Differential Accumulation - Deflation and The Crisis of Accumulation

Deflation and The Crisis of Accumulation

Differential accumulation provides an alternative view to the Great Depression of the 1930s and the global financial crisis of 2008 - 2009. Both of these crises are crises of deflation, and thus crises of accumulation. Businesses not only try to beat the average rate of accumulation, but struggle to avoid the threat of deflation. Deflation brings social destabilization and threatens capitalist accumulation.

The overall debt burden of 2008 increases the deflationary threat over that from the Great Depression. Nitzan and Bichler state that the 2002 ratio of total debt to GDP in the US reached 290% - compared with 165% on the eve of the Great Depression. If prices begin to fall, they argue, firms will be unable to service their debt, which creates a risk of debt deflation, chain bankruptcies, and the collapse of accumulation. "As the Great Depression unfolded falling nominal GDP caused the debt-to-GDP to soar to over 270%. a comparable drop now would push debt-to-GDP to over 400%".

Nitzan and Bichler argue that the Great Depression brought deflation, not inflation (at least from an aggregate viewpoint). Gardiner Means (1935) showed in his study of the US during this period: smaller firms with little market power saw falling prices and only a moderate drop in output. Large firms were able to keep their prices relatively stable, and even raise them in some cases, and let output fall by as much as 80%.

They stipulate that the primary cause of these crises is not financial but a crisis of differential accumulation. Inflation was helpful for not only providing differential accumulation but also to forestall the threat of deflation. Mergers had been in hibernation since early 2000s, which resulted in a greater reliance on the socially disruptive tool of inflation as stagflation. The soaring price of oil from 2004 to 2008 helped to sustain inflation, but with a looming threat of cheap manufactured goods from developing countries. Deflation in 2008 had become a looming threat.

Instead of focusing on the start of the US financial crisis, Nitzan and Bichler focus on bear markets, the periods during which stocks (as measured in constant-dollars) were in a downward trend or where each successive peak is lower than the previous one. By their reckoning a protracted Bear market has existed since 1999, which points to a much more entrenched accumulation crisis.

Nitzan and Bichler argue that there is nothing automatic about the shifts between bear and bull markets. Each crisis has had a different solution. They identify a number of bear markets in the last century and the unpredictable solutions that shifted capitalism back to bull markets:

• The crisis of 1905–1920 was resolved with a shift from robber-baron capitalism to large-scale business enterprise.
• The crisis of 1928–1948 saw the rise of the Keynesian welfare-warfare state and large government. "Unregulated" capitalism ended.
• The crisis of 1968–1981 saw neoliberal globalization, increasingly worldwide capital flows and the closing down of the Keynesian state.

If the 2009 US stimulus package, the American Recovery and Reinvestment Act of 2009 and proposed US budget are any indication, the 2008-9 crisis may see a return to the Keynesian state, at least for the United States.