It’s Auf Wiedersehen nest eggs!
The ancient Chinese curse “May you live in interesting times” gets repeated with such frequency and on so many occasions that it ought to be banished to some Elba of clichés. This saying means essentially “May you live in times which will excite the interest of future historians.” But putting it this way overlooks an important consideration: if history as an academic discipline should in the future resemble the discipline as it is today, it’s a safe bet that future historians will find all times interesting, for the simple reason that the publish-or-perish pressure cooker tends to provoke hyperspecialization; everyone in the discipline finds his or her little historical tract to cultivate and guard jealously.
Thus, should it manage to survive into the future, a publish-or-perish professional culture would, from a purely quantitative standpoint, see to it that every historical period would receive some share of scholarly attention. No period would go overlooked. This being so, the ancient Chinese curse loses some of this bite, because all times are, when considered in this light, eminently interesting.
The Weimar Republic of Germany, which lasted from 1919 until January 30, 1933, the day that the National Socialists ascended to power in the person of Adolph Hitler, people typically find interesting for two reasons: cabaret and hyperinflation. Photos of wheelbarrows laden with German marks trundled to the baker for a daily loaf have become iconic, as well as emblematic of the consequences of imprudent monetary policy. So, as the Federal Reserve Bank of the United States begins tinkering in this very area, it’s wise to pause and consider the events that eventually led a whole generation to their doom as they marched behind the crooked cross. “[I]n the summer of 1922, galloping inflation kicked into hyperinflation, and rapidly escalating unemployment — the worst of all possible worlds,” historian Eric D. Weitz writes in his 2007 book Weimar Germany: Promise and Tragedy.
Businesses faced a liquidity crisis, and everyone faced a shortage of paper currency. The Reichsbank was convinced that it had to ensure the availability of credit for business and paper currency for daily transactions. Only these measures, it believed, would keep the economy humming and maintain social peace. So by various instruments it continually increased the money supply, which of course on provided more fuel for inflation. All the economic indicators pointed to disaster.
Though history does in the broad strokes tend to repeat itself, any repetition admits of enough difference to give the repetition its own unique character while at the same time preserving a family resemblance. Galloping inflation leading to hyperinflation, for instance, remains for the moment more a theoretical than an actual problem, although the potential second round of quantitative easing, christened “QE2″ by Federal Reserve grandees, has been discussed with unease and foreboding as liable to make the U.S. economy into something more like the Titanic, or perhaps The Flying Dutchman, than any splendid new version of its once ship-shape self.
And though unemployment is no longer rapidly escalating, it continues to hover, as the U.S. Bureau of Labor Statistics reported on October 8, 2010, at 9.6 percent (a highly massaged U-3 figure), a number unchanged since its previous report. Unemployment hovers intractably within kissing distance of ten percent — a formidable reserve army of the unemployed, to be sure.
As if aware of this army’s swelling ranks, the oligarchs have seen to depriving them of wadding for their muskets. An October 26, 2010 Reuters story reports that, according to Moody’s Investor Service, “U.S. companies are hoarding almost $1 trillion in cash but are unlikely to spend on expanding their business and hiring new employees due to continuing uncertainty about the strength of the economy.”
That’s the funny thing about capitalists: far fewer get than try to be them.
Such hoarding represents a Keynesian paradox of thrift that comes on with a vengeance. “For although the amount of his own saving is unlikely to have any significant influence on his own income, the reactions of the amount of his consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums,” Keynes (the subject of this earlier Generation Bubble post) writes in his 1936 book The General Theory of Employment, Interest and Money, in which he discusses the paradox of thrift.
Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself. It is, of course, just as impossible for the community as a whole to save less than the amount of current investment, since the attempt to do so will necessarily raise incomes to a level at which the sums which individuals choose to save add up to a figure exactly equal to the amount of investment.
Keynes speaks mainly of cash-hoarding private individuals, although there’s no reason to suppose the same reasoning fails to hold true for cash-hoarding companies. The amount of money someone has in the bank, under her mattress, or in a jar buried in the backyard has absolutely no influence on the amount of money she stands to earn today or tomorrow. Some $100 thousand in savings doesn’t fetch a higher price for the goods or services the saver in question brings to market than would $10 thousand, $1 thousand, or even ten bucks. What that $100 grand does do is keep $100 grand of money out of circulation, which (if I read Keynes right) has the effect of depriving everyone else of some portion of that amount, because were it spent into the economy it would find its way into grateful pockets everywhere.
The velocity of money, the rate at which it flows through an economy, is for Keynes the critical issue. The question becomes, if companies are sitting on some $1 trillion in cash (not assets or debt notes, mind you), does this not mean these companies are effectively depriving everyone’s pockets of exactly this amount? Isn’t this the paradox of thrift writ exceedingly large and with a ton of zeroes behind it?
When private individuals stash cash, it’s called being a tightwad. When huge corporate entities do it, it’s called a capital strike. Capital strikes have happened in the past, most recently in the 1970s. Previously, however, they tended to occur as a response to states of affairs that from the point of view of the humane and non-oligarchical, are generally pretty happy. “In the absence of increasing productivity, accumulation leads to relatively full employment of local labour resources,” writes economic geographer David Harvey in his 2010 book The Crises of Capitalism.
Either wages continue to rise in such a way as to not interfere with the increasing mass of accumulation (because more labourers are employed) or accumulation slows down along with the demand for labor, thus pushing wages down. On occasion, capitalists in effect go on strike, refusing to reinvest because higher wages are cutting into profitability. The hope is that the resultant unemployment will rediscipine labour to accept a lower wage rate.
How times have changed! Now companies have staged a capital strike not as a result of scarcity of labor and the premium it can command, but simply as a result, as the Reuters story has it, of “continuing uncertainty about the strength of the economy.” Would that everyone whose interests depend on the economy be similarly able to withdraw from economic activity as a consequence of their “continuing uncertainty.” No, these tightfisted companies have forced everyone else to make his way as best he can, and with $1 trillion fewer dollars in circulation with which to do so. From where is this renewed confidence supposed to come, I wonder? After all, becalm a ship long enough and the captain will resort to nonsensically extreme measures to get it to land. Just ask King Agamemnon.
To stage a capital strike in response to something so subjective as “continuing uncertainty,” as opposed to something empirical and real, such as labor’s laying claim (as rightly it ought) to a greater share of the social surplus, must mean that conditions have changed a great deal since the version-1.0 capital strikes of the 1970s and earlier. These days one hears a lot about increased productivity, but precious little about wages gotten so high as to cut into profitability. If anything, the oligarchs have finally figured out the art of the deal: the proverbial elevator deal, in which the oligarchs keep the elevator and everyone else gets the shaft, the latter left with not even the bittersweet memory of former prosperity to console them.
If future historians find this an interesting age, it’s only owing to the fact that it’s an age of interest — which compounds daily.
Labor’s not really ever having enjoyed a higher wage rate before the recession commenced in 2008 hasn’t stopped the oligarchs from disciplining labor into accepting lower wages anyway. Indeed, this disciplining has been going on for some time. Reporting on adjustments the U.S. Social Security Administration recently made to its 2009 wage data, journalist David Caye Johnston reveals that “that since 2000 the average wage, in 2009 dollars, barely changed in real terms, increasing only $347 or 0.9 percent after nine years.” This last figure translates into 0.1 percent a year, which if you’re lucky is the amount of interest you earn on a savings account. Shouldn’t this dismal rate be disincentive enough for saving? That’s the funny thing about capitalists: far fewer get than try to be them.
I suppose some small comfort comes with knowing that humanity’s been down this road before. Inflation in Weimar Germany accelerated in summer 1923, becoming full-blown hyperinflation shortly thereafter. Much like former Obama Administration chief of staff Rahm Emanuel, German capitalists didn’t let a good crisis go to waste. “Employers were on the offensive; workers were battered and worn down by the economic crisis,” writes Weitz.
The mine owners had taken the lead in September 1923, and every major industry quickly followed. By spring 1924m the prewar work shift, twelve hours in the factories, eight and one-half in the mines, had been reestablished. Employers also won greater freedom to fire workers at will and to ignore labor representation within the workplace. The crisis of hyperinflation enabled business to destroy — not totally, but to a significant degree — the social measures it had only reluctantly conceded in 1918–19.
Whether the crisis is one of hyperinflation or intractably deep recession, the result is the same. You need only recall the words of Überbanker Andrew Mellon: “In a depression assets return to their rightful owners.” He certainly wasn’t talking about the poor schmucks manning the teller windows.
And so discussion turns once again to the subject of bankers, which, though depressingly predictable, is interesting. For if future historians find this an interesting age, it’s only owing to the fact that it’s an age of interest — which compounds daily.
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