminate the US “dependence” on “foreign oil,” thus creating energy independence for his beloved country. And, as a Republican businessman to the right of Attila the Hun, his position on this energy-independence hoax is no different from his bleeding-heart liberal counterparts (see President Obama’s recent energy proposal), who play the same nationalistic card. Mr. Pickens though is no rag-tag patriot without hefty materialistic objectives; he cunningly planned to augment his private wealth with public subsidy camouflaged as deference to environment, laced with targeted fear-mongering, blatant bigotry, and taunting racism.  Hence, the Arabs, Iranians, and the Venezuelans are all fair game to be attacked by his TV commercials and other commentaries with impunity.

But all this is the least of my worries, since the ugly face of ultra-nationalism (and naked fascism) cannot be long covered by the touch of make-up crew on the television or the hint of a colorful bowtie and a $2,500 three-piece suit. My concern is the liberals who are now roaming on the left and rambling in misrepresentational intent on the “peak-oil,” “resource scarcity,” “resource wars” and other panoramic subterfuge in order to muddy the water on the nature of class conflict and class polarisation in the 21st century, where it comes to oil and energy resources. The 21st -century replicas of Reverend Thomas Robert Malthus (1766-1834) relegate the question of oil to ad hoc “scarcity” of a commodity that is supposedlyintrinsic to capitalism. These trendy protagonists tend to deceive themselves with use-value fetishism with regard to oil and evolution of capital and capitalism. They confuse the characteristic of capitalism with a static accounting system of use-value allocation in their stagnant imagination, before faking their explanation. They do not realise that coal and steam engine were once the bread-and-butter of capitalism, before being relinquished as often as not for oil and technologies that made this transition possible. They literally operate like a skinny CPA (Certified Public Accountant) with an antiseptic desk, a penchant for the balance-sheet, and much antipathy towards the intricate dynamics. These protagonists turn a blind eye to dynamics of capitalist social relations in which no commodity retains an intrinsic place within the system other than commoditylabour-power. They look at southern Sudan, for instance, and pontificate that it is a “resource war.” They look at the US invasion of Iraq and conclude that it was for “oil.” And, frankly, these urbane, educated, soft-spoken liberal/radical fellows make me a good deal more discouraged than the likes of T Boone Pickens do.

PC: As the news of the crisis in Dubai came in, panic was evident among Indian bankers and builders. This is obvious because of the deep investment of various private-public banks and construction companies in diverse economic activities in the Middle East. Also, the amount of remittances from West Asia is quite considerable as millions of Indian workers are working in Dubai and other West Asian cities. Further, in recent years, India, along with China, has been investing in African oilfields and acquiring major stakes in various oil projects in the Middle East (including in Iran). What do you think are the political-economic implications of such involvement in the economies of oil-producing countries? Does such involvement have any significant impact on the competitive regime in the oil industry?

CB: First of all, it would not be unreasonable to panic upon the news surrounding the Dubai crisis, particularly when it is being reported on the Financial Times’ front-page (November 26, 2009). I distinctly remember that I was traveling aboard the train from Glasgow to London where I had given a public lecture on post-election Iran the night before, and my host was reading the paper rather matter-of-factly. When he finished reading, I picked up the front page and could not believe my eyes – just like I had predicted exactly 21 days earlier in a seminar in my own institution, here was another AIG-like conglomerate turning belly up.  Yes, there are, as of yet number of unidentified AIGs and Dubai-like entities out there and there’s hardly any idea on the part of the US Federal Reserve or European central banks or any other central bank on the face of the Earth to know how many credit-swap defaults (CSDs) have so far been issued or where they are to be found or at what value are they to be denominated in the manifold scrambled portfolios held by the financial and/or “real” sectors of global economy. Any number is just a wild guess, since foreknowledge of uncertainty is a contradiction in terms.

Consequently, if the Iceland debacle is of any consequence and these black holes will turn up in some sort of sequence, any distinction between “sovereign funds” and private funds would be an obtuse proposition.  It shows how unsecure the financial system has become and to what extent these alleged instruments of “securitisation” were unsecure. In the case of Iceland, this derivative-driven financial system took the country several generations back by destroying the standard of living that has been slowly but surely achieved throughout these years.  This was because the eventual write-downs required that these of these “toxic assets” valued at many times the Iceland’s GDP be got rid of. This has, of course, become somewhat “manageable” with assistance and blessing of “rescuers” from the international community. Now, imagine that the entire estimated (notional) value of these financial derivatives, which is roughly somewhere between $70 trillion and $180 trillion (with “T”), is to be written down at the same time. The write-down for such a gargantuan amount is a nightmare scenario beyond the collective capacity of all economies on the plant; thus neither a handful of countries nor even the global economy can stand up to this eventuality. It is possible that the present-day world economy shall be dilapidated across the board so much so that the scale of destruction would relegate us to decades of stagnation and a standard of living our grandparents were used to.  The brunt of hardship, of course, is leveled against the working people, particularly the working class, everywhere.  Here, all “rescuers” on the plant shall be in need of rescue themselves.  And if you think World War III in terms of destructive capacity and polarising power is bad enough, try to imagine the ferocity of this full-blown scenario!

Credit Default Swaps are only one type of unregulated financial pandemic introduced for deliberate individual gains at the expense of rest of the capitalists. There are other types of derivatives that are equally contagious and potentially devastating with similar consequences. For instance, as we speak, there is an outstanding (notional) amount of interest rate derivatives to the tune of $414.09 trillion at the end of June 2009, according to the Bank of International Settlements (BIS) Survey of Over-the-Counter (OTC) Derivative Transactions.  Let me explain the real meaning of this staggering figure to you by referring to one of the cheerleaders of this Ponzi scheme, namely, US Federal Reserve Bank of Dallas (Issue 2, March/April 2003):

An Interest Rate Swap: Consider the most prominent type of derivatives, an interest rate swap. [… ] Suppose a small bank has a portfolio of fixed-rate loans, so that the interest payments remain the same each period. The bank wants to convert these fixed-interest payments to floating, or variable, rate payments, so that they fluctuate with market interest rate. That way, if rates rise and the bank has to pay higher rates on its liabilities, the interest it receives on the loan portfolio will also rise, thereby preserving the bank’s profit margin.  The small bank can go to a dealer, typically a large bank, to swap the fixed rate on its portfolio for a variable rate. The small bank promises to pay the dealer the fixed rate, while the dealer promises to pay the small bank the variable rate. When the variable and fixed rates are equal, no payments are traded because they would be the same; they cancel each other out. However, if the variable rate rises above the fixed rate, the dealer must pay the small bank the difference, so that the small bank can earn the variable rate. Conversely, if the variable rate falls below the fixed rate, the small bank must pay the dealer the difference, so the small bank still earns only the variable rate.

Now imagine rather conservatively that there would be just a 3% change in the rate of interest in the view of $414.09-trillion (notional) interest rate derivatives estimated above. That’s to say, 3% of these $414.09-trillion unregulated derivatives will come due without much delay. And any elementary school kid can calculate this without resorting to a calculator. A 3% fluctuation in the rate of interest in this case alone is just over $12 trillion, a near equivalent of the estimated nominal figures for the 2009 GDP of Germany, France, the United Kingdom, Brazil, India, Russia, Turkey, Sweden and Norway combined. Even if the estimated value of both sides of these swaps comprises the notional value of $414.09 trillion, we are still confronted with over $6 trillion of “credit exposure” in one breath. This is potentially equivalent to a Jurassic Park of “run on the bank,” a phenomenon that was prevalent, albeit with much limited incendiary capacity, in the Great Depression during the period of 1929-1934 in the United States and elsewhere.  Yet, some may argue that fluctuations of interest rate should eventually offset each other and such debits and credits come to some sort of “equilibrium” anyway; so what’s the problem? This is one of the typical claims in support of deceitful “distribution of risk” in the banking and finance community. But this unremorseful attitude overlooks the fact that in reality such accounting calculations are based on smooth transition in fairy-tale, fantastic and far-fetched capitalism without crisis. Speaking of the “distribution of risk” in this context is no more than tautology.

This cheerleading US Federal Reserve document, after going through several charts and other material that are as matter-of-fact, finally concludes:

As a result, banks can better manage risk by dispersing it to those most able to bear it. Organizations with little dependence on short-term liabilities, such as insurance companies and pension funds, often benefit from holding some of the risk segmented and dispersed through derivatives. When risk can be divided up and reshaped, so that it comes to the purchaser custom made, financial market participants enjoy greater flexibility and efficiency (emphases added).

Sounds familiar? This is exactly the attitude and the ideology that promoted creating something out of nothing since the invention of Tooth Fairy and Santa Claus. Aside from the total devastation, this would result in the standard of living for all working people across the plant taking a drastic plunge. Is it not the most violent form of cannibalism in the scale unprecedented in capitalism? Yet, the saddest part of this tragedy is that some of our better and brighter political economists tend to describe all this in a benign and misleading connotation as “financialisation.”

Nevertheless, going back to the localised (and limited) scenario, by plugging the leak associated with the Dubai Crisis, the threat of the domino through the network of Indian private-public banks and construction companies is seemingly attenuated for now. Yet, the impact of depression-like worldwide crisis has already been felt in the economies of the region, particularly in the construction industry, which has been ordinarily considered as the bread basket of foreign workers, second only to oil, in this region. One measure of all this is the huge number of construction cranes that are still standing and rusting to the core in Dubai today.  As for the Chinese and Indian investments in the African oilfields, pipelines, and other oil-related projects in the Middle East and North Africa, they have so far been immune from these fictitious “securitisation” and derivative-driven financial schemes. Other than extraordinary (and temporary) political upheavals, the collateral associated with these oil projects is tangible and calculable in terms of probabilitization of risks. Yet, the effect of worldwide slowdown in all economic activity, however, should not be underestimated. Therefore, without a doubt, this should have a significant impact on the economies of the oil-producing countries.

Finally, production of crude oil is according to the law of value worldwide. This is so, since the de-cartelisation and subsequent globalisation of oil in the 1970s. In this context, economic crises, including this near-depression, are all tendencies towards restructuring of capital and thus leading to further concentration and centralisation of production and exchange, which ultimately broadens competition. Contrary to the fiction of bourgeois textbooks, capitalist competition is a phenomenon that entwines with further concentration and centralisation of capital in the real world; it is the war of capital on capital as can be seen rather vividly from the turbulence within financial sectors and its spread toward engulfing the most tangible fabric of the global economy. When I say oil is de-cartelised and then globalized, it means that for the first time the production of oil worldwide is operating according to the law of value anticipated by Marx. This, of course, does not sit well with either vulgar economists (orthodox and even heterodox) or corporate ideologues or liberal/radical democrats or caricature Marxists of today. The thesis of “monopoly capital” has not only expunged competition and application of the theory of value from the contemporary stage of capitalism but also sadly reinforced the vulgarity of neoclassical competition in political economy.  It was not until the early 1970s that Marx’s value-theoretic political economy once again revived and flourished rather successfully to this day. My own contribution in political economy of oil and global energy is but a gentle reminder of this transformation and this history. In particular, I have developed a theory of rent for the oil industry (a highly integrated industry by any standard) in terms of real competition rather than through fictitious and mechanical departure from fanciful void of pure competition. And, frankly, I hardly see any distinction between rightwing ideologues and leftwing radicals today when it comes to the question of capitalist competition in the oil and energy industry.

PC: What is the role of finance in the present-day crisis? As a Marxist, you have related the global ‘financial’ crisis to the volatility intrinsic to the accumulation of capital, and you have critiqued scholars (including from the MR school) who tend to autonomise and essentialise the role of finance capital, financialisation and monopoly capital in the overall assessment of present-day global capitalism, including its crises.  Can you discuss your critique of various positions among ‘heterodox’ economists with regard to the phenomenon of capitalist crisis?

CB: The role of finance is not a standalone proposition in this or any other full-fledged crises of capitalism. Finance is one of the three forms (and circuits) of social capital, entwined with other two circuits of commodity and productive capital. Firstly, one must investigate the process of accumulation as the root cause and source from which crises emanate in capitalism. Therefore, the theories of “profit-squeeze,” “under-consumption,” “disproportion,” and so on are, for instance, pretending to establish the cause by demonstrating its apparent form in a tautological manner.  And if what meets the eye (i.e., the apparent form) is what meets the eye, then, as Marx eloquently pointed out, there would not be any need for science.Secondly, to say that crisis leads to the breakdown of capitalism is symptomatic of (1) a lack of adequate understanding of the dynamics of capitalism, particularly the operation of Marx’s theory of value and (2) a tendency towards a mistaken belief that the automatic fall of capitalism is inevitable and that the role of purposeful collective human agency for social change is nil. This, of course, is contrary to the self-evident historical experience, from our past recorded time to our very present. Therefore, despite my high opinion of both Rosa Luxemburg (1871-1919) and Henryk Grossman (1881-1950), and contrary to Roman Rosdolsky’srevered work, The Making of Marx’s Capital (1968 [English Edition 1977]), in attempting to put Luxemburg’s theoretical work in more positive light than it methodologically deserves, I do not see anything remotely in support of this line of thinking. By way of digression, I wish to point out to Luxemburg’s inadequate recognition of Marx’s method in which she mistakenly identifies capital (i.e., social capital or capital-in-general), in Capital, Vol. 1, as individual capital. Unfortunately, this view is still shared by some Marxist economists today. Also, Luxemburg rather intrinsically (and even in an empiricist fashion) emphasised on “undeveloped part of the world” in conjunction with value analysis, thus made herself a target of hollow criticism by the neo-harmonists (Grossmann’s apt characterisation) within the “Austro-Marxist” school. Otto Bauer (1881-1938), in particular, was critical of her “breakdown” theory from the standpoint of “equilibrium” and smooth transformation of capitalism through workings of the “schemes of reproduction”, in Capital, Vol. 2. Also, prominent members of the Second International, namely, Karl Kautsky (1854-1938) and Rudolf Hilferding (1877-1941), showed the same bourgeois attitude toward the reproduction of capitalism; as it is known, the latter explicitly attributed the cause of crises to disproportional relations among individual branches of production. The debate in pre-revolutionary Russia, however, was dictated by another set of concrete circumstances. Here V. I. Lenin (1870-1924), who sided with “legal Marxists”, stood against Narodniks’ peasant-centered political position, in his celebrated 50-page essay, “On the So-called Market Question” (Collected Works, Vol. 1). Yet, on the nature of reproduction, Lenin took the symptom of crises for their cause.  Hence, my position on Lenin agrees with Rosdolsky’s (1898-1967) that “It is evident that Lenin’s postulate, according to which the relation of production and consumption is to be subsumed under the concept of proportionality, brings him unfortunately close to [Sergei Nikolaevich] Bulgakov’s [1871-1944] and[Mikhail Tugan-Baranovsky] Tugan’s [1865-1919] ‘disproportionality theory’ of crises”. And I think, these unsurpassed revolutionaries (i.e., Lenin and Luxemburg), who regrettably were at each other’s throats, were both incorrect on Marx’s theory of value, an embodiment of periodic crises in respect to restructuring of production and resultant class polarisation in capitalism.

Thirdly, the current crisis has been materialised in a number of symptomatic forms, most prominently in “credit crunch,” which has reverberated all the way through the entire intricate network of commercial (and investment) banking system, before spreading throughout the so-called real sectors of the economy across the landscape. Yet, it would be incorrect to characterise this crisis as that of “credit crunch.” Finally, the reason that Marx speaks of “possibility” and “actuality” of crisis has a deep foundation in materialist conception of history as opposed to axiomatic theorisation.

Marx starts off with the potential fault-lines of capitalism as a whole (i.e., the possibility) in order to conceptualise them in contradistinction with all other historical modes of production; yet -in order to avoid the trap of idealism (i.e., starting with an axiomatic fiat) – Marx falls back on the concrete occurrence of crisis, in historical reality on the ground, as a starting point. In this manner, capitalism – although a concrete mode of production in historical terms – is nonetheless invoked in abstract from the perspective of its (living) concrete moment. Here, a key requirement for a materialist method is to start off with the concrete – not a pre-given conceptual form; hence the necessity of abstracting from the concrete “actuality” entwined with the (living) moment. Consequently, Marx’s crisis theory, among others, is the display of Marx’s materialist (as opposed to idealist) methodology on a grand scale.  Hence, for instance, “profit-squeeze” theory of crisis – a corollary of the neo-Ricardian “class struggle” in distribution – is not only ad hoc but circular. Lastly, capitalist crises are not long-term (contrary to Stagnationist thesis) and thus “permanent,” in Marx’s view of capitalism. Crises are periodic, thus reflecting the break and the continuity, and thus the renewal of the circuit of social capital in the accumulation process.

Now, it would be impossible to speak of a crisis theory without articulating the role of “the law of tendency of the rate of profit to fall” (LTRPF) in Marx’s framework. By all accounts, however, including Marx’s own explicit assertion, this “law” (and its countertendencies) is the most important law in the critique of political economy. The question, therefore, is in what manner and why.  Here, the theory of value, as the most distinguishing feature of capitalism, has to be placed at the very centre of analysis, before the role and necessity of crisis in dynamics of value formation can be depicted. Crises provide a window into the periodicity of turbulent capital accumulation through competition, which in turn bring about change in the magnitude of value. That’s why “monopoly capital” view of capitalism (most notably in Paul Sweezy’s writings) has done away with the theory of value (given the lever of competition that goes with it) for developed contemporary capitalism of today.  This sadly demonstrates that a wrong turn away from the reality of capitalist competition (as opposed to fictional competition in bourgeois textbooks) can take a prominent figure like Sweezy (1910-2004) – a remarkable mentor of my generation – to a point of no return.  This parallel drift away from Marx’s value theory and mistaken interpretation of Marx’s competition have also befallen on many neo-Ricardian/Sraffian scholars, who took the unmediated price of commodities on its face value and consequently, in my judgment, regressed beneath the theoretical standing of their master, David Ricardo (1772-1823).

Capitalist crises are of cyclical in nature in that change in technology – (inclusive of major reorganisation, mergers and acquisition, etc.) – provoked through competition, leads to cost-cutting and rationalisation of the process of production by a few leading capitalists. Of course, in due time this newly-devised technology shall be forcefully generalised throughout the industry. At this initial stage, introduction of the new technique induces a rise in “technical composition of capital” (TCC) – which measures the rise of composition of capital in its material form. However, the rise in material composition, mirrored in value, boosts the value of constant capital, measured by magnitude of the existing value – i.e., the one that has yet to change in magnitude by way of crisis.  Marx indentified this as “organic composition of capital” (OCC). Finally, as the new technique finds sufficient emulation in competition and thus being duly generalised throughout the industry, the magnitude of value changes, the restructuring and renewal of accumulation come to pass through crisis and, accordingly, the “value composition of capital” (VCC) is rendered commensurable with the newly-formed value.  And as soon as the newly-formed value emerges, any reference to the rise of OCC (the gauge for change in composition of capital related to initiation of the new technique) is not consequential, until the next round of technological change and introduction of new technology by leading capitalists, which once again leads to repetition of the same process toward the formation of newer value.

Marxian competition operates at two distinct, yet intertwined, levels in mature capitalism: (1) the formation ofmarket value in a single industry, via intra-industry competition, and (2) the formation of prices of production, via inter-industry competition. The former leads to different profit rates for the firms in single industry. The latter gives rise to tendency of the uniform rate of profit for all industries. Notwithstanding competition, the price of production of average OCC is the same as the value magnitude. In contrast, the price of production of sectors with higher (lower) OCC must be above (below) the magnitude of value with average OCC. This is known as Marx’s “transformation problem,” an off-putting connotation that, since the early commentaries ofWerner Sombart (1894), Eugen von Böhm-Bawerk (1896) and L. J. von Bortkiewicz (1907), clarifies and at the same time obfuscates the real evolution that has led to the transformation of values to prices of production in developed capitalism. Incidentally, the phoniest of objections leveled against Marx’s value theory, I believe, was by Böhm-Bawerk (1851-1914) – a second-generation marginalist associated with the Austrian school – who, among others, objected to reduction of higher skills to undifferentiated skill (and technology) in the prices of production. He was blind to the dynamics of capitalism via crisis, as complexity was too rich for his blood and skilling and deskilling, via competition, seemed impossible in his preset imagination. This connotation, in my opinion, must be understood as a transformation procedure in order to shed light on the reality of historical evolution and transformation in capitalism. This amounts to development of capitalism within capitalism, with the emergence and development of credit system, and all the rest. Here, all deviations generated by technological change, changing skills and skill formation, productivity of labour, diverse quality of use-values, etc., are balanced in competition and through socially necessary labour (SNL) time spent in production and measured abstract labour, a common denominator of all commodities. In this manner, ordinarily, the price of production that governs any one sector manifests the most advanced capital in the industry. The exception to this is of course the interaction of capital in the presence of rent, wherein the value formation takes a quite complex excursion beyond present conversation.

Introduction of the new technique increases the initiators’ profit over and above the levels of profit gained by others for a while.  This would give these capitalists a weapon of choice in the battle of competition: (1) They produce below the (established) cost of production and still make adequate profit and (2) They take out those who fail to innovate and cut costs quickly enough in order to stay in business. This, as a mechanism within the theory of value, triggers the “tendency of the rate of profit to fall” (LTRPF). And, parenthetically, contrary to many studies, LTRPF is not an empirical law to be used for measuring the actual fall in the profit rate in the long-run; this empirical view, which enjoys popularity in certain Marxist circles, reminds me of the Classical “stationary state,” where the profit rate declines without limit. In my judgment, this fault may have something to do with exegetical reading of Marx, particularly his Grundrisse and his Capital (Vol. 3), in which there is some mention of long-term fall in the rate of profit. I tend to think, along with several well-known Marxist scholars, that what is vitally critical for us is to grasp the centrality of Marx’s method and to let nearly everything in his lifelong and spirited contribution to be subjected to rigorous criticism. This is what true Marxism is all about in both theory and practice.

Returning to main point, just before the generalisation of the new technique, there are many heads that had to be placed on chopping block, along a good deal of the destruction of capital, in mutual mutilation. This, in turn, generates the tendency for the rate of profit to fall within the not-yet-dismantled framework of the old value. In other words, due to fierce competition, so many capitalists cannot afford to hang on to their hat and consequently must file for bankruptcy or worse. As a result, as soon as the new technique will become generalised and the battlefield cleared, the newly-formed value(commensurate, in magnitude, with the new technology, new entrants, and the new rate of profit) will tend to restore the rate of profit as countertendency. Hence both the tendency and countertendency of the falling rate of profit are organically linked with the dynamics of value formation in Marx’s theory of crisis. With the formation of new value, the tectonic plates – so to speak – get ready to move again at the onset of a more intensified competitive build-up in innovative activity, coercive engagement, flourishing and perishing livelihoods, and eventually in the wholesale destruction of capital across the board. In this manner, although actual crises in capitalism are not permanent, nevertheless the spectre of crisis keeps hovering over this mode of production for good.

This is how individual interest (via private appropriation) – even within the capitalist class – works against the collective interest and well-being of the system which, in turn, proves necessary for propagation of the individual capitalist. This point goes to the heart of Marx’s visionary understanding of capitalism (and accumulation of capital) through competition rather than bourgeois monopoly. It also reveals a built-in contradiction that forces the parts to betray the whole, not just for being greedy but for the fact that they would never know whether they will be able to survive tomorrow.  Accumulation of capital, in Marx, is a macro category absolutely distinct from any individual capitalist’s decision-making or “choice.”  Therefore, clinging to shenanigans – such as “differential accumulation” (assuming a higher rate of return by some capitalist in the oil sector and turning around to accept it as conclusion) – does not only distort the question of competition in capitalism but also misrepresents the meaning of accumulation by invoking “methodological individualism,” which relies on voluntarism on the part of individual capitalists. To be sure, individual capitalist decision to engage in certain profit opportunities is not the same as what is called accumulation in any political economy worthy of mention, let alone Marx’s. Hence, Marx’s realistic view of capitalism must be understood in contradistinction with the orthodox price theory – (and its faint-heated “heterodox” variety) – whose core is built on idealistic volition – “choice.” Here, the origin of synthetic competition in Marx is like the replicating quality of the DNA in the original cell, which presupposes the quantitative division of subsequent cells. In other words, the initial derive for multiplication has nothing to do with the number of subsequent cells but has to do with the unique property that’s called DNA at the outset. This is equivalent to the seed of competition within the interaction of social capital and labour-power as a whole. Here competition is a part of the synthesis with integration – not its antithesis, in crude bourgeois terms. That’s why pointing to the number of firms in an industry for identification of “competition” or “monopoly” does not only displace the reality of competition in dynamics of crises but also decidedly conceals the edifice of violence entwined with the accumulation of capital by manufacturing a fantastic replica in pure ideological form.

PC: You have endeavoured to develop, if one may say so, a value-theoretic approach towards the present-day capitalist crisis, conceptualising it dialectically as a moment of desperation to preserve value in the circulation sphere, while it is destroyed in the production process. Can you elaborate on this understanding of crisis? 

CB: If we accept that the creation of surplus value is achievable only by purposeful human activity in the sphere of production, then human activity in value’s realisation (including its churning from one hand to another) does not add an iota of value to its original magnitude. What is added to it is the intended appreciation of its price (in money), in anticipation of the very fact that the technical change in production has already been working to reduce the socially necessary labour (SNL) that was exacted in its production. That’s why financiers always invoke: “time is money.” Therefore, speaking of creation of value (or surplus value) in finance is not much of an improvement over cheap talks by a small-town used-car salesperson, pretending to produce something new and something of value. Even conventional macroeconomists long realised that such a pretension at double-counting should be avoided in the calculation of National Income, although these economists are still missing the very meaning of unproductive labour in their social accounting calculations. In financial lingo, when one changes an asset with another, it is generally identified as “investment.”  This sleight of hand is simply the basis of all marketing gimmicks that ride on the preservation of value on the one hand, and creation of credit (i.e., an obligation to be fulfilled in the future) on the other hand, throughout the financial system. But fulfilling the future obligations cannot be postponed forever. At the same time, given the periodic decline in the magnitude of value (per unit of output), due to speedy change in technology, etc., the task of preserving the value in circulation and fulfilling the future credit obligations, aside from particularity of the financial instruments used, become harder and harder, leading to “bubbles,” etc., and bursting in the face of the entire system. The very fact that the house of cards of finance has, in this sad and sorry empirical sense, come down so precisely and so deliberately should be crystal clear to anyone with a modicum of knowledge of political economy. For, the value in production sets (the cause) the limits to finance capital (the trigger) no matter how exotic the instruments are made out to be.

Finally, the connotation, financialisation, is the most baffling expression in view of our conversation here. This silly term appears to be an attempt to erect a parallel to globalisation, a concept that is so close to genuine Marxian analysis and has yet remained misunderstood both by the bourgeois right and the petty-bourgeois liberal/radical left today. The right, while it is now a bit apprehensive, rides on the “US global role” and the neoliberal policies of Reagan and Thatcher in the early 1980s that continued for quite some time till the current worldwide crisis. The liberal/radical left, while clearly troubled by such policies, is nevertheless subscribing to what one may call the “Americanisation” of world economy, particularly after the fall of the Soviet Union. The latter also is harping, rather anachronistically, on “finance capital” and its parallelism with Lenin’s Imperialism with regard to the current crisis. Hence, a wired and meaningless construct of financialisation. Here, globalisation is made of an adjective, global, which in turn emerged from a noun, globe; similarly, financialisation is made of an adjective, financial, which in turn developed from a noun, finance. Now, globalisation is a process by which something has taken hold of everything around the globe. This something to me is the capitalist social relation.  Likewise, from the linguistic point of view, financialisation is a process by which something has taken hold around finance. And when I ask myself, what is finance, before I even raise the question of what is it that has taken hold, it would leave me nothing but with a silly tautology – if not a complete misrepresentational intent, described rather eloquently in H G Frankfurt’s On Bullshit(2005).

PC: How do you assess the responses of states towards the global crisis? Do you see any significant shift in the overall regime of accumulation? How do you differentiate the current crisis from the crisis of 1929 and the respective responses? 

CB: The response by the various states has been uneven both in terms of speed, the nature of bailout and the precautionary measures themselves.  As I have indicated elsewhere, there are many latent AIGs that may emerge in due time as this particular crisis has not yet come to its conclusion. The Dubai crisis, among others, has brought out two essential points: (1) that, when it comes to default, there is little difference between the so-called sovereign funds and private financial institutions and (2) that “finance capital” is inextricably  a part and parcel of total social capital in the accumulation process. In the case of Dubai World, as we have experienced so far, the producing sectors of the economy have all come to a standstill. For instance, the construction activity in Dubai has been reduced to a trickle and the hustling-and-bustling port looks like a deserted place, with rows upon rows of cranes resting idle and rusting out of existence.  Just a few months ago, some 1700 dock workers from India, among others, were ordered to pack their bags and go back home, as the thinning export and import traffic did not accommodate the operating costs.

The Greek financial crisis is another case in point, where reliance on credit by fiat created a national crisis. Here the same familiar financial derivatives did the job on Greek government’s credit exposure. This is yet another example of sovereign financial entity gone haywire, and a quintessential illustration of too-big-to-fail. As a member of the European Union, the Papandreou government knew in advance that Greek economy would be rescued, but at an extraordinary price to the standard of living of the Greek working people, who had no hand in bringing about this crisis. Ironically, Papandreou himself was elected prime minister just recently, after the cat was about to get out of the bag under his predecessor’s administration. Greece is by no means the only country in the EU to experience near default. There are other potential candidates in this global tragedy, including Portugal, Spain, Ireland and perhaps Italy. The culprit in all this is similar to many other financial institutions (and sovereign funds), which thrived through credit upon credit by fiat via unregulated financial derivatives. According to one study (published in the New York Times, March 12, 2010, p. A3), Greece’s current government debt and future obligations are just over 8.75 times its GDP, while the same figure for the average EU (minus Bulgaria and Romania) is just over 4.34 times.  The similar figure for the United States is 5 times its GDP.

Finally, there are many similarities and differences between the 1929 Great Depression and current crisis that have now been dubbed as the “Great Recession” by some economists. There is no doubt that multiple bubbles that burst, first in the US real-estate market and then sequentially in mortgage institutions, credit-rating and credit-swap institutions, risk assessment and “securitisation” institutions, before being transmitted in wholesale default of major banks and insurance companies, is a reminder of a parallel domino that turned similarly deadly in 1929. The massive bank failures that are still with us across the globe, particularly in the United States, are themselves a universal symptom associated with both crises. For instance, the 1999 repealing of the Glass-Steagall Act of 1933, which proved to have been an effective mechanism for the prevention of conflict of interest between commercial banking and investment banking, points to some underlying consequential similarities. Yet, there are a number of qualitative dissimilarities between this and the 1929 crisis, from the standpoint of scope, speed, and polarising effects, on the one hand, and the manner of response by the various governments, on the other hand. To be sure, in 1929, nearly two-thirds of humanity couldn’t imagine what capitalism was, let alone to live and experience it firsthand. A significant part of humanity was indeed living either in some sort of self-sufficient communities or engaging in petty commodity production, with modest exposure to capitalist market and capitalist social relations. The theory of value (i.e., capital’s social relations), de jure and de facto, had no relevance for this sizable mass of humanity. The 1929 Great Depression coincided with the epoch of imperialism, as Lenin aptly identified it. Since I have written on this very issue elsewhere, I will not repeat it here. However, as this interview was going to press, I noticed that a volume by John Milios and Dimitris Sotiropoulos (Rethinking Imperialism, 2009) tends to leap from Marx’s value theory to “imperialism” – a concept that’s reserved for domination of capitalist mode of production over the pre-capitalist area of the world. Here, the social relations of capital (captured in Marx’s value theory) are extended to external entities (i.e., in Lenin’s framework) that have yet to become capitalist in the future. And when such pre-capitalist entities turn capitalist they, methodologically, beg the question of “imperialism” when it comes to value theory.  At the same time, viewing the “internalisation” of such relations in value theory in an axiomatic vacuum, i.e., without regard for material (and historical) transformation from one stage to another, turns Marx’s theory on its head. In other words, a major difference between Marx’s theory of value and that of, say, the neoclassical economic theory, is in its logical-historical constitution, which concurs with materialist conception of history. Thus, any arbitrary definition of (external) domination of imperialist powers on pre-capitalist colonies within the theory of value is not permissible in Marx’s value system. Consequently, I believe, while traditional view of imperialism (as the highest stage of capitalism) has moved forward to the proverbial edge of the roof as to fall off from the front, this view of imperialism (renamed “the imperialist chain”) gone backward as to fall off from the rear.

Today’s economic crisis is perhaps the first fully-fledged crisis of global capitalism. It is a crisis that has transmitted in real time throughout the entire globe. This is a crisis that has engulfed nearly an overwhelming majority of humanity for the first time in history. It is a crisis of no-way-out for the majority of inhabitants on the planet.  You just look at the simple but tragic massive suicides of many farmers in India alone, and tell me that your country, other than tiny and scattered pockets of pre-capitalist past, is not yet a society under capitalist mode of production. This appears to be contrary to the traditional assessment by some leftists in India and elsewhere; and I sincerely hope that these protagonists shall wake up with the smell of coffee and of worldwide capitalism, before another round of struggle would be lost due to theoretical blunder and misdiagnosis. Lastly, this crisis and this era are manifestly expressing the globalisation of capitalist social relations and universality of the law of value perceptible in profound class polarisation across today’s transnational landscape. And as we move forward, these social relations turn out to be more befitting to what Marx had essentially anticipated in Capital.

“Capital and capitalists will continue to be nannied by the states they control, unless the crisis intensifies the struggles of workers and peasants to change this horrendously unjust and murderous social and political order. Nor will borrowers of recapitalized banks or the insured of the US company AIG benefit from lower interest rates, better access to credit or insurance or less discriminatory insurance rates. The new managers will be busy guarding the capital of their respective managed entities. Unless the rulers are made to see that money market instruments are not the proper vehicles to deliver affordable credit or insurance to the poor and are forced to carry out the structural changes needed to embody that perspective in practice, the old order will continue when the recession subsides.”  

Radical Notes: Can you explain the nature of the current crisis and how it developed?

Amiya Kumar Bagchi (AKB): A full explanation of the current crisis will be a book-length study. The immediate causes of the crisis can be put as follows: (a) unbridled financial liberalization, the most significant components of which have been the further elaboration of derivatives, including securitized products, increasing the non-transparency of the financial market, (b) the effective demolition of the distinction between deposit banks specializing in loans and investment banks, (c) conversion of the dollar into virtually the sole source of global liquidity, even while keeping a major fraction of the world’s economies in a condition of endemic deficiency of effective demand and (d) the rapid emergence of housing and related markets as sectors of the most intense speculative activity.

Radical Notes: As an economic historian, do you find any uniqueness in the present crisis in comparison to the past ones?

AKB: Capitalism has been racked by speculative crises, almost from the moment of its birth. One of the earliest of such crises was the Tulip Mania in the Netherlands in the 1630s. The second speculative crisis in order of occurrence was the crisis of 1720-21 centring around the so-called Mississippi project in France and the South Sea Company in England: this crisis threatened to engulf much of Western Europe at the time. If we take England only, there were severe banking crises in almost every decade from the 1820s , with the Baring Crisis of 1890-91, characterizing the last decade. In that crisis, the inability of Baring Bros to meet its obligations arising out of its over-exposure to loans to the Argentine government threatened to involve the whole British financial system. That is arguably the first time that the Bank of England acted as the lender of last resort. (Baring Bros collapsed in 1995, as a result of Nick Leeson, its bureau chief in Singapore, losing his bet on movements of Nekkei and the firm’s capital of £800 million disappeared). Then you have the biggest financial crisis of the twentieth century, namely, the Great Depression of the 1930s, which really ended with the onset of World War II that saw the stepping up of military and other public expenditure to unprecedented heights.

But as any student of history knows, you never step into the same stream twice. Capitalism in particular has been like a super-chameleon, transforming not only its colour but also its apparent structural relations every few decades. The changes preceding the current crisis are no exception. The uniqueness of the crisis can probably be described as a situation in which governments, so-called specialists in finance not only ignored the totally non-transparent manner in which banks, investment brokers and non-bank financial institutions carried on their business, but positively cheered them in the belief that this was the way to create wealth. One of the most ironic symbols of this atmosphere is the compilation and celebration of the growth of wealth of the ‘High Net Value Individuals’ (HNVIs) by Merrill Lynch, a firm that had to merge with Bank of America in order to stave off bankruptcy.

Radical Notes: Can we understand the present crisis as a crisis of imperialism and the US hegemony?

AKB: Yes, we can. But we must remember that other G7 countries are also implicated in the US hegemony, and even China’s current pattern of growth is symbiotically related to US hegemony. Whether the crisis will lead to a decline in the murderousness of the US military operations remains an open question. As I have argued earlier, capital wants to win in competition, if necessary in the last instance by using armed conflict. The prospect of a USA threatened with the loss of hegemony using its fearsome arsenal of weapons of mass destruction is mind-numbing.

Radical Notes: How do you assess the impact of the crisis on the developing countries?

AKB: In many developing countries, there are no real stock markets and even if there are, their operations do not have much of an impact on firms which are often too small to be able to raise money in the stock market. In many of them, earlier depredations of imperialism, its domestic collaborators and its agencies such as the IMF and the World Bank have led to the exclusion of most economic agents from formal credit markets. The so-called success of micro-credit agencies in Bangladesh, for example, was built not only on loans extended by foreign lenders but also on the destruction of public sector banking by local businessmen defaulting on their loans. Organizations blessed by the World Bank and foreign donors fished in such turbid waters.

The direct effect of the present crisis on such countries may not be great. But they will suffer through the further decline in the demand for their output in foreign and domestic markets because of the global recession. The countries, which have depended greatly on foreign capital for stimulation of their economies such as India, will also suffer through minor or major currency crises and the downsizing of the transactional enterprises operating in those countries and badly affected by the crisis. In the immediate future, the most distressing effect for the common people will continue to be the loss of employment in construction, services and the manufacturing sector and the high cost of food grains, induced by underinvestment in agriculture in developing countries, speculation in commodities by the big finance houses and others and the diversion of cropland to the highly subsidized biofuel in developed market economies, especially the USA.

Radical Notes: A recent report says that India and China – which are considered by many as the bulwark of capitalist growth in the 21st century – have witnessed the steepest market declines between December 2007 and September 2008. They “have lost almost 51% of market capitalization, or m-cap, and this figure could be much higher if the declines of the last fortnight are taken into account.” As latest reports indicate, industries in India, especially the aviation industry, have already started shifting the brunt of the crisis on labour, through various means. Do you think these developments are indications toward a full-fledged crisis around the corner?

AKB: As far as China is concerned, the slide in stock prices will not have a major effect on the economy, because stocks traded in the Shanghai market provide finance only to a small fraction of firms in the Chinese economy. But the effect on India is obvious not only from the retrenchments already announced by aviation companies and IT firms but also by the continued outflow of FII funds from India and consequent decline in the value of the Indian rupee. The Indian manufacturing sector was already showing a downward trend in fiscal 2007-08, and that trend has strengthened in recent weeks as shown by the Index of Industrial Production (IIP). It is disingenuous of the Finance Minister to call the IIP “not very reliable” when his government has done so much to massage the official statistics so as to produce a favourable picture of its performance in the economic field.

Radical Notes: The Reserve Bank of India (RBI) too is taking measures to ensure liquidity and boost confidence. As a historian of India’s banking sector, how do you assess India’s financial-structural ability to withstand such crisis at this juncture? How much do you think the neo-liberal policies that subsequent governments have pursued eroded this ability?

AKB: Fortunately, despite all the attempts of successive governments at the Centre since 1991 to force the pace of ‘economic reforms’, the worst of their designs could not be carried through. These include full capital account convertibility, complete privatisation of the banking and insurance sectors, and total abolition of the distinction between banks and non-banking finance companies. Every time either major international crises or electoral compulsions have stayed their hand. In 1997 and this time around, financial crisis in Asia and the global financial crisis have prevented the enforcement of capital account convertibility. The strength of Indian public sector banks compared with their private counterparts is there for all to see. The worst development under the neo-liberal regime is the naked play of money and communalism in determining the positions all major centrist or right-wing parties have adopted. Another major casualty has been the fiscal stance of the state. It will take quite an effort to get the rich to pay their taxes and to stop the indulgence the state has displayed towards punters and hot money merchants in the financial sector. The quality of Indian democracy has been further sullied under the neo-liberal regime. Hence the ability of the regime to handle the resolution of the crisis in national interest has been badly impaired.

Radical Notes: Various commentators have suggested that the bailing out strategies of different governments throughout the world has ultimately brought the state back in. What is the merit of such conclusion? Can we see this return of the state as just a moment, for which Milton Friedman once said the role of government is “to do something that market cannot do for itself”?

AKB: Yes, the state has been brought in but only to save the illegitimate earnings of the crony capitalists. Will Mr Richard Fuld, CEO of Lehman Bros, be made to disgorge the nearly $500 million he earned from his stock options and bonuses? In the financial year 2007-08 alone, according to Forbes.com, Fuld earned $71.50 million and in the preceding 5 years he had earned $354 million. When Lehman applied for Chapter 11 bankruptcy, Fuld took $22 million from the firm as retirement benefit. What applies to the top managers of  Lehman also applies to those of Wachovia and Merrill Lynch, to UBS of Switzerland which is being recapitalized by the Swiss government or Northern Rock, the hosing mortgage bank, which has been bailed out by the Bank of England. In 2004, I published an article with the self-explanatory title, “Nanny state for capital and Social Darwinism for Labour” (Indian Journal of Labour Economics, 47(1), January-March). Capital and capitalists will continue to be nannied by the states they control, unless the crisis intensifies the struggles of workers and peasants to change this horrendously unjust and murderous social and political order. Nor will borrowers of recapitalized banks or the insured of the US company AIG benefit from lower interest rates, better access to credit or insurance or less discriminatory insurance rates. The new managers will be busy guarding the capital of their respective managed entities. Unless the rulers are made to see that money market instruments are not the proper vehicles to deliver affordable credit or insurance to the poor and are forced to carry out the structural changes needed to embody that perspective in practice, the old order will continue when the recession subsides.

Amiya Kumar Bagchi is India’s foremost political economist and economic historian. He is the Director of the Institute of Development Studies Kolkata. He was a member of the State Planning Board until 2005, Government of West Bengal and was recently Chairman of a committee appointed by the Government of West Bengal to report on the finances of the government during the Tenth Five Year Plan period. He acted as the official historian of The State Bank of India until 1997. His recent works include (co-edited with Gary A.Dymski) Capture and Exclude: Developing Economies and the Poor in Global Finance, Tulika, New Delhi, 2007, The Perilous Passage: Mankind and the Global Ascendancy of Capital, Rowman and Littlefield, Lanham, Maryland, USA, 2005, The Developmental State in History and in the Twentieth Century, Regency Publications, New Delhi, 2004, and  Capital and Labour Re-defined: India and the Third World, Tulika, New Delhi and Anthem Press, London, 2002.