Ben Bernanke und Das Kapital

Well Ben Bernanke is a blogger. Some sort of central bank eulogy it seems. He is defending the thesis that yield depression in developed economies is not a consequence of central bankers’ will. There are supposedly structural reasons, which the great master has promised us to unravel in the next episodes.

While we obviously agree about the thesis, the framework proposed, invoking Wicksellian arguments of natural rates of interest linked to growth seems misguided. The contemporary obsession with an accounting perspective of capital seems a great impediment for the proper understanding the contemporary world. We must seek a deeper definition of capital to move forward.

From a social perspective, the nature of capital is straightforward: it is the phenomenon of expropriation of labor from a fraction of its outcome. Either by taxation, tariffs, rent or profit. We are not interested here in the reasons and manifestations of this exploitation. Rather we want to note that the potential exploitation is not arbitrary: by competition between enterprises in the goods and services markets, by competition in the labor market, by competition in the real estate market, by competition in the vote “market”, exploitation is limited. Frankly, it is quite stable over time: from time to time (decades) bargaining power shifts from one side to another, but on the long run there seems to be some equilibrium level.  

On the other hand, the total amount of wealth accounted for in mark-to-market basis seems unbounded. How is it possible? Temporarily such a divergence can be justified by ongoing indebtedness of households or governments. Postpone exploitation to the future! There are limits to it: on the private sector, at some point there will not be any creditworthy borrower with solid collateral. This is what has happened in 2008. Some critical threshold of household indebtedness was crossed. On the public sector, it is obvious to anyone that apart from a peculiar country in South America, no democracy is capable of providing consistent primary surplus to exert the exploitation by means of taxation. One can advocate zero primary deficits, but a surplus? The tentative experience to substitute household indebtedness by massive public deficits after 2008 was definitely aborted with the emergence of Euro crisis. The political reasons are somewhat opaque but no one can deny that there is no propensity in the world to endure large fiscal deficits. The worst outcome from the point of view of capital: no large deficits, nor primary surplus. Just the inability of governments to use their immense power in the interests of capital.

Markets have finally tried the ultimate bet: let us exploit emerging markets! Impressive amounts of capital flew into emerging economies following 2010, far more than any one of them had the ability to absorb. The result was a universal credit boom in emerging economies that defeated the original purpose: now even a greater amount of claims for wealth seeking labor exploitation. Even worse, the artificial growth provided by the liquidity has turned bargaining power to labor, not to capital. So much lesser exploitation capacity there.

The final blow on capital occurred with the collapse of oil prices, which represents some marginal form of exploitation. Therefore, in mid 14 reality imposed itself. There were two possibilities: either a significant write down in the claims of wealth or the annihilation of yields on capital. Central bankers had given their answer long ago: they would do whatever it takes to prevent the write-down. Hundreds of trillions of marked-to-market worth of accounting wealth would have to satiate itself with the existing exploitive capacity. This is an ongoing process. It has started with high-grade bonds but it will inevitably expand its horizons to every manifestation of capital. Returns on capital is on a downward secular trend.

Which bring us to the real question, the one that surprisingly Bernanke has not proposed: is capitalism viable without a cost for capital? Like Ben Bernanke, we will answer this in the next episode.