Overproduction, Overcapitalization 2 By S. Artesian

23 July 2013 — The Wolf Report: Nonconfidential analysis for the anti-investor

1. Slip

The journals of the bourgeoisie–digital, analog, virtual, print–have spewed tons of ink and blizzards of one and zeros–marveling, worrying, cheering, bemoaning the latest fad in political economy: the “super-cycle” in commodity prices.

The bourgeoisie and their hack political economists reserve the commodity label for those raw materials and foodstuff generally produced in bulk and which form the components for the further fabrication of the means of production and the means of subsistence.  We get energy commodities, agricultural commodities, timber commodities, metal and mineral commodities.  We get everything from live cattle to dead pork;  aluminum to zinc.

Clearly, the dramatic rise in the prices of these commodities since 2005, and the rapid recovery of prices since the Great Recession of 2008-2009, is enough to register as a “super-cycle,” or at least the beginning of the “upswing” of a super-cycle…to them.

More than that, the spike and recovery in commodity prices is cited by some as evidence that the Great Recession is indeed just a financial crisis, although a big one, and that the real economy was, is, and will be once always and again reaching new highs; that there is no overproduction of capital as these price increases are the true indicator of long-term “effective demand;” that profitability will increase and the increase will be sustained by the upward movement of these prices.

So what about it?  What about super-cycles and commodities. Is/are there 36 year cycles, 42 year cycles, 84 year cycles?  Are commodities like cicadas, sinking into the ground only to emerge after a number of years, climbing into the tree-tops, looking to meet, mate, reproduce and die?  Are commodities like that body in the lake, sinking then rising, sinking again,  only to rise again, each time a little more bloated, a little more putrid?

My answer is clear unequivocal and brief:  Wrong question.  Wrong questions.

The “right” questions are, whatever the duration of a so-called cycle, whenever the prices rise and/or fall what does the rise and fall accomplish?  What does it tell us about the moments of capitalist reproduction?

My problem, and not that my problems are a big deal, with the super-cycle theories of commodity prices is just that– at core, these are price theories.  In (many of) these theories price is regarded as both measure and determinant, for demand, consumption, expansion.

For Marx, prices is significant in its function,as a function, as a mode of distribution driven by the determinant of accumulation.

2. Trip

The determinants of capitalist accumulation are, more or less, in a condition of dynamic disequilibrium.  Capital does not “aim” at equilibrium.  Capital has no aim, no purpose, no goal at all, other than the accumulation of more capital. It’s like a shark, or rather like Hooper’s description of the shark in Jaws: 

 What we are dealing with here is a perfect engine, an eating machine. It’s really a miracle of evolution. All this machine does is swim and eat and make little sharks, and that’s all. 

It even eats the little sharks it makes, and the little sharks other sharks make.

To do that, accumulate, to be that, accumulation, it spawns destabilization, disproportion, devaluation.  To create its property, it dispossesses.  Its property is the dispossession of labor.  To accumulate value, it over-value and then devalue all previously accumulated value, incrementally, and over time.  “Equilibrium,” balance, proportion occur….as accidents, never as necessity.

In its evolution, capital demands that profits, which are the social realization of a portion of all the surplus value funneled into the markets, be distributed among the particular capitals in proportion to the size of the capital deployed and regardless of the internal relations of the components (variable and constant) that form the capital.  Size matters, bigger is better, or at least demands to be treated better.

In its apportioning of profit, capital approaches the creation of average rate of profit.  The apportionment process itself however demands that every particular capitalist must strive to accrue a profit greater than the average– to swim faster, eat more, make more than the average.  You are average only when eating or being eaten.  Value, in its realization and not as chum, must devalue other capitals– eat their lunch, eat them for lunch.

OK, enough with the shark analogy.  Forgive me for having watched Jaws again last night.

In this process of accumulation, commodities do not simply and solely exchange with other commodities as equals.  They exchange as the capitals— as mechanisms and modes for realizing this compulsion, apportioning profit through price. 

Between 1960 and 1969, world commodity prices indexes (as archived in the World Bank Commodity Price Data Sheets), unadjusted for inflation, experienced a period of stability.  Energy prices declined about 15 percent.  Agricultural prices were virtually unchanged; metal and mineral prices were flat in the first half of the decade, increasing 30 percent in the second half.

It is after the OPEC oil price spikes of 1973 that the commodity price indexes turn upward.  The price of oil is the whip that drives the prices of other commodities forward.  Between 1970 and 1979, the index for energy commodity prices increased seventeen fold; agriculture commodity prices were up 250 percent; metals and minerals about 225 percent.   Sound super?  Sounds super.

However, between 1980 and 2000, the indexes declined 25 percent for energy; 35 percent for agricultural commodities; 13 percent for metals and minerals.

Next comes the big uptick between 2005 and 2012, when the energy price index doubles, the agricultural and metals indices triple, recuperating all the ground lost in 2009 and 2010.

Which gets us to… exactly where? Well, it might get us right back to 1973, or 2003 when the price increases in oil push and pull the other commodity prices ahead and behind it; when the price of oil  directs profit to the largest capitals where the rate of profitability had deteriorated.

And maybe it gets us right where we are today: with the commodity prices already past their peak and on the downhill side of the curve, the cycle; where the over-capitalization has engendered overproduction to the point that the transfer of profit sets the terms for general devaluation.

3. Stumble

If, near the close of one “super-cycle,” that of the post-war recovery, the word that capital whispered across the pillow to those who embraced it was “plastics,” that word at the close or the start or something in between of this “super-cycle” was/is/has been “metals.” 

On December 4, 2010, the Financial Times headlined an article “Global Resources Spending Soars.”

On June 5, 2013, the article featured in the Financial Times was headlined  “Poor Returns Face Mining Groups.” 

Not to be left behind by its British cousin, the Wall Street Journal  headlined “Losses Mount in Resource Markets.”  Included in the article is this comment by a portfolio manager at Pacific Investment Management Co. who manages $27 billion in commodity investments for the firm, “I think the super-cycle is dead.” Can’t get any more definitive than that, can it?  Except to say, “what super-cycle?”

In the world of attention-deficit disorder capitalism, in this network and era of short-term, flipping, optioned, get in and get out– in this network and era just like every other network and era of capital, seven years is as good as it gets.  Then things get itchy, and for capitalism, it’s an itch it can never scratch.

When our “super” cycle began in 2005, capital spending by mining and resource companies accelerated.  In 2008, that amount (not including oil and gas) was a record $110 billion, which was one more indicator to political economists just how “healthy”  the “real” economy was.  In fact the “real” economy was so healthy capital spending and commodity prices recovered rapidly from their declines in 2009. 

Capital spending peaked in the 4th quarter 2012, with the total for the year (again not including oil and gas) weighing in at $140 billion globally.

Prices for metals were already on the way down in 2012, and have continued downward in 2013.  Aluminum prices on the London Metals Exchange (LME) have declined 25% since 2011.  Copper prices are down 20 percent.   Steel prices, not exactly a “resource” but the driver of iron ore prices, have declined 35 percent since 2011. 

The very same force that drove the commodity prices up, capital accumulation, now drives the prices down.   The commodity, the commodities, remember are but vehicles for capturing a portion of profit.  With the expansion of capital spending, the expansion of the value of the means of production, the commodities act as representatives of that capital.  Accumulation then manifests itself as the accumulation of the commodities as profit claiming vectors.

The larger capital claims larger profit.  The mechanism for this claim is price, or price increases, or as we might know it today –“economic rents” when commodities command  prices extraordinarily higher than their value as commodities. 

Inventories of metals which were relatively high at the close of the 2001-2003 recession were drawn down in the recovery as capital spending for production 3-5 years in the future forged ahead.   Inventories of copper, for example, declined from about one million metric tons in 2002 to 200,000 metric tons in 2008.  In 2013, copper production expanded at the highest rate in its history.  Inventories reached 600,000 metric tons.

Trading volumes increase.  Turnover, circulation of claims to the commodities, exceed the circulation of the commodities themselves.

The inventories of the metals held in warehouses connect to the LME  expanded more than fivefold between 2008 and 2013.  Aluminum stocks grew from less than one million metric tons to more than five million;  Zinc stocks grew from less than 100,000 tons to more than one million tons. 
 
At a certain point, the over-capitalization is transformed into over-production.  Each/both predetermines the failure of expanded reproduction.  The general devaluation of capital ensues.

4. Fall

Five years into this process, we are still just at the beginning.  2014 is going to be one helluva year.  Count on it.

S.Artesian

July 23, 2013