Source: International Socialist Review, Vol.25 No.1, Winter 1964, p.30.
Transcribed & marked up by Einde O’Callaghan for ETOL.
The Paper Economy
by David T. Bazelon
Random House, Inc., New York, 1963. 467 pp. $6.95.
The tremendous growth of paper “assets,” or what Marxists call fictitious capital, is an outstanding aspect of the post-World War II American economy dealt with by David T. Bazelon in his book, The Paper Economy. Bazelon’s description of this capitalist phenomenon is important for its informational value, if nothing else. This growth of debt and inflation of stock prices is an aspect of the modern capitalist economy which is of great importance today, not only for the role it has played in extending the post-World War II prosperity, but also for the role it threatens to play in aggravating to an extreme degree the next great capitalist economic crisis.
In the fifteen years between 1948 and 1963, the gross federal debt rose from $252 billion to $309 billion. State and local debt has skyrocketed from a 1946 low of $13.6 billion to over $80 billion at present. Net corporate debt has more than trebled between 1946 and 1960. Non-farm mortgage debt, which hovered around $26-27 billion during World War II, stood at $179.9 billion at the end of 1960. The total amount of short- and intermediate-term outstanding consumer credit has gone from about $5.7 billion in 1946 to $56 billion in 1962. The value of stocks listed on the New York Stock Exchange has risen by more than $200 billion in the 1950’s alone. And so the “paper” mounts.
Marx pioneered the study of fictitious capital in Volume III of Capital back in the nineteenth century and predicted its increased significance as capitalism matured. He defined fictitious capital as capitalized earning or taxing power. For example, government bonds issued on the basis of taxing power are one form of fictitious capital. Consumer debt based on the earning power of individuals and stock prices (based on rising corporate earnings), inflated far above liquidation value (selling price of plants and inventories) represent other forms. This is essentially the same definition used by Bazelon for his “paper” concept.
It should be pointed out that Bazelon does not bother to credit Marx with the original development of this concept and analysis of this capitalist phenomenon. This is but one manifestation of his anti-Marxist bias which is consistent with his belief that Marxist theory is irrelevant today because it deals with a system – capitalism – which no longer exists. The “managerial revolution” has, according to Bazelon, brought about a new property system in which ownership of property has become divorced from control of that property, thus making necessary the application of entirely “fresh” theoretical concepts.
One of these “fresh” concepts, first introduced by John K. Galbraith, a Harvard economics professor, in his book, The Affluent Society, is that the primary problem facing American capitalism is one of abundance as opposed to scarcity. Bazelon points to the excess productive capacity, surplus capital and plentiful credit within the US economy to support this thesis. At the same time, Bazelon observes that traditional capitalist ideology with its emphasis on free competition and a minimal role for the state in economic matters and based upon the supposed former condition of economic scarcity still reigns supreme – in the mass media, in utterances of politicians, in the educational institutions and in the minds of the ruling elite. Bazelon sees this ideological lag as the single most serious problem facing the American ruling class and the world captialist system. If only this mental paralysis could be overcome, the state would be allowed to play a more significant role in the economy. As a consequence, a rapid rate of economic growth, comparable to that of the Soviet Union’s, and a full utilization of the nation’s productive capacity and labor resources would be attained, and defeat in the “cold war” would be avoided.
Provided that this optimum economic performance is attained, Bazelon is optimistic about solving the serious international problems facing American imperialism. The threat from the colonial revolution would be alleviated by massive foreign aid to undeveloped countries. With respect to the cold war, Bazelon forsees the possibility of consciously orienting American foreign policy toward an eventual convergence of American and Soviet societies. He predicts for the US side of this synthesis a larger role for the federal government in the US economy, administering prices and introducing a measure of planning in the main sectors of the economy. On the Soviet side, he predicts the development of institutions through which public opinion can be expressed and effective pressure brought to bear on the arbitrary rule of the Soviet bureacracy. He further predicts that as the Soviet Union becomes more prosperous and the bureaucracy realizes that it can never hope to defeat the United States in economic competition, it will become ever mere conservatized and gradually give up its alleged desire for world domination. The cold war will gradually dissipate itself, and the world will be saved from nuclear destruction.
Thus, Bazelon believes that the present American socio-economic system must be analyzed as a new, post-capitalist property system, in which the “paper” or fictitious capital structure is an integral, growing, permanent feature, and the control of capital has become separated from ownership. He sees traditional “free-enterprise” capitalist ideology as a dangerous anachronism constituting a serious block to the development of effective government economic policy. Should this be overcome and effective economic policies put into effect, Bazelon sees a very bright future ahead including economic well-being for all and lasting peace. The alternative to this, Bazelon maintains, can only be continued economic stagnation, a concomitant growing threat from the colonial revolution and alleged Soviet expansionism ultimately ending in the victory of the Soviet Union in the cold war or the destruction of civilization by nuclear war.
The author of this book is a very confused man. His analysis betrays a complete misunderstanding of the cold war which is a conflict between two social systems based on antagonistic property relations in which the Soviet Union has played a defensive role. His ideal solutions to the problems facing world capitalism indicate a total lack of appreciation for the real nature of these problems – rooted as they are in the growing anachronism of capitalist property relations.
Bazelon undoubtedly reflects the thinking and interests of an important section of the American capitalist class which sees as necessary the greatest possible flexibility with respect to Soviet-American relations and the utilization of state measures in an attempt to alleviate domestic economic problems. This intellectual contribution, along with those of Galbraith, Keynes and others, will help to weaken the hold of traditional capitalist ideology which is no longer appropriate to the current needs of the dominant section of the American capitalist class as it pragmatically attempts to solve the problems of private property while at the same time being incapable, because of their vested interests, of touching the core of this problem – private property itself.
Last updated on 2 June 2009