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The crisis of capital at the present juncture when capitalism is deeply financialised is extremely difficult to resolve. The main structural problem of the system is the downward pressure on the rate of profit, but further financialisation is no longer a sustainable solution. The demands of fictitious capital to be remunerated can only be fulfilled by the transfer of an ever greater surplus of

productive capital, and this is possible only through an ever-increasing rate of exploitation of labour. The relaunch of a fresh cycle of expansion however requires the destruction of gigantic amounts of fictitious capital, but such devaluation risks pushing the capitalist system towards collapse. Clearly, it is time for the left to come up with radical proposals and, in this respect, the most difficult questions to deal with are those concerning money and finance.

 

One of the most frequent errors made in interpreting the present crisis is that it is a financial crisis which is contaminating the sphere of the "real economy". It is, in fact, a crisis of capital, of which one of the most visible and publicised aspects have emerged within the financial sphere because of the extreme degree of financialisation of contemporary capitalism. We are dealing with a systemic crisis that affects the very heart of the capitalist system, that is, the power centre of high finance that has been controlling accumulation over the past three decades. It is not due to a combination of conjunctural factors, it is a structural phenomenon (Herrera and Nakatani 2008).

 

The series of repeated monetary-financial crises that have successively hit different economies over the past 30 years are part and parcel of the same crisis, since the "financial coup d'état" by high finance (by the unilateral and brutal rise in the interest rate) in the United States (US) in 1979; Mexico in 1982; the developing countries' debt crisis in the 1980s; the US itself in October 1987; the European Union (including Great Britain) in 1992-93; Mexico in 1994; Japan in 1995; the so-called "emerging" Asia in 1997-98; Russia and Brazil in 1998-99; even Ivory Coast at the same time; and the US again in 2000 with the burst of the "new economy bubble"; then Argentina and Turkey in 2000-01, and so on.

 

The crisis has worsened recently, above all since 2006-07, starting with the hegemonic centre of the world system and becoming general, developing into a crisis with socio-economic, political, or even humanitarian dimensions, but also concerning food, energy, or climate ­ and again and always financial, particularly affecting European countries such as Iceland, Ireland, Greece, Portugal and others. Consequently, it is not "the beginning of the end of the crisis" as perceived by some advisers to President Barack H Obama. It is not a usual credit crisis nor is it yet a temporary liquidity crisis through which the system reorganises and reinforces itself and begins to function "normally" with a new growth of productive forces in a framework of modernised social relations. Indeed, it appears to be much more serious.

 

 

To analyse this particular capitalist crisis, as for capitalist crises in general, it seems fundamental to refer to Marx, because, in spite of some difficulties and uncertainties, Marxism, or Marxisms ­ including fruitful Marxisant mixtures (Herrera 2003) ­ provide us with very powerful tools, concepts, methods and theories for making such an analysis, as also of the political outcomes. It is the strongest and most useful theoretical framework for understanding and analysing the crisis, and above all, for comprehending the current transformations of capitalism and trying to clarify the post-capitalist transitions that are opening up and getting under way, for reasons and in conditions that we shall be developing below.

 

The ­ unbelievable ­ fact is that, at the moment, there is no theory of crisis within the current dominant economic thinking in economics, i e, the neoclassical mainstream (Herrera 2006; 2010b). More amazing still, from a strictly theoretical point of view, "crisis" does not appear to exist in orthodox economics. Most of its standard encyclopedias do not even contain any chapter or entry on "crisis". Whether in theory (which for neoclassical economics is a matter of mathematical formalisation) or in empirics (which in this same standard economics consists of econometrics), there is scant interest in the subject of crisis. Very little deep academic work in the neoclassical school is dedicated to it, including at its neo-Keynesian (internal) frontiers.

 

For the mainstream in economics, money is not integrated into the cycle and dynamic of the reproduction of capital: value equals price; and rate of profit equals rate of interest. As a matter of fact, in microeconomics, money does not appear in the Arrow-Debreu version of the general equilibrium theory, while in macroeconomics, money is in general considered to be neutral, so that equilibrium is automatic, and crisis thus becomes structurally "prohibited". It is therefore important to bear in mind from the very beginning that the scientific ideology of capitalism does not consider crisis as an object of study, and hence it cannot understand the crises of capitalism as they are unfolding today. Unfortunately, this does not mean that, on certain points, some neoclassical analyses do not do better than Marxist explorations, because on these points, orthodox economists can grasp better what is going on ­ for example, concerning the complex transmissions of the effects of the financial sphere to the real economic sphere; or even in (mathematical) finance, as Marxists are not very well up in this subject.

 

To keep up with it all therefore, it is necessary to read Marx, but also the writings of our adversaries, including the press of the "Establishment" all the more since, nowadays, different segments of the dominant classes debate among themselves as if ordinary people were not there or that they understood nothing at all, and since, contrary to most of the "left" trade union and party leadership, they have in no way abandoned the defence of their class positions, nor a certain international (or, rather, inter-imperialist) solidarity.

 

As the crisis is however a fact that is extremely difficult to deny in practice, those among the neoclassical economists who are interested in studying it do so based on factors that are outside the markets and that disrupt the automatic mechanisms of price correction, such as state intervention, computers' bugs (as most of the financial transaction orders are transmitted by computers, with a reaction time measured in a billionth of a second), or the excesses in behaviour of certain economic agents (from Madoff's Ponzi-type frauds to M Kerviel's "hole" in Paris).

 

But, in fact, speculation is not an "excess" or an "error" of corporate governance: it is a magic potion against the structural evil of capitalism, a remedy to counteract the tendency for the rate of profit to fall, and it provides outlets to the masses of capital that are no longer able to invest profitably ­ the bursting of the "financial bubbles" being the price to pay (and to be paid by the people). In the orthodox view of things, the concentration of private ownership and the logic of the maximisation of individual profit are not considered as problems in practice. Furthermore, the neoclassical conception of the state remains that of a body separated from the economic sphere and not dominated by the interests of capital. Trade unions exist, at least in theory, but not class warfare. Such interpretations must be discarded, because we know that crises play an integral part in the contradictory dynamic of the expanded reproduction of capital.

 

Let us be a bit provocative. Many a heterodoxy emerges stronger as soon as it comes close to Marx. This is so in the case of Keynes (Nakatani and Herrera 2010). In his criticism of the neoclassical economists, Keynes has drawn part of his ideas from theoretical sources common with Marx. Both of them reject Say's law. In one sense, Keynes returns to the theory of labour value, obviously without emphasising it or even mentioning exploitation. In his Treatise on Money (1930), Keynes takes up the "reproduction schemes" of volume II of Capital (Marx 1964) ­ probably without being aware of it, because he did not really read Marx, but he knew the Russian Tugan-Baranovski's work on The Industrial Crises in Contemporary England ­ in order to tackle the problem of the crisis from the monetary angle, following the business cycle theories of that period (and therefore in a different way from Marx), concluding that it was insufficient investment (and not savings) that gave rise to the crisis.

 

Like Marx, Keynes saw capitalism as ending in collapse for reasons that were inherent in the system. Looking at it closely, the ultimate cause of the crisis for Keynes was close to the Marxian interpretation. En dernière instance, the crisis was to be explained not so much by the insufficiency of investment ­ due to a reduction in the marginal efficiency of capital, which is itself linked to the obsolescence of capital and possibly accentuated by the rise in the interest rate ­ as by capitalist competition, what Marx calls the internal contradictions of capitalism. Moreover, the definition of profit used by Keynes is closer to that of Marx than to that of the neoclassical theorists. According to Keynes, if profits diminish, lowered expectations will reduce investment ­ Kalecki is right in correcting this, when he says that expectations reduce investment plans (Osiatynski 1991). Thus, this will put the economy into crisis, characterised by unemployment equilibrium, and without spontaneous structural adjustments by the markets.

 

It is therefore necessary to go beyond enquiring into the question of sharing out the added value between wages and profits, as is done by most of the Keynesians.

 

The current crisis was bound to happen and there have been some Marxist thinkers who maintained that the devalorisation of capital was inescapable and that it would be brutal and on a large scale (Herrera 2007). Basically this crisis could be interpreted in Marxist terms as a crisis of over-accumulation of capital that ensues from the very anarchy of production, and leading to a pressure on the tendency for the rate of profit to fall when countering tendencies ­ including the new ones, linked to new financial instruments, as we shall see ­ have dried up. This over-accumulation manifests itself through an excess of saleable production, not because there are not enough people who need or desire to consume, but because the concentration of wealth tends to prevent an increasingly large proportion of the population from being able to buy the merchandise. However, instead of it being a question of a standard overproduction of goods, the expansion of the credit system makes it possible for capital to accumulate in moneycapital which can take forms that are increasingly abstract, unreal, and "fictitious".

 

The concept of "fictitious capital" is important in analysing the crisis (Carcanholo and Nakatani 1999; Nakatani and Herrera 2009). Its basic principle, which is the capitalisation of revenue based on future surplus value, as well as its various forms, like banking capital, stock transactions or public debts, were identified by Marx (1964) in his time. He sketched out the study of this, along with studies of interest-bearing capital and the development of the capitalist credit system, in Section 5 of Volume III of Capital, particularly from Chapter XXV onwards and, above all, in Chapter XXIX about the "components of banking capital" up to Chapter XXXIII.

 

The ideas were incomplete ­ and they remain so still, in spite of the work of important writers (see, among others, Harvey 1982). Obviously, things have greatly changed since the times of Marx. Money has changed form, becoming even more immaterial; the exchange markets have immeasurably expanded since the system has no longer been tied to the gold standard. Nevertheless, Marx left us key elements that are still useful in comprehending the fictitious movements of capital, which integrate the credit system and monetary capital. Analysis of these leads to that of "expanded reproduction", together with the exorbitant development of ever more unreal forms of capital, as sources of autonomous valuation that appear to be more and more separate from surplus value or appropriated without labour, as though "by magic". Marx (1964) talks here of capital functioning as an "automat" ­ one could call it an "autocrat", as Marx, elsewhere, called the state machinery.

 

Fictitious capital is above all formed in the credit system, which links capitalist enterprise to the capitalist state. At this intersection there are the stock exchanges, the banks, the pension funds, but also the speculative hedge funds that are situated in the tax havens, and other similar bodies. More precisely, the most favoured vehicles of fictitious capital these days are securitisation, which transforms assets (e g, receivable claims) into financial securities, and the trade in derivatives, which are "supreme powers" of fictitious capital.

 

Nevertheless, there are problems over here ­ both theoretical and practical, multiple and delicate. Among the theoretical problems, there are, for instance, how to distinguish the different sources of fictitious capital according to their support from the sphere of the real economy or their detachment from it, or the question of how to show that the profits from fictitious capital are also real, or even how to show that these "fictitious profits" (which are also real) stem from a countertendency to the reduction in the rates of profit in the real economy. In addition, there are also empirical problems, for instance, those about how to demonstrate the origin of fictitious profits, or how to recalculate the rates of profit and to know to what extent fictitious capital plays a part in rectifying the rates of profit, or how to divide the surplus value between the different capitalist fractions? Fictitious capital is by its nature complex, dialectic, and at the same time both unreal and real. Its nature is partly parasitical, but this kind of capital benefits from a distribution of surplus value ­ its liquidity gives its owner the power to convert it, without loss of capital, into money, i e, into "liquidity par excellence". So this capital nourishes an accumulation of additional fictitious capital, as a way of remunerating itself (Carcanholo and Nakatani 1999). In a more general way, one of the most serious problems of this subject is the virtual impossibility of formalising it ­ whether or not one is a Marxist economist ­ without being obliged to separate the "real" and "financial" spheres. And this is not very satisfactory ­ even if it is true that capital in the form of goods and in the form of money must be separated only to become finally inseparable. Let us return to the origins of the crisis.

 

 

The crisis that broke out in the subprime section of the US housing market had been preceded by decades of overaccumulation of fictitious capital. Thus, one must understand this crisis within the context of a long period of worsening dysfunction in the regulation mechanisms of the world system under the hegemony of the US, at least since the over-accumulation of money-capital in the 1960s, linked to internal and external deficits of the US (caused partially by the Vietnam war), to the untenable strains on the dollar and to the proliferation of euro-dollars, then petrodollars, on the inter-bank markets.

 

In this process, certain events played a fundamental role, among them, the dismantling of the Bretton Woods agreements because of the US decision, in 1971-73, to abandon the convertibility of the dollar into gold and to demonetise gold ­ hence dismantling the system of the gold standard under Nixon (and Paul Volker, now adviser to President Obama) and to introduce flexibility in exchange rates at a worldwide scale (Herrera and Nakatani 2008). This was the cause of the huge waves of deregulation of the monetary and financial markets that started at the end of the 1970s, especially with the "liberalisation" of the rates of exchange and rates of interest. The debt crisis of the countries of the South stems from the rise in the rates of interest of the Federal Reserve Bank (the Fed) in 1979 and from the "financial coup d'état" through which high finance, essentially that of the US, re-established its power over the world economy. This means that the deep origins of the current systemic crisis lay in all these processes of deregulation ­ and then re-regulation by the financial oligopolies ­ and the integration of the financial markets into a globalised market, which displaced the centre of gravity of world power towards high finance, thus enabling it to impose its diktats on the capitalist world system.

 

In this new "neoliberal" era, the financial markets have been modernised, particularly through the expansion of hedging instruments. These instruments have been made necessary by the flexibility in exchange rates and interest rates in markets that have been progressively integrated. We are talking here about the so-called derivatives, that is to say, new contracts supporting transactions, whether firm ­ with fixed terms (futures), with terms made by mutual agreement (forwards), or by exchange flows (swaps) ­ or optional ­ fixing future financial flows as a function of the variations in price of the underlying assets, which could be a rate of exchange, a rate of interest, the prices of shares or raw materials, or a future probabilistic event. All these are technically "hedge" instruments, but in fact they more often serve as speculation strategies, playing on the "leverage effect" by taking a risk based on a limited investment, above all when they are hybrid and lead to "short sells" (without offset), where the most risky operations can, in theory, bring about mathematically infinite losses (e g, on "put" options).

 

As a result, the amounts corresponding to the creation of this fictitious capital have very quickly and broadly overtaken those destined to reproduce productive capital. As an example, in 2006, the annual value of world exports was equal to three days of trade in over-the-counter contracts (OTC), i e, "off-exchanges" negotiated by mutual agreement without intermediaries, therefore outside the stock exchanges, with approximately $4,200 billion traded per day. What does this value mean? It tells us nothing any more, but these $4.2 trillion are traded by a very restricted number of financial oligopolies, the "primary dealers" referred to by the Fed as the "G15" ­ Morgan Stanley, Goldman Sachs and 13 others. It is, above all, those that are called credit derivatives, with their very complex arrangements of credit default swaps (CDS) or collateralised debt obligations (CDO), which have created problems by completely changing the traditional vision of credit and bringing into play several degrees of fictitious capital ­ of the CDOs of CDO, or CDO to the power of two. These are problems from which we have not yet extricated ourselves, because one of the most recent innovations of finance has been the CDO of CDO2, which means CDO to the power of three. For sure, these are traded outside the stock exchanges, not recorded on balance sheets, and created with almost no precautionary restrictions.

 

However, it is important to understand the current crisis also, and above all, in terms of the interactions between the financial and real economy spheres. The contradictions that this crisis has revealed have long-term roots in the exhaustion of the motors of economic expansion after second world war, which has led to these profound financial transformations. In the sphere of the real economy, the forms of extraction of surplus value and the organisation of production had reached their limits; they had to be replaced by new methods (of the Kanban type, for example) and given new dynamism by technological progress (information technology, robotics, etc), which has upset the social bases of production, particularly by substituting capital for labour. After a long over-accumulation, concentrated increasingly in the financial sphere in the form of money-capital, excess supply has accentuated the pressures lowering the rate of profit, something that has been observed since the end of the 1960s.

 

In its (fictive) efforts to resolve this problem, the Fed in the US, influenced by monetarist policies, had unilaterally increased its interest rates at the end of the 1970s (October 1979), which marked the beginning of the so-called "neoliberal" era ­ this term has no meaning unless it is given class content and attached to the power of the oligopolies of modern high finance.

 

Certain important factors of the crisis are clearly "real" and linked to austerity: the subprime crisis, which has caused many poor families to find themselves defaulting on their mortgages, is also explained by the neo-liberal policies which have been followed for more than 30 years and pursued implacably, and which have destroyed wages, made jobs flexible, massively increased unemployment and reduced standards of living. They are policies which have shattered demand, and set in motion mechanisms that have rendered demand artificial and unsustainable.

 

The neo-liberal regime has thus been unable to maintain growth except by doping to death the demand of private consumption while promoting lines of credit to the maximum. It is this exorbitant expansion of credit that has ended by revealing the crisis of over-accumulation in its current form. In a society where increasingly large numbers of individuals are being excluded and without rights, the expansion of outlets offered to the principal owners of capital can only delay the devaluation of the excess capital placed on the financial markets, but it can certainly not avoid it.

 

The crisis has been caused by the logic of the dynamics that lie at the heart of the US economy with, on the one hand, a rebalancing of the internal and external imbalances created by the draining off of foreign durable capital ­ which can be seen as an operation by the dominant US classes, tapping the wealth of the rest of the world ­ and, on the other hand, the greatest concentration of wealth within the US that has been seen for a century. This can be shown by some statistics: out of total revenues, the proportion of income monopolised by the wealthiest 1% was 10% 30 years ago; it is now 25%. The share of the wealthiest 10% was one-third of the total revenues in 1979; by 2009 it had risen to a half. The tremendous growth of the financial profits ­ from fictitious capital ­ of the dominant classes hugely deformed the economy of the US taken as a whole, particularly the rate of savings which had become negative just before the crisis. Hence, via the sphere of the real economy, we are experiencing the present catastrophe. How does this catastrophe manifest itself?

 

 

The first manifestation of the crisis was a brutal destruction of fictitious capital. In 2008, the total capitalisation of the world stock exchanges dropped from $48.3 trillion to $26.1 trillion! This descending spiral in the value of assets was accompanied by a loss of confidence and a situation of illiquidity on the inter-bank market in a world which was overliquid ­ the most probable explanation being the insolvency of numerous banks.

 

As a consequence, in a context in which the prices of composite derivatives and the risks which they carried were increasingly badly assessed ­ because assessment was impossible (and not to speak of the aberrant behaviour of the rating agencies like Moody's, for example), the problems moved from the subprime housing sector to that of credits of credits (that is to say from fictitious capital of the first degree to fictitious capital of the second degree), then towards solvent loans (the primes), before the bursting of the bubble of the instruments linked to the housing mortgages contaminated the other sectors of the financial markets, and from there, the money market itself. Thus, the whole financial system of the economy became blocked. The devalorisation of capital had a real dimension through the credit crunch and the disappearance of credit, particularly of loans for consumption. Therefore, the economies entered into depression with this conjuncture from 2007 onwards, but also, for structural reasons, in a world where the peak had been reached for certain strategic natural resources, with oil being in the forefront, and where the search for new sources of energy poses objective limits to growth ­ giving rise to pressures to go to war. As a result, the economic indicators have been affected ­ decline in the rate of growth, in trade and in household consumption, unemployment, losses in industrial companies, in housing, savings, etc.

 

A very worrying aspect of this crisis, finally, is the indebtedness of the public authorities, particularly the states that have partially "nationalised" the private debt, and the consequence difficulties in public finances, including those of local governments, particularly as regards social budgets (education, health, pensions, etc). All this has led to the restructuring (through repurchasing and regrouping) of sovereign debts that is currently being discussed.

 

Crisis and war are very closely linked (Herrera 2010a). First because war is integrated into the cycle, economically, as an extreme form of the destruction of capital, but also politically, for reproducing the maintenance of control by the leading segments of the dominant classes ­ high finance ­ over the world system.

 

During the cold war, the growth of the productive forces was partly stimulated in the US by military spending and the military-industrial complex, through the arms race and related technical advances (IT systems, robots controlled by computers, internet, and so on). Nowadays, military expenditure remains high, with a fifth of the US federal budget, more than half the world's defence expenditures, and over 1,000 military bases worldwide, and the military-industrial complex continues to play a key role, although from now on under the control of financial oligopolies. The ascendancy of high finance over the US armament companies is growing and this can be seen by the taking over of the ownership structure of their capital by institutional investors which are themselves dependent on the great financial oligopolies. At the beginning of the 2000s, this proportion reached 95% of the capital of Lockheed Martin, 75% of that of General Dynamics, 65% of Boeing, etc. It is the same thing for the private military companies; an increasingly large number of them have passed under the control of high finance as the State "externalises" its defence activities. MPRI has been bought up by L-3 Communications, Vinnell by Carlyle, DynCorp by Veritas, and so on.

 

Military expenditure has become a major source of profit for capital in a context in which the use of armed forces is the strategy imposed on the world by US high finance as a condition for its reproduction, in which militarisation is a mode of existence for capitalism, and in which the role of the (neo-liberal) State is fundamental for capital. This is so because it is indeed the State that goes to war on behalf of capital and it is the governmental agencies that allocate astronomical amounts of military contracts to the transnational armament companies (e g, General Electric, ITT, etc), via their lobbying.

 

Moreover, it is significant that the wars of Afghanistan and Iraq were launched at a very specific time. Concerning Afghanistan, the year 2001 was already a time of crisis ­ just as 1913 and 1938 were crisis years. It was a crisis that emerged just as changes were taking place in US monetary policy, following the worsening of the country's internal and external imbalances ­ the first because of the need for financing linked partially to these wars; the second being due in part to outsourcing, above all to China. Thus, following the slowing down of economic growth in 2000, the Fed greatly reduced its interest rate: from 6.50% in December 2000 to 1.75% in December 2001, then to 1.00% in mid-2003, and it was kept at this very low level until mid-2004. It was precisely at this time, when real interest rates had become negative, that the mechanisms of the subprime crisis were set up, with increasing risk-taking, especially in the housing sector. Then because of the increased pressure caused by the war effort, the Fed ­ among other decisions, but significantly ­ had to raise the interest rate again, from mid-2004 (that is, a year after the beginning of the Iraq war) to 5.25% in mid-2006. And, shortly after this, from the end of 2006, there was a flood of defaults by debtors on their mortgage payments ­ their numbers increasing because of the contraction in growth and the stagnation in wages.

 

The Federal Reserve maintained this rather high rate of interest, above 5%, until mid-2007, although the signs of the crisis were already apparent. It was only from August 2007, therefore very late, that the Fed started giving the banks huge quantities of credit at reduced rates, gift rates, close to zero ­ without, however, averting new financial panics (i e, "modern panics": cries no longer coming from financial traders but from IT mice). Thus, the crisis exploded when a critical mass of debtors had difficulties in repaying their loans. This was the case at the end of 2006, after the Fed had raised its interest rates to attract capital for financing the military budgets that had been inflated by the new imperialist wars. All this, without there being a military victory by the US, nor a revival of accumulation through the destruction brought about by these wars. And the pursuit of the latter is exacerbating the deep capitalist contradictions still further.

 

 

First of all, in a highly uncertain environment, the massive creation of money and the fixing of interest rates just above zero, together with massive fiscal deficits (with a budgetary deficit corresponding to nearly 10% of the gross domestic product of the US) and a disproportionate increase of the public debt, all this has brought about a depreciation of the dollar and a "currency war".

 

It is a currency war that has for the time being been won by the dollar (but for how long?), for the fundamental reason that the US has at its disposal an extraordinary weapon of "mass destruction" ­ its central bank can create limitless amounts of money which is accepted by other countries because the dollar remains the world's reserve currency. This enables the US to impose on the rest of the world the terms of a capitulation that obliges these countries to pursue neo-liberal policies, as well as supporting the dollar's rate of exchange that best suits the strategy of US domination ­ even if this entails a considerable depreciation of the currency reserves held by the monetary authorities of other countries, like China.

 

The US thinks that a depreciated dollar will reabsorb its trade deficit and stimulate internal production. This is incorrect, for we have been seeing for years that these variables react very little, indeed less and less, to the lowering of the dollar value. One of the results is very weak economic growth ­ almost stagnation ­ in the US. It will be said that the GDP growth of the neo-liberal regime was already feeble. This is true, indeed, but the situation has worsened because the causes are now due to problems of the whole system of financing the US economy.

 

Another related upheaval is also taking place in the raw materials markets, particularly in oil, against a background of the exhaustion of world energy reserves, which is provoking the current rise in prices.

 

As we know, the worst consequences of the real effects of the current crisis are borne by the poorest of the popular classes. This is creating enormous damage, including in the US, which is still the top economy in the world in terms of GDP, but displaying relatively bad social indicators compared with the other rich countries of the North, including those for life expectancy, infant mortality, the right to health, and even education.

 

In the North, the damage also includes a generalised mal vivre or "bad-being", particularly at work (for those who have it), including the phenomenon of individuals having psychological breakdowns to the point of suicides as has been observed by many industrial health specialists. We are referring here to the combined effects of the threat of unemployment and the methods of individual evaluation, causing competition among workers within the same production unit, thus breaking the ties of respect, loyalty, solidarity and conviviality. Hence the distrust among workers, surveillance, auto-control and fear at work ­ in worlds where the collective spaces for thinking and acting together are being reduced. Pathologies of loneliness have appeared, accompanied by feelings of moral betrayal of oneself, an awareness of the lies about total quality and certification by the market, the losses of moral frames of reference, of the sense of responsibility and of the need to regain the means for transforming work relationships. These depressions are no longer economic but psychological, no longer social but individual ­ even on the frontiers of psychoanalysis.

 

Finally, on the political level, we think we do not really need to emphasise the risks of the rise of the extreme right, in their diverse variants ­ from a religious spectre to a neo-fascist one, via the drift of the "traditional" right.

 

None of this, unfortunately, excludes the risk of new wars.

 

First, there is the increase of transfers from the South towards the North, through the different channels that we know: repatriation of profits from foreign direct investments or portfolio investments, repayment of external debt, transformation of official reserves in credits (immediately grated to the US), unequal exchange, but also flights of capital, etc. These transfers towards the North are going to have to accelerate in the future to try to finance the rescue of the central capitalist system ­ knowing that US hegemony has at its disposal the key currency of the international monetary system and the military arsenal that goes with it to impose this haemorrhage of capital from the rest of the world. The US has, up until now, been able to impose it on everyone, from its imperialist partners of the North to its potential rivals of the South (especially China) ­ but for how much longer?

 

It should be emphasised that the effects of the crisis vary according to the characteristics of the economies of the South and the degree of their integration into the capitalist world system. Some countries are effectively excluded from this system and drowning in destitution or poverty traps that the current crisis does not seem to be affecting them. But it will affect all of them, whether they are "emerging" or not.

 

The agricultural sector plays a preponderant role in most of these economies. Nevertheless, the dysfunction and paradoxes of this sector are extremely serious: three billion people on the planet are suffering from hunger or food deficiencies, while agricultural production greatly (by at least 50%) exceeds food needs. This reveals that there is a crisis of overproduction there too, on the agricultural markets. And three-quarters of these people are peasants. Besides, the extension of lands being put under cultivation at the world level is often accompanied by a reduction of peasant populations vis-à-vis those of the cities, which are absorbing the massive rural exodus. An increasing proportion of land is being cultivated by the transnationals, which no longer aim at producing for consumption but for industrial or energy outlets (e g, biofuels). In most of the countries of the South that are excluded from the benefits of "globalisation", a relative dynamism in agricultural exports from commercially grown crops coexists with the importation of basic food products.

 

Here, we would even suggest interpreting the events that are currently shaking the Arab-Muslim world ­ without, of course, underestimating their complexity and their diversity ­ as being related to a capitalism that has destroyed their structures over a long period as well as to the neo-liberal form of this capitalism that has created, under the cover of so-called "good governance" (Herrera 2004), the basis for the current social explosion ­ particularly via the precipitous rise in the prices of food products.

 

Fundamentally, and quite apart from that, it would seem that the conditions are combining so that a major consequence of the crisis could be the deepening of the North-South confrontation ­ in spite of the co-optation of the G-20. The NorthSouth confrontation is taking place in a world where the levels of contradictions are becoming more and more complex: between the ruling classes and the classes they dominate; between the different ruling classes that control the state; between the countries of the South themselves, but with a predominance at the moment of the contradictions between ruling classes, together with the rise of the "emerging" countries.

 

Internally the path chosen by a large majority of these ruling classes in the South is that of capitalism, or one of its variants. However, not only is there no way out by this path ­ because the resolving of the contradictions produced by the capitalist system is absolutely impossible in the South ­ but it also leads them into conflict with the imperialist powers of the North. As a consequence, one of the risks weighing on the current popular struggles in the South is to see their resistance taken over, neutralised and transformed into pro-systemic forces by the ruling classes, while these ruling classes in the South, above all those which have the most consistent and rational development strategy (as in China, especially) will probably not make progress without internal transformations that would change the power relations in favour of the popular classes. That is certainly valid for Latin America ­ for Bolivarian and Venezuela, for example (Herrera 2010c).

 

 

The first anti-crisis policies consisted of coordinating the actions of the central banks to inject liquidity into the inter-banking market by creating primary money, by offering lines of special credit to the primary-leader banks, and by reducing interest rates.

 

The main aim was to avoid the total collapse of the system ­ and also to limit the devalorisation of fictitious capital by braking the fall of the markets, particularly so that the derivatives were paid at more or less their face values. However, this in no way resolved the profound contradictions of the system.

 

A turning point was, as we know, the non-intervention of the US monetary authorities ­ as neo-liberalism requires ­ when Lehman Brothers failed in mid-September 2008. From all evidence, there has been no assessment of the implications of this failure to act, in terms of the exacerbated risk of destabilising the whole system, including through state indebtedness. Hence, in a few hours, there was a complete 180 degree turnaround of the Treasury and the central bank in the US: a number of financial institutions in danger (like AIG, the insurance company) were nationalised, usually without the right to vote and no new criteria for control; short sells were temporarily suspended in Great Britain, then in the US; the Fed opened lines of credit to the primary dealers in special conditions, with almost zero rate of interest; the State helped these institutions in organising the takeover of bankrupt groups and re-capitalising them. In other words, the State strongly supported the hyper-centralisation of power of the financial oligopolies over the ownership structures of capital which became increasingly concentrated: Lehman Brothers was taken over by Citigroup, Merrill Lynch by the Bank of America, Washington Mutual Savings Bank by Morgan, etc. A "defeasance" fund for "bad banks" was created so that the state guaranteed "toxic" securities; and, crucially, in October 2008 the Fed extended its organisation of swap lines or "temporary reciprocal arrangements on currency" for the central banks in the North and the large countries of the South, rendering them almost "unlimited".

 

Then there were the two Paulson plans, and those for the general support of the US economy (including the ones for General Motors and others, without preventing massive layoffs) with, along the way, the recapitalisation of the Fed, which was at the end of its resources. Finally, at the beginning of 2011, the president of the Federal Reserve warned the US Treasury (and Congress) that the Fed would not continue to finance public deficits, that there had to be a return to greater rigour, and that the rates of interest had to be increased. However, a rise in the interest rate entailed two major repercussions: for the US, the burden of public debt became still heavier, and, for the rest of the world, capital flows would return to finance the US deficits, enabling the country to continue to live once again beyond its means. All this was happening under the eyes of the general public who realised that not only had the State turned against the provision of public services, but that they themselves would be made to pay for the rescue of the high finance which controlled the State.

 

In light of all this, a small but significant minority among dominant currents of thought continue to become more and more radical in their support of the ultra-neo-liberal theses inspired by von Hayek, von Mises or Rothbard. Their analyses of the crisis (for example by Rockwell and Rozeff from the von Mises Institute) are based on a reaffirmed faith in the automatic character of market re-equilibrium. Clearly this is annoying for the neo-liberals, insofar as these ultra-liberals defend the idea that the crisis came about from an excess of interventionism and that the state ought not to have saved the banks and companies in difficulty. What needs to be done, according to them, is to put an end to state regulations that limit the freedom of agents on the markets. As an example, while the proponents of public housing policies claimed that all citizens could aspire to house ownership, the markets (which themselves are not "populist") have demonstrated that this is not so. These ultra-liberals are therefore against any anti-crisis plan, and, in particular, against any regulation of interest rates by the central bank.

 

The most extreme among them go so far as to call for the suppression, pure and simple, of state institutions ­ including the army ­ as well as a privatisation of the currency. Of course they are aware that these measures would push capitalism towards chaos, but they think that, thanks to the market mechanism, such chaos would benefit capital and that capitalism would reconstitute itself faster and better than through state interventions in the form of artificial public assistance to enterprises that in any case were doomed to fail.

 

What about the reformist positions? The gravity of the situation of crisis has favoured a return to the theses of Keynes. Today, more than ever before, Keynes would be the flavour of the month, said Paul Krugman (2009), who is himself a neoclassical economist! In fact, even if they oppose the traditional neoclassical theses about state interventions, neo-Keynesian interpretations come from the same theoretical matrix which we would call "bourgeois". For the most advanced among them, in spite of nuances, variants and subtleties, their visions are hardly "reformist" since they consist of introducing minimal changes in the functioning of capitalism in order that it can survive as long as possible.

 

The report of the Stiglitz Commission is a good illustration. Its final document, drawn up in 2009 at the request of the president of the United Nations General Assembly, does not question the bases of the dominant ideology. The old neo-liberal certainties have only to be revised, not to be abandoned: exchange rates should be flexible; the virtues of free trade are reaffirmed as against the "dangers of protectionism"; the defects of corporate governance should be corrected, but the management of risks continues to be entrusted to the financial oligopolies and the regulation of the world system remains under the hegemony of the US dollar.

 

We are a long way from the rejection of globalised financial liberalisation as expressed by an increasing number of countries of the South ­ not without strong contradictions, it is true ­ from the People's Republic of China to Bolivarian Venezuela (Herrera and Nakatani 2008).

 

Let's be clear: the anti-crisis policies are not Keynesian. While "Keynesian" measures are perceptible ­ including in the George W Bush plan of 2008, for example (with its handover of part of the taxes), and above all with the programme of President Barack H Obama (with works of infrastructure, etc) ­ priority is clearly given to neo-liberalism to save as much as possible of the over-accumulated fictitious capital. The emergency conversion of plans to rescue capital by state intervention, organised in an extremely anti-democratic way by the governments of the North, should not deceive us. The anti-crisis policies and their initiators have not extricated themselves from orthodox neo-liberal dogmas.

 

The Fed and the other central banks of the North continue to create primary currency on a massive scale, only just recently again, with quantitative easing too. Nevertheless, this monetary policy, which is apparently "Keynesian", has in fact fallen into the "liquidity trap", where the strategy of lowering the rate of real interest has shown that it is incapable of increasing the marginal effectiveness of capital and of transferring moneycapital from the financial sphere into the productive one. Hence the current concern in the US since the beginning of 2011 about the indebtedness of the Treasury, the federal State, and the federated states and local authorities. The president of the Fed, Ben Bernanke, recently warned the secretary of the Treasury, Timothy Geithner, and the US Congress that the hour has come for tightening the plans for budgetary adjustment. In fact, what must be done is the exact opposite of what Keynes recommended. And to "clean the house" means to reabsorb the deficit by increasing taxes and reducing expenses by lowering the number of civil servants and their salaries, thus putting the burden on to the workers, including measures on health, pensions, etc. The same thing applies for us in Europe. So, in reality, there is no return to "Keynesian" policies, either in the US or in Europe. The dominating concept of the state remains that of a neo-liberal state at the service of capital, particularly for the credit system. And even if there were to be ­ which is highly unlikely ­ a "return to Keynes", it would come up against several problems.

 

First, there would be theoretical problems. There is no "general theory" of Keynes on crisis. There are many theoretical elements scattered here and there, but partial, and sometimes contradictory, which have often given rise to confusion and misunderstanding among some observers or his own disciples ­ beginning with the complex concept of "effective demand", which has to be understood to be "supply" at the anticipated value of sales (Lavoie 1985). Keynes tried hard to find a strategy for getting over the crisis in order to save capitalism, by discovering the secret of a "capitalism without crisis", i e, a capitalism that was regulated, in which the solution was the creation of an effective demand through an exogenous factor, the state, whose intervention could, in the contraction phases of cycles, minimise the impact of crises. He had understood, like others, notably Schumpeter (1951) that the course of history was moving towards an overtaking of capitalism. However, his theory ran up against difficulties in treating money in general, and the financial system in particular.

 

These limitations of Keynes in understanding the crisis ­ limited when compared to Marx ­ were perceived and stated by certain lucid, honest Keynesians, like the brilliant Joan Robinson, who wrote that Keynesian theory elaborated a number of refinements and complications overlooked by Marx, but that the essential can be found in the analysis of Marx on investment as "a purchase without sale" and savings as "a sale without a purchase" (Robinson 1966). Keynes then retorted to Joan Robinson, who had tried to reconcile him with Marx in an essay published in 1942, that there was no point in wanting to give sense to what has no sense (Harrod 1951).

 

Nevertheless, it is above all the fundamental quality of money functioning as capital, which was analysed by Marx, that was not developed (or even clear) in Keynes' work ­ and surely even less so in the orthodoxy's quantitative theory.

 

Keynes' limited analysis of the system of credit, and his lack of differentiation between state money and credit money, logically ­ but improperly ­ led him to attribute too much importance to money (Keynes 1930, 1971, 1987; Vilar 1974), above all giving excessive responsibility to the State in setting rates of interest. According to him (2006), the central bank pushes the rate of interest down thanks to the growth in the supply of money, through the creation of primary money, in order to stimulate investment in assets in which the marginal effectiveness of capital is higher; and this until such a time when the "shocking aspects" of capitalism, as he calls them, disappear (unemployment, inequalities, etc). Now, as we know, the monetary policy implemented by the central banks, whose objectives are the stabilisation of money and the fight against inflation, has completely reversed the process by which the rate of interest is determined by the market. They use the rate of interest as the main instrument, with its financial and real effects on the whole economy. Besides, we know that the rate of interest of the central bank is above all influenced by the rates fixed by the greatest financial oligopolies on each segment of the markets (of derivatives, especially) over which they have a dominant position.

 

Hence the problems, or the political illusions, transmitted by Keynes' conception of the state: the Keynesian belief in the all-powerful capacity of the state, which is very different from Marx. For, in spite of the limitations of the Marxian theory of the state, even in this field, he is superior to Keynes (Nakatani and Herrera 2010). At what point are we today? Is the state not sustained by capital, through the public debt, for example? Is the creation of money not essentially of private origin? Do the Fed's rates of interest not depend greatly upon those fixed by the financial oligopolies? Is the Fed itself not largely infiltrated by the private interests of these oligopolies? Does the state not allocate military contracts to those transnationals that are controlled by high finance? Is the neo-liberal state all the more active because it is subjugated by high finance? In sum, the Keynesian state is a fiction! And its "reformism" can only spread illusions and false hopes. So, what are the alternatives?

 

There is a very high probability that the present crisis will become more acute as a systemic crisis of capital, since all the conditions are there for that to happen. Finance recently invented the CDO of CDO of CDO or CDO3 ­ but this game of cubes will collapse. The measuring unit here is the trillion (1012) dollar. Something will burst before we get to the peta-dollar Capitalism is in danger, including at the centre of the system. You will say that there have been other capitalist crises, many of them, and that the system has always come out of them stronger than ever, more monstrous, and more monstrously concentrated. Yes, that is true ­ there have even been pre-capitalist crises. We are not about to announce the end of the world (in 2012?). It is an illusion, yet another ­ perhaps due to impatience ­ to believe that capitalism is going to collapse from the effects of the current crisis: the monster is going to survive, and will continue to kill.

 

Over the course of history, especially during the Great Depression of the 1930s, capital has known how to create institutions and instruments of public intervention, essentially linked to the policies of the central banks that have made it possible to "manage" the crises to some extent, and to cushion its most destructive effects ­ at least in the North, at the centre of the capitalist world system. However, these reorganisations of the domination of capital have never overcome its contradictions. We are therefore going to suffer for a long time yet the evils of ageing capitalism ­ and, in the South, the "silent genocide of the poorest" for which it is responsible.

 

The present situation does not resemble the beginning of the end of the crisis, but the beginning of a process of a long period of collapse of the present phase of capitalism, which is oligopolistic and financialised. And this process of collapse opens up great possibilities for a transition, in which the class struggle will become tougher and more complex. This will force us to reconsider the alternatives of post-capitalist social transformation, which more and more of us, in spite of our differences, hope to be socialist (if not something more).

 

Now, if the structural problem is indeed that of downward pressure on the rate of profit, and if financialisation is not a sustainable solution, the only thing that this system will offer, until it is in its death agony, is the worsening exploitation of labour. Fictitious capital demands to be remunerated and it obtains this by transferring the surplus of productive capital and by a constant pressure to increase the exploitation of the labour force. To be able to relaunch a cycle of expansion at the centre of the world system, the crisis that we are currently experiencing must destroy the absolutely gigantic amounts of fictitious capital, most of it parasitical. But the contradictions of the world system have now become so deep and so difficult to resolve that such devaluation will risk pushing it towards collapse.

 

There are some orthodox thinkers who also believe that the present crisis will lead to the collapse of capitalism, like, for example, the analysts at the Global Europe Anticipation Bulletin, whose predictions about the worsening of the situation lead to the total geopolitical dislocation of the system, the collapse of the US dollar, the disappearances of the bases of the globalised financial system. Then there are those of Money & Markets in the US, who foresee the forthcoming deepening of the crisis in a much more traditional sequence: the hollowing out of the fiscal deficit, the swelling public debt, insufficient defence of the dollar by the monetary authorities, etc.

 

For us, therefore, it is time to reconstruct alternatives and radical proposals ­ on the left. And among the most difficult questions to deal with are those concerning money and finance. These questions relate to the external component of monetary policy (the exchange systems) as well as the internal component of this policy (should there be political control of the central bank?). Other questions relate to the financing of the economy (how to regulate the financial oligopolies or, better still, how to nationalise and control them democratically?); to the control of foreign capital, together with the balance of payments; to common strategies on the external debt; to those about building alternative regionalisations (with continental nationalisations, to break with the logic of the system and respond to the social needs of people ­ which should in fact be the main objective of the science of economics). Finally, there are questions about new forms of planning in the socialist transitions now under way or to come ­ from the theoretical viewpoint (going as far as suppressing money?), but above all involving the democratic participation of the people in all the processes of decision concerning their collective future.

 

It is true the difficulties that lie before us are extremely serious, but ­ we have no choice ­ we must not lose hope!

 

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Remy Herrera ( remyherrera@aol.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it ) is a researcher at the Centre National de la Recherche Scientifi que (National Centre of Scientifi c Research), Centre d’Économie de la Sorbonne (UMR 8174), Université de , Paris, France.