Our critics contend that "According to the April Review of the Month, it is only the rapid growth of private debt that accounts for why American capitalism has escaped a major depression. But this is seen as unsustainable; it only postpones the inevitable economic collapse." Repeating what we have already said, there is no reference in our piece, or anywhere in Monthly Review over the last fifty plus years, to "an inevitable economic collapse" of the system. But the above criticism is also incorrect in saying that we believe that the rapid growth of private debt is the "only" factor propping up the system. Obviously, there are other factors such as the hundreds of billions of dollars in annual military spending in the United States alone, and a marketing system that accounts for one out of every six dollars of GDP, not to mention the stimulus of new technology, such as the digital revolution.
Still, the enormous financial expansion of the system--which has become a primary means of utilizing economic surplus--represents the biggest change in the workings of the capitalist economy since the 1980s. Kevin Phillips gave an apt description of the changing economy in a July 17, 2002 op-ed article in the New York Times: "In the last few decades, the United States economy has been transformed through what I call financialization(!). The processes of money management, securities management, corporate reorganization, securitization of assets, derivatives trading, and other forms of securities packaging are steadily replacing the act of making, growing, and transporting things."
The transformation Phillips discusses shows up in the following statistical comparison of Gross Domestic Product by industry as a percentage of overall GDP (see Table 1). The direction of the change is striking: the near halving since 1947 of the contribution of goods-producing industries to GDP, along with a doubling of the share accounted for by finance, insurance, and real estate. Moreover, these days finance makes roughly the same contribution to GDP as goods-producing industries. In fact, the Commerce Department data used to construct this table show that currently the 20 percent contribution of finance is well above that of manufacturing's 15 percent.
How come? Here we return to our central point on the absence of stimulating growth factors within the goods producing sector of the economy. The digital revolution so far hasn't made enough difference--at least not enough to shift the economy to a fast track. (4) In the absence of sufficient profit opportunities for the goods-producing industries, capital sought other means to make profits. That is where the explosion of debt came on stage. The economy became increasingly dependent on the growth of debt, opening the door to the rise of financial enterprises and waves of speculation. A symbiotic relationship emerged. The initial fuel for speculation came from the financial institutions. Speculation produced and lived on the increasing values of assets, in other words, a speculative bubble in the stock market, and in derivatives, hedge funds, etc. This, of course, promoted the growth of financial enterprises. The vaunted long expansion of the nineties, especially the leap in the second half, was based on the bu rst of speculation, attractive enough to bring big money from abroad.