Dealing with the crisis
Discussant:
Nobuharu Yokokawa
Musashi University
Cyclical Crisis and Structural Crisis
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In Marx’s theory of crisis, cyclical crisis is a
physiological phenomenon that enforces self
regulating character of capitalist economy.
Accumulation of real capital plays main role
and financial sector plays subordinate role.
Cyclical crisis
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Prosperity starts with accumulation of capital.
In the prosperity banks function as financial
intermediary.
At the end of prosperity higher wages reduce
industrial demand for loanable money.
Then loose credit encourages speculation.
When speculators cannot rollover credit,
speculations collapse, and crisis starts.
Cyclical crisis
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In the depression, capital introduces a new
and more productive method of production,
which creates a relative surplus population
and relative surplus value.
Self regulating character of capitalist
economy works only with the support of
suitable international and domestic
institutions.
Structural crisis
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Structural crisis is a systemic crisis of a capital
accumulation regime.
Changes of hegemon of capitalist world systems
create the most serious structural crisis.
In between, repetition of cyclical crisis accumulates
problems and changes the characters of
accumulation regimes.
Minsky’s financial instability
hypothesis
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In contrast to Marx, Minsky’s financial
instability hypothesis pays attention only to
the monetary side of crisis.
It does not pay attention to real accumulation
of capital and relation between accumulation
of money capital and real capital.
Increasing fragility of an accumulation
regime
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Capital accumulation regime must allow cyclical up
and down which is essential to solve physiological
problems.
We could observe over accumulation crises in the
1950s and 1960s.
Once wages went up in prosperity, they did not
decline even in the depression, increasing conflict
between capital and labour.
The conflict finally destroyed the capital
accumulation regime of the golden age in the 1970s.
Financial fragility
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After the1980s, financial sector played main role.
Boom and bust are created monetary.
Current account imbalance -> Short term capital flow
-> Boom -> Bust -> Depression.
A lower volatility of GDP in this period may reflect
less dynamism of economy.
Ratchet effects appeared in the interest rate.
Financial fragility increased last three decades. The
crisis in the 2000s is a structural crisis.
Longevity of the dollar standard
system
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The Bretton Woods system broke down in
1973. G7 and other international cooperation
played important role to extend the dollar
standard system.
Is it the US that forced Japanese yen to
appreciate, or Japan and other countries that
appreciated their currencies voluntarily and
cooperated the USA in order that the
international monetary system survive?
Can international imbalances be
managed publicly?
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A world central bank can supply liquidity but
not long term capital.
It must be supplied by savings from
structural surplus economies.
The world central bunk functions here as a
financial intermediary of the first resort.
However can it pick up the winners among
many candidates?
Regulation of the domestic credit
system
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Commercial banks create deposit money. If
there is no regulation it can create money
indefinitely increasing both asset and debts
in their balance sheet simultaneously.
If banks function as financial intermediary
why capital requirement is needed? In the
1950s and 60s reserve requirement worked
well in Japan without capital requirement.