Currency Crisis or Overproduction? A Marxian Analysis of the Exchange Rate Peg Collapse in Brazil

Abstract

We revisit the recent past of the Brazilian economy in an attempt to present an alternative characterization of the nature of the late 1990s crisis. The theoretical basis of this analysis is Marxian political economy. This choice is justified by the contraposition between the Marxian theory of overproduction cyclical crisis and the most popular currency crisis theories, revealing that while the latter focus on the phenomenon’s appearance, the former analyzes it in depth. The analysis of capital accumulation during Brazil’s Real Plan shows that the examined crisis can be characterized as another manifestation of the aforementioned phenomenon: the overproduction cyclical crisis.

JEL Classification: B51, E32, N16

Keywords

real plan currency crisis overproduction recent economic history

1. Introduction

Chronic inflation was a striking issue for a large portion of Latin American economies from the early 1980s to the mid-1990s. As a response, most of the affected economies adopted stabilization programs that had an exchange rate peg as a common element. In Brazil, after a series of failed attempts, inflation control was achieved through a three-stage plan called the Real Plan (Falcão Silva 2002; Kiguel and Liviatan 1992; Teixeira Lanzana 2017; Giambiagi and Além 2016).

The plan’s first stage consisted of a temporary fiscal adjustment discussed in the National Congress in 1993 and approved in February 1994 to take effect the same year. Then, in order to resolve the distributive conflict that they believed was taking place in the country, the government established, in March 1994, the Unidade Real de Valor, URV (Real Value Unit), which would mark the readjustments of all new contracts, while those currently in operation could voluntarily adhere to it at any time. In establishing the URV as the average of three representative price indexes with daily adjustment, the government’s aim was to make its adoption attractive, inducing economic agents to synchronize their price adjustments on a daily basis and find a sustainable price vector with overindexation (Giambiagi et al. 2021: 146–50).

Once a satisfactory level of relative price stability was reached, the last stage of the plan was put into action in July 1994: it encompassed the creation of the new currency (the real [R$]), the imposition of limits for monetary base expansions, the acceleration of the liberalization process that had started in 1985, and the establishment of the exchange rate anchor in an asymmetric exchange rate band regime: the exchange rate would float as long as it was under R$1.00/US$. As a consequence of latter developments, however, the exchange rate regime changed on two occasions: to introduce the symmetrical exchange rate band in March 1995 and to transform it into crawling bands in June the same year (Ferrari Filho 2001; Saad-Filho and Morais 2002; Giambiagi and Além 2016; Giambiagi et al. 2021).

If, on the one hand, the stabilization plan’s success is unquestionable, then on the other, it appears to be unequivocal to most economists that it was also the cause of the Brazilian late 1990s crisis (Kregel 1999; Schwartsman 1999; Saad-Filho and Morais 2002; Saad-Filho and Mollo 2002; Giambiagi and Além 2016; Giambiagi et al. 2021). In both the mainstream and part of the heterodoxy, this understanding derives from the currency crisis or balance of payments crisis theories (Falcão Silva 2002).

It could be interesting, however, to analyze the situation from a different point of view. For the Marxian theory of overproduction cyclical crisis, every industrialized capitalist economy necessarily develops itself through cycles of economic expansion and contraction. Moreover, despite the fact that they have a common cause and common essential characteristics, each of these overproduction crises carry different appearances (Marx 1969, 1973, 1991; Rosental and Straks 1958). Therefore, to establish this point of view is to raise the suspicion that the exchange rate peg collapse and the external imbalance observed in the late 1990s in Brazil are merely the appearance of another overproduction crisis.

Thus, to investigate the real nature of this crisis, we contrast the Marxian analysis and the traditional view both theoretically and empirically. First of all, in section 2, we compare the Marxian theory of overproduction cyclical crisis to the most popular currency crisis theories. Then, after presenting the traditional view of the Brazilian late 1990s crisis, we analyze the capital accumulation process in Brazil during the Real Plan using Marxian economics as our theoretical basis, in an attempt to establish whether or not there is evidence suggesting an overproduction crisis took place at the end of the decade. This empirical analysis is presented in section 3. Finally, in section 4, we highlight our main conclusions and present some additional remarks.

2. Currency Crises and Cyclical Crises: Appearance and Essence of the Phenomenon

2.1. The appearance of the phenomenon

The balance of payments crisis is described by Cesaratto (2013: 361) as a situation in which (1) a loss of confidence causes a reversal in capital flow, (2) capital outflow is limited by the amount of foreign reserves, (3) the country runs out of reserves, and (4) it is forced to adjust through domestic currency devaluation, debt default, and/or restrictive fiscal policy. Throughout the last decades, several researchers have committed themselves to theoretically unraveling the circumstances that would cause this combination of factors.

According to Falcão Silva (2002), the mainstream understanding of the matter derives from the canonical framework of Krugman (1979) and Flood and Garber (1984). In these approaches, because of the coexistence of two opposing economic policies—financing public debt with monetary base expansion and a fixed exchange rate regime—speculators foresee a regime change and attack foreign reserves the moment their shadow price exceeds their official one.

The second generation of orthodox models was developed by combining the canonical framework with the cost-benefit games of Barro and Gordon (1983). In these models, authors such as Obstfeld and Rogoff (1996) and Velasco (1996) sustain that the government needs to find the equilibrium point in the tradeoff less inflation–more unemployment–higher debt cost × more inflation–less unemployment–lower debt cost. Here the contribution is to consider the impact of expectations on the debt cost, making room for a self-fulfilling prophecy.

Still, according to Falcão Silva (2002), in addition to the new-generation models, the contributions of Calvo and Mendoza (1996a, 1996b) and Krugman (1998) deserve special attention. The former authors connect the balance of payments crisis to financial crises. According to them, because of a foreign capital inflow, the liquidity of the economy rises and banks add risky assets to their portfolio, weakening the banking system. Once banks are not able to honor their liabilities, central bank action will expand the monetary base, validating the run on reserves and causing capital outflow. Krugman (1998), on the other hand, sees the currency crisis as a feature of the financial crisis. His approach is similar to Calvo and Mendoza’s (1996a, 1996b), but emphasizes that the problem occurs because the expected rate of return considered by bankers while operating with risky assets is always higher than the effective rate of return, since they expect to share their losses with the government if the worst-case scenario takes place. In other words, there is a moral hazard problem.

The heterodox contributions, for their part, are closely related to the analysis of peripheral countries’ experiences. Kregel (1999), in an approach similar to Edwards (1996), argues that the balance of payments crisis is a result of the association between a stabilization plan and a large foreign capital inflow. As a result of this capital inflow, the exchange rate becomes overvalued, while the banking system’s vulnerability increases. Analyzing the development of Brazil’s Real Plan, he explains how this occurs. According to him, excessive capital inflows are followed by (1) current account deterioration and (2) a change in government expenditures, moving away from current account expenditures and toward capital account expenditures as a consequence of exchange rate overvaluation and high interest rates. This situation would tend to get worse given the upward pressure on the interest rate to maintain capital inflow, therefore making the collapse unavoidable.

Saad-Filho and Morais (2002), in turn, place the Real Plan as part of the Tropical Neomonetarism,¹ that is, a new development strategy that attempts to finance domestic investment with foreign savings by luring foreign capital through the financial market or privatizations. This set of policies, however, seems to be destabilizing, since the capital inflow, on which the country becomes structurally dependent, is more sensitive to the central countries’ financial market scenario than it is to the macroeconomic fundamentals or economic policies of the peripheral ones. Hence, this external vulnerability would create the need to keep the interest rate at high levels, causing domestic currency overvaluation. This would then result in new pressure over the interest rate through current account deficits, while also creating carry trade opportunities. As a result, there is an increasing vulnerability to international financial market disturbances.

One important feature we would like to highlight here is that, in each of these authors’ frameworks, a balance of payments crisis is always a consequence of misguided economic policies, that is, something exogenous to the capital accumulation process. This is especially true for those who belong to the mainstream, since their argument seems to be permeated by the real business cycle (RBC) theory, presented in works such as Plosser (1989), King and Plosser (1984), and Kydland and Prescott (1990). In terms of the RBC framework, each one of these misguided economic policies acts as the random exogenous shocks that generate the cyclical movement in capitalist economies. In Kiguel and Liviatan (1992), for example, the idea presented in the article is precisely that the use of the exchange rate as a nominal anchor in a stabilization program combined with the lack of credibility in the program’s success can generate a business cycle, causing not only an expansion due to a consumption boom but also a crisis as a result of subsequent events.

The problem with the RBC approach, however, is that empirical works such as Juglar (1862) and Burns and Mitchell (1946) present evidence of regularity in the cyclical movement of industrialized capitalist economies. Whereas Juglar (1862) shows that the business cycle length varies from seven to eleven years, Burns and Mitchell (1946) present evidence of an average length of eight years. In addition, Mendel’son (2013) and Korotayev and Tsirel (2010) also identified a cyclical development pattern that fits this description. Milanez de Lima Almeida and Carneiro de Almeida Júnior (2022), in turn, verified these results by using the Baxter-King filter to decompose the frequency spectrum of the gross domestic product (GDP) of selected capitalist economies from 1900 to 2008, finding that their cyclical movement fits both Juglar’s and Burns and Mitchell’s classification. If we take into account that the first overproduction crisis occurred in 1825 (Mendonça 1990: 73), to base the business cycle analysis on the RBC theory is to advocate that, for nearly two hundred years, a number of capitalist economies have been affected by shocks that are supposed to be random but happen with the regularity of an economic law. Furthermore, according to Stiglitz (2014: 336–38), the RBC approach misleads researchers into ignoring underlying conditions and structural transformations even though “the really big shocks come from within the economy” (Stiglitz 2014: 336).

In our opinion, the same reasoning can be applied to the currency crisis theories. They mislead researchers into focusing strictly on economic policy errors, which blinds them to the underlying causes. In other words, it is possible that what they identify as the cause of the crisis could, in fact, be acting only as its trigger. To explain it with an analogy, when an atomic bomb explosion is used to detonate a hydrogen bomb, it is not accurate to assign the destruction to the former. In order to unravel the true nature of any crisis, it is necessary to base the analysis on a theory that takes into account the fact that the business cycle is an inherent and necessary characteristic of capitalist development.

The Marxian theory of overproduction cyclical crisis is one of the theories that fits this description. Marx (1969, 1973, 1991) presents economic crises as a phenomenon inherent to capitalist accumulation. They are taken as overproduction crises and as subjected to a law that operates regularly under capitalism.

Even though there are a number of interpretations of Marx’s crisis theory to choose from, one in particular has already been used in several works—such as Rosas Ribeiro (1988), Palhano da Silva (2002), Carneiro de Almeida Júnior (2016), and Milanez de Lima Almeida and Carneiro de Almeida Júnior (2022)—to investigate business cycles in Brazil: the Mendonça-Ribeiro interpretation. However, as far as we are aware of, it is not widely known outside Portugal and Brazil, and therefore we cannot compare it to the currency crisis theories without presenting it first. This presentation and comparison take place in the next subsection, where we draw on the theoretical work of Mendonça (1990), Rosas Ribeiro (1988, 2008), and Carneiro de Almeida Júnior (2013, 2016, 2019) on overproduction crises.

2.2. The essence of the phenomenon and its relationship with the appearance

According to Rosental and Straks (1958), before becoming real, any phenomenon needs to exist as a mere possibility. It could not be any different with the one examined here. Although a generalized overproduction can only occur in the capitalist mode of production, its embryo already exists in the simple circulation, since the emergence of the commodity is, at the same time, the emergence of the possibility that human labor generates a product for which there are no consumers, which also implies a contradiction between private and social labor (Mendonça 1990: 142; Rosas Ribeiro 2008: 16). The development of the contradiction between commodity’s value and use value, in turn, generates not only the money-form of value but also the possibility of crisis by creating its two first manifestation forms: the rupture of the unity of opposites sale × purchase and of the unity of opposites money acting as measure of value × money acting as realization of value (Marx 1969: 716). Hence, from a logical point of view, the possibility of crisis already exists in the simple circulation.

However, “to unravel the possibility’s essence, it is necessary to clarify its connection to the law,² its subjection to laws” (Rosental and Straks 1958: 231, free translation). Taking this into account when analyzing the simple circulation, we notice that the circumstances that would make supply exceed demand are purely random and limited to events such as the nonrecognition of private labor as social labor. In other words, from a logical point of view, the simple circulation and also the money circulation as a means of payment will always take place without general overproduction (Marx 1969: 717). In this stage, the phenomenon consists only of an abstract possibility of crisis, which “denotes no more than the most abstract form of crisis, without content, without a compelling motivating factor. [. . .] it only implies that the framework for a crisis exists” (Marx 1969: 715–16). Up to this point, therefore, there are two important elements missing: the phenomenon’s content and the compelling motivating factor that would generate it, that is, its cause.

According to Rosas Ribeiro (2008: 89–106), the crisis content encompasses three elements: the production of an ever-growing number of commodities, the generation of an ever-increasing number of consumers, and, at the same time, the creation of economic barriers that prevent consumption. However, to reveal the compelling motivating factor that generates this content, we need to move to the capital circulation analysis, for quite a simple reason: in the simple circulation framework, the aim of individuals as producers and as consumers is the same, since the aim of producing is, ultimately, consuming. In the capital circulation framework, however, while the goal of individuals as consumers is consumption, their goal as producers is to valorize the capital to the utmost extent so it can survive competition. In other words, in the capitalist mode of production, production and consumption form a unity of dialectical opposites. Let us explain.

The capitalist producer buys means of production and labor power for one reason only: to profit—at an increasing rate, if possible. In order to do that, he or she needs to extract surplus value in the production process. If the means of production are given, the creation of surplus value will face only two barriers: (1) the working population and (2) the level of exploitation (Marx 1991: 351). In these conditions, if the capitalist tries to expand the absolute surplus value by absorbing more labor power or increasing the level of exploitation beyond its limits, the wages in the economy will rise, compressing his or her profit. However, “as representative of the general form of wealth—money—capital is the endless and limitless drive to go beyond its limiting barrier” (Marx 1973: 260). Thus, as the personification of capital, the capitalist must find a way to overcome these barriers.

Given the competition between singular capitals, the profit of any production unit is restricted by the market price, which acts as its higher limit, and the cost of production, which acts as its lower limit. To free the profit from this enclosure, the capitalist needs to attack the lower limit by increasing the productive force. Once he or she is able to accomplish this, his or her individual price of production will stand below the market price of production, enabling him or her to realize the difference as surplus profit. By definition, however, all capitalists are seeking production techniques that are able to increase productivity. Since the market price of production is a weighted average of individual prices of production, there is a constant pressure for it to fall, which in turn will compress the profit of all capitalists: the surplus profit earned by those capitalists who are using new techniques will gradually disappear while the profits of capitalists who are operating with outdated technology will gradually turn into losses. Therefore, alongside capitalist production, an impulse toward unrestricted development of the productive forces emerges (Carneiro de Almeida Júnior 2019: 100–101).

As a general economic behavior, the act of implementing more productive techniques also allows capitalists to expand the amount of surplus value extracted in the production process, since one of its effects is a downward pressure on labor power’s price of production. However:

[. . .] this production of surplus-value is only the first act in the capitalist production process, and its completion only brings to an end the immediate production process itself. Capital has absorbed a given amount of unpaid labor. With the development of this process as expressed in the fall in the profit rate, the mass of surplus-value thus produced swells to monstrous proportions. Now comes the second act in the process. The total mass of commodities, the total product, must be sold. . . (Marx 1991: 352)

The increase in productivity, in itself, is a positive thing for society. Its expression within capitalist relations of production, on the other hand, consists of the expansion not only of the amount of surplus value that needs to be realized in the market but also of the number of commodities in which a given amount of this value is materialized, while making the price of production of labor power decrease. It also contributes to the growth of the reserve army of labor by absorbing less labor power or even increasing unemployment in the accumulation process, generating more downward pressure on wages. Hence, the demand of the vast majority of society—the working class—remains restricted to a very narrow limit, while the exigency under consumption rises (Carneiro de Almeida Júnior 2019: 103; Marx 1956a: 444–45).

Therefore, the compelling motivating factor that generates the content of the crisis, that is, the cause of overproduction in capitalist economies, is the shock between the opposite poles of capitalism’s fundamental contradiction: the impulse toward unrestricted development of the productive forces and the capitalist antagonistic relations of production and consumption (Marx 1969: 809). On the one hand, the development of productive forces expands the conditions for immediate exploitation. On the other, its expression within the capitalist relations of production narrows the conditions for the realization of that exploitation. As such, “the more productivity develops, the more it comes into conflict with the narrow basis on which the relations of consumption rest” (Marx 1991: 353).

Hence, the emergence of the contradiction that causes the overproduction crisis marks the transformation of the abstract possibility into the real possibility of crisis, since it creates the concrete necessary conditions without which the phenomenon would not occur. The transformation of the real possibility into reality, however, demands the gradual maturing of these concrete necessary conditions (Rosental and Straks 1958: 236–39).

From a logical point of view, up to this point, there is still a circumstance that keeps the development of productive forces in check. Since production and circulation are a unity of opposites, one particular portion of the firm’s capital cannot be both in the circulation and in the production sphere: while that portion is stuck in the C′ – M′ stage, it cannot be transformed once again into productive capital. Moreover, M′ – C′—the accumulation, the requirement for the production of surplus value on a larger scale—depends on the repetition of the C′ – M′ stage several times. But this is only true because we have been focusing on the industrial capital only, setting aside its relationship with commercial and banking capital (Carneiro de Almeida Júnior 2019: 109).

The addition of commercial capital to the analysis is the first step in the maturing process of the aforementioned concrete necessary conditions. When this particular form of capital buys the industrial capital’s production, from the point of view of the latter, the realization process has occurred, meanwhile, the commodity remains in circulation. If we take into account the innumerous links formed by the commercial capital in the circulation process, it becomes clear that this illusion will expand the limits of the mismatch between the conditions for the immediate exploitation and the conditions for its realization (Mendonça 1990: 157–59; Rosas Ribeiro 2008: 66–73). However, since the contradiction between circulation and value realization has disappeared only in the sphere of appearances, the link between the acts C′ – M′ and M – C still remains, and, as already established, the capital sees every boundary as a barrier it needs to overcome. In order to expand the production of surplus value indefinitely, the industrial capital needs to obliterate that link with the help of the banking capital. In Marx’s (1973: 342) own words, “the entire credit system, and the over-trading, over-speculation etc. connected with it, rests on the necessity of expanding and leaping over the barrier to circulation and the sphere of exchange.”

As established by Mendonça (1990: 159–64), from a logical point of view, the emergence of the banking capital enables capitalists to restart the capital circuit before finishing the act C′ – M′. It also enables them to expand the productive capital before accumulating enough surplus value to do so. They only need a credit operation, which also enables consumers to buy commodities with money they still do not have. In short, credit operations can advance an amount of value that has not been realized and/or produced yet.

Moreover, the banking capital operates by the same principles as the industrial capital: its goal is to expand itself to the utmost extent, which is done via the expansion of credit and other similar operations. In face of the development of the credit system and the subsequent emergence of new forms of commodity of capital such as fictitious capital, there is no immediate limiting barrier to this expansion process. Therefore, the banking capital and the credit system as a whole can and will make the link between the acts C′ – M′ and M – C momentarily disappear (Carneiro de Almeida Júnior 2019: 109).

Hence, from a logical point of view, at this stage, the concrete necessary conditions have matured enough to periodically generate overproduction crises. The possibility that the competing capital uses credit to increase its productivity drives every singular capital to unrestrictedly develop the productive force by using production credit. For the general capital, the incompatibility between the demand and its supply would immediately stand out. The singular capital, however, sees the production of alien capital as capable of generating the adequate demand (Marx 1973: 346). Moreover, the autonomization of the circulation process put into motion by the commercial and the banking capital also contributes to the illusion of an adequate demand. In the eyes of the industrial capital, the commercial capital appears to be capable of expanding the market indefinitely, while credit advances general equivalent for consumers. At a certain point, this endless pressure will cause the rupture of the unity of several contradictions of capitalism—such as purchase × sale, money acting as measure of value × money acting as realization of value, production × circulation, and production × consumption—and also of the proportionality between the different branches of production. At this point, the unity of these contradictions and the correct proportion between branches can only be reestablished by violence, namely, by a crisis. The real possibility turns into reality and the crisis occurs.

Here, the crisis basically plays the part of destroying the capital in excess (Rosas Ribeiro 2008: 133–40). When it does, the remaining capital has an unexplored territory—the market share of the capital that has perished and/or new markets in which the capitalist production becomes economically viable because of the fall in the rate of profit caused by the development of the productive force—to expand its operations and resume the accumulation process. To do so is, at the same time, to increase demand. Eventually, the need for development of the productive force will manifest itself once again, leading the economy to another overproduction crisis. Hence, the entire process depends on the renovation of fixed capital, which means that the time length between every burst of an overproduction crisis will be heavily influenced by the physical and the moral depreciation time of that fixed capital (Marx 1956b: 110; Rosas Ribeiro 2008: 140–45).

Moreover, as discussed by several authors, such as Carcanholo and Nakatani (1999), Carcanholo and Souza Sabadini (2009), and Lapavitsas (2013), one of the most important characteristics of contemporary capitalism is financialization. For our aim here, it is not important to explain this particular phenomenon in detail. What is relevant here is that, because of it, the industrial capital circuit is directly linked to the fictitious capital valorization process. Not only does it resort to the creation of fictitious capital in order to expand the productive capital, but it also uses its latent money capital—sinking funds and floating capital—to acquire bonds and other financial assets in order to realize fictitious profits.³ For this reason, it is possible to anticipate that economic crises in contemporary capitalism will always assume the appearance of a financial crisis (Carneiro de Almeida Júnior 2013). Let us explain why.

The valorization process of fictitious capital depends on its actual revenue and also on the expectation of its future revenue. Given the interest rate, if the speed at which the industrial capital expands itself keeps increasing, the actual and expected revenue of fictitious capital also increases, enabling capitalists to realize fictitious profits.⁴ However, the constant pressure for the mismatch between the conditions for the extraction and realization of surplus value generated by accumulation will sooner or later create what we call a latent overproduction—a considerable gap between the conditions for the extraction and realization of surplus value. Then, the situation can only unfold according to two possible scenarios: either (1) the deviation between the conditions for the extraction and realization of surplus value increases in such a way that the agents’ expectations are reversed because they think that it is no longer possible to ensure accumulation, or (2) some external circumstance anticipates this reversal by causing a financial disturbance. Either way, the decrease of the market value of financial assets will destroy part of the industrial companies’ latent money capital, putting them in an insolvency situation and thus creating the appearance that the crisis started in the financial sphere (Carneiro de Almeida Júnior 2013, 2016).

Taking into account what we have presented so far, the main lesson that can be derived from it is that every industrialized capitalist economy will necessarily develop itself through cycles of economic expansion and crisis; that is, the business cycle is a phenomenon inherent to capitalism. In essence, the story behind the movement of each of these cycles is the same and can be divided into four stages: crisis, depression, recovery, and peak. This characterization resembles the one presented by Schumpeter (1939), although the criteria used to determine the transition from one stage to another is different. Each of these stages can be described as follows.

Each business cycle starts with a crisis. For reasons we have already explained, the economy’s productive capacity will expand beyond the point in which the majority of companies can operate with reasonable profit. In other words, the unity of the pairs of dialectical opposites production × circulation and production × consumption ruptures. Moreover, anarchy of production may have caused some branches to grow in a way that disrupts the correct proportion. In such a scenario, the firms are either accumulating inventories by trying to operate normally, or they are reducing their activity level. In the financial sphere, firms and consumers start having trouble honoring their debt while the expectation of the assets’ future revenue plummets in the stock market, leading their market value to drop. Since several companies held their funds in the form of financial assets, this will deeply worsen the industrial capital situation by destroying part of these companies’ capital. These events in the financial sphere can also be triggered by an exogenous shock, which will alter the appearance of the crisis. However, the determinant factor for the deterioration of the situation will always be the accumulation conditions in which the industrial capital finds itself.

This chain of events will unfold into the bankruptcy of several companies and destroy another portion of the survivors’ capital until all the excess capital has been destroyed. At this point, when unemployment and GDP levels start to stabilize, the economy has reached the depression stage. The market share left unattended by the companies that went under and the accumulation in new markets will serve as stimuli for the remaining firms to expand production. Since the companies that have perished are usually the less productive ones, several commodities will become relatively cheaper, stimulating consumption as well. The crisis has then fulfilled its role and the unity element of several contradictions of capitalism is reestablished.

In this new scenario, companies start to hire again, and output growth is resumed, marking the beginning of the recovery stage. Since most of the economic growth will be a consequence of the usage of idle capacity, the decrease in unemployment will ensure that demand grows hand in hand with supply. Given that one production tends to put the other into motion, there is a tendency for increase in the growth rates. As soon as the economy’s idle capacity reaches a low enough level, capitalists will again feel the pressure to invest in more productive techniques, replacing the firms’ old machinery with more productive models, thus reducing, absolutely or relatively, the variable part of their capital. The new orders made to the economy’s department I and department II will temporarily generate new income, thus providing new demand along with the expansion of credit operations for realization purposes, creating the illusion of an adequate demand. At this point we reach the peak stage, and the process will repeat itself.

Taking this description into account, a useful exercise is to compare how, in our opinion, currency crisis theorists and overproduction crisis theorists would approach an economic crisis that has an external imbalance as one of its characteristics. The currency crisis theorist would perceive the economic deceleration as exclusively derived from the external imbalance. Then he or she would identify the particular circumstance that caused that external imbalance as the cause of the crisis. An example of a chain of events identified in this type of analysis would be the following: economic policy error causes external imbalance, which then causes crisis. In the overproduction crisis approach, on the other hand, the theorist’s first instinct would be to investigate which phase of the business cycle the economy was in when the crisis took place. To conclude that it was not in the peak phase would be the same as establishing that the development of the productive forces did not assume the post of central characteristic of the accumulation during the analyzed cycle, meaning an overproduction could not have been generated and the crisis should be classified as something else. If, on the other hand, the analysis showed that, prior to the crisis, a moderate accumulation based on the use of idle capacity changed into an accelerated accumulation based on the increase of productivity, it would mean that the economy was at the peak stage when the referred crisis happened, so further analysis would be necessary in order to try to identify whether or not overproduction characteristics were present. If so, the cause of the crisis would ultimately be the shock between the opposite poles of the fundamental contradiction, while the circumstance that caused the external imbalance would act as the nonessential cause of the crisis.⁵

What we have presented here suggests, therefore, that currency crisis theorists, concerned as they are with the phenomenon’s appearance, would fail to identify the real nature of most economic crises in capitalist economies. The several circumstances that they identify as these crises’ causes are nothing more than their nonessential cause. That is what motivated us to analyze the late 1990s Brazilian crisis once again, based on a different crisis theory.

3. Accumulation and Crisis during the Real Plan

In order to contrast the currency crisis approach and the Marxian one at the empirical level, we first summarize the traditional view of the exchange rate peg collapse in Brazil. Then we present the Marxian analysis of the late 1990s crisis, highlighting the aspects in which it diverges from the traditional approach.

3.1. The debate on the exchange rate peg collapse in Brazil

The debate on the exchange rate peg collapse in Brazil is marked by one big consensus: the Real Plan is pointed out by all researchers as the cause of the external imbalance that unfolded into the crisis and the collapse of the exchange rate regime. The differences begin to appear when discussing which particular aspect of the plan is responsible for causing this chain of events. In our opinion, the several analyses can be divided into two groups: (1) the ones in which the referred chain of events is the end result of a weak fiscal adjustment and (2) the ones in which it appears as a consequence of interest rate–related problems.

With analyses that seem to be based mainly on the canonical framework of Krugman (1979) and Flood and Garber (1984) and on second-generation orthodox models such as Obstfeld and Rogoff (1996) and Velasco (1996), the first group is more homogeneous than the second and can be well represented by the work of Schwartsman (1999). According to the referred author, the fiscal adjustment was the key to maintaining the macroeconomic stability. As long as the government was able to preserve the fiscal equilibrium, the interest rate differential would maintain the external equilibrium while helping to preserve price stability. As shown in tables 1 and 2, however, after 1994, the government was not able to accomplish the task:

Table 1.

Public Sector Borrowing Requirement by Government Level (as a Percentage of GDP).

Years	Government Level	Nominal Result (%)	Operational Result (%)	Primary Result (%)	Nominal Interest Paid (%)	Real Interest Paid (%)
1993	Public Sector	64.83	0.80	−2.18	67.01	2.98
	Central Gov. and BCB	23.96	0.68	−0.81	24.77	1.49
	State and Municipal Gov.	27.12	0.08	−0.62	27.74	0.70
	State-Owned Companies	13.75	0.03	−0.76	14.51	0.79
1994	Public Sector	26.97	−1.57	−5.64	32.61	4.07
	Central Gov. and BCB	10.15	−2.00	−3.68	13.83	1.68
	State and Municipal Gov.	12.08	0.80	−0.77	12.85	1.57
	State-Owned Companies	4.74	−0.37	−1.19	5.93	0.82
1995	Public Sector	7.28	5.00	−0.26	7.54	5.26
	Central Gov. and BCB	2.38	1.74	−0.52	2.90	2.26
	State and Municipal Gov.	3.57	2.37	0.18	3.39	2.19
	State-Owned Companies	1.33	0.88	0.07	1.26	0.81
1996	Public Sector	5.87	3.40	0.10	5.77	3.30
	Central Gov. and BCB	2.56	1.27	−0.37	2.93	1.64
	State and Municipal Gov.	2.71	1.81	0.54	2.17	1.27
	State-Owned Companies	0.61	0.32	−0.07	0.68	0.39
1997	Public Sector	6.11	4.31	0.96	5.15	3.35
	Central Gov. and BCB	2.63	1.76	0.27	2.36	1.49
	State and Municipal Gov.	3.03	2.26	0.74	2.29	1.52
	State-Owned Companies	0.45	0.29	−0.05	0.50	0.34
1998	Public Sector	7.93	7.40	−0.02	7.95	7.42
	Central Gov. and BCB	5.40	5.13	−0.55	5.95	5.68
	State and Municipal Gov.	2.01	1.78	0.19	1.82	1.59
	State-Owned Companies	0.52	0.50	0.35	0.17	0.15

Source: Bacen/N. Imp./F. Púb (Central Bank’s reports to the press/Public Finance).

Note: BCB = Brazilian Central Bank.

Table 2.

Real Change in Interest Expenses and in Public Sector Net Debt.

Years	Interest Expenses (%)	Public Sector Net Debt (%)
1992	13.95	−0.76
1993	−6.05	1.33
1994	43.86	−14.94
1995	34.95	11.19
1996	−35.91	17.87
1997	4.94	8.89
1998	121.57	23.08
1999	−10.28	22.89

Source: Elaborated by the author based on BCB Boletim/F. Públi., IBGE/SCN, IBGE/SNIPC.

Note: BCB = Brazilian Central Bank; IBGE = Brazilian Institute of Geography and Statistics; SCN = National Accounts System; SNIPC = National System of Consumer Price Indexes.

As the fiscal policy became looser and the net debt of the public sector grew, Schwartsman (1999) argues, the increase of the interest rate stopped being enough to overcompensate the risk increase, since economic agents started to fear the default. This insufficiency of capital inflow can effectively be seen in figure 1 from 1997 onward.

Figure 1.

Capital and financial account, current account (FOB), and balance of payments balance (in million US dollars).

In a rational expectations analysis, Schwartsman (1999) advocates that foreign economic agents could foresee when public debt growth would become unsustainable, causing a reversal of capital flow and a large depreciation of the real after the collapse of the exchange rate regime. Assuming perfect information, since every agent could make that prediction, each one of them wanted to get ahead of the others in the run on reserves, anticipating the exchange rate peg collapse. It is important to highlight that, according to the author, the financial turmoil caused by the incompatibility between the goals of the Real Plan and its fiscal policy also affected GDP growth in Brazil through agents’ expectations.

If, on the one hand, authors such as Schwartsman (1999) argue that, in spite of the heavy burden imposed by the monetary policy, the fiscal adjustment by itself would be enough to maintain macroeconomic stability, on the other hand, an expressive part of the authors from the aforementioned second group understands that the stabilization plan was doomed from the very beginning. Kregel (1999) and Saad-Filho and Morais (2002) are examples of those authors. The explanation of why the plan would be doomed is presented by us in subsection 2.1.

Some authors from the second group such as Ferrari Filho (2001), in turn, advocate that the stabilization plan could have achieved its goal without any financial disturbance had the government taken some precautions. First of all, the government should not have used asymmetric exchange rate bands, since it allowed a much higher appreciation of the domestic currency than necessary. As a consequence, it caused larger deficits in the current account, pressuring the interest rate up and increasing the cost of external equilibrium through capital inflow. Still according to Ferrari Filho (2001), had the government used a symmetric exchange rate band from the beginning and carried out a faster domestic currency depreciation, the change to a floating exchange rate could have come sooner and there would not have been any financial turmoil, hence, no crisis.

As we can see, the key element here is what each author sees as the determinant factor in the deterioration of agents’ expectations: the government’s current spending or the debt cost. On that note, Giambiagi and Além (2016) analyze the data on the Public Sector Borrowing Requirements in an attempt to settle the issue.

According to the authors (Giambiagi and Além 2016: 139), whereas the primary surplus of 2.9 percent of GDP in the 1991–1994 period was converted into a primary deficit of 0.2 percent of GDP in the 1995–1998 period—a total worsening of 3.1 percent of GDP in the primary result—there was, on the other hand, an increase of 1.1 percent of GDP in real interest paid from one period to another. Both these factors generated, therefore, a total worsening of 4.2 percent of GDP in the operational result, with the primary result’s share in the worsening corresponding to 73.81 percent and the real interest’s share corresponding to 26.19 percent, which would point to the fiscal adjustment as the central issue.

Finally, it is worth mentioning that, according to Falcão Silva (2002), the analysis of the Brazilian crisis based on several currency crisis theories can unfold into two different conclusions: (1) it was caused by an imbalance in the macroeconomic fundamentals, namely, a fiscal imbalance, or (2) it was caused by an increasing financial vulnerability. This reinforces the idea that the entire debate on the matter was indeed based on several currency crisis theories.

3.2. The real nature of the Brazilian crisis

The examination of the same facts based on the Marxian theory of crisis unfolds into results that set it apart from the two already established views. As we already know, the first step in the Marxian approach would be to determine in which phase of the Brazilian economy’s business cycle the Real Plan was put into motion. According to Carneiro de Almeida Júnior (2016: 150–68), a previous examination of the GDP’s cyclical component is very useful in these situations,⁶ since it is the closest data representation of the cyclical movement itself. Figure 2 presents the results obtained by the author after using the Baxter-King filter to decompose the frequency spectrum of Brazil’s GDP from 1958 to 2012.⁷

Figure 2.

Cyclical component of Brazilian GDP (in 2013 reais [R$], filter time range: 5–11 years, k = 4).

In examining figure 2, the first thing we realize is that, as predicted by the Marxian theory of crisis, the Brazilian economy, an industrialized capitalist economy, develops itself through cycles of economic expansion and contraction. As Rosas Ribeiro (1988), Palhano da Silva (2002), and Carneiro de Almeida Júnior (2016) have already demonstrated, overproduction is the essential characteristic of those crises.

The second thing we realize by analyzing figure 2 is that the business cycle during which the Real Plan took place started in 1988 and ended in 1997. As further analysis shows, when the Real Plan was put into motion, the recovery phase (1993.Q1–1994.Q3) had already started. The conclusion of the third stage of the plan, however, anticipated the entry in the peak phase (1994.Q4–1997.Q2). After a brief interruption, the accumulation that took place in this last stage, in turn, led the economy to an overproduction crisis initiated in the third quarter of 1997. We are presenting this information in advance so the reader can follow our reasoning more easily. With that same purpose, we added indications of the beginning of the business cycle phases that are important to the analysis in the graphs we present ahead.

We continue our analysis with the examination of figure 3.⁸ As we can see, after the last crisis, Brazil’s GDP resumed its growth in the first quarter of 1993. Figures 4 and 5, in turn, show that this economic growth is, at first, purely based on the use of idle capacity. The increase of the utilization of installed capacity, however, starts pressuring capitalists to invest and the Gross Fixed Capital Formation (GFCF) starts growing by the third quarter of 1993 onward.

Figure 3.

Real accumulated annual growth rates of the Brazilian economy’s quarterly GDP.

Figure 4.

Utilization of installed capacity in the Brazilian economy industry (in percentage and seasonally adjusted).

Figure 5.

Real accumulated annual growth rates of the quarterly Gross Fixed Capital Formation of the Brazilian Economy.

As we know, the first stage of the Real Plan was only carried out at the beginning of 1994. By then, an economic recovery as described in the Marxian business cycle theory was already in progress. The plan was, therefore, executed in the middle of the recovery stage of the business cycle. Hence, the first conclusion we can draw here is that it is not accurate to say that the plan generated a business cycle, since it did not cause the economic recovery. However, as a result of trade liberalization, it did accelerate said recovery by giving capitalists easy access to advanced foreign technologies while boosting competition and consumption by cheapening imported consumer goods and stabilizing prices.⁹ As we can see in table 3, the productivity of manufacturing—as well as that of other sectors (Saad-Filho and Morais 2002: 12–13)—grew at high rates in 1993 and 1994.

Table 3.

Productivity Growth Rates of the Brazilian Economy Manufacturing Industry.

Years	1992	1993	1994	1995	1996	1997	1998	1999
Annual Variation (%)	4.19	8.23	7.46	0.86	5.33	7.95	1.54	1.09

Source: IBGE/PME Antiga (IBGE’s monthly employment survey).

Note: IBGE = Brazilian Institute of Geography and Statistics; PME = Monthly Employment Survey.

The data presented in figure 6 also corroborate this idea, since, despite the acceleration of the economic growth, we can still see some stability with a downward tendency in the indexes of personnel and hours worked in the industrial sector, indicating an increase in social capital organic composition.¹⁰

Figure 6.

Hours worked and personnel indexes for industry sector (seasonally adjusted index, 2006 = 100).

In terms of the Marxian theory of crisis, the sharp increase in the growth rates of GDP and GFCF from 1994.Q3 to 1994.Q4, combined with increasing productivity and stability in the number of workers in the industrial sector, can only be interpreted as a rapid accumulation characterized by the development of the productive force. The effects of the Real Plan, therefore, anticipated the entry in the peak stage of the business cycle, which happened in the fourth quarter of 1994.

The plan, however, also caused the referred phase to be temporarily interrupted. As we saw in section 2.2, the accumulation in this stage depends partially on credit to expand the limits of the mismatch between the conditions for exploitation and the conditions for the realization of the product of that exploitation. Moreover, as we can see in figures 7 and 8, after the conclusion of the third stage of the Real Plan, the sharp rise in consumption coincides with a reduction in the growth rates of credit operations to the private sector, reaching −6.04 percent in June 1995.

Figure 7.

Real accumulated annual growth rates of quarterly household consumption and public administration consumption in the Brazilian economy.

Figure 8.

Real accumulated annual growth rates of monthly credit operations to the private sector of the Brazilian economy.

This particular situation was a consequence of one of the measures carried out in July 1994 by the Brazilian central bank in order to limit the monetary base expansion. The compulsory deposit rate for new deposits was set at 100 percent, meaning that the foreign sector was the only one the Brazilian economy could count on to meet their demand for credit. However, as a consequence of the six increases in the Federal Reserve’s discount rate and Mexico’s debacle in the same year (Saad-Filho and Morais 2002: 11), the international liquidity sharply decreased alongside the credit supply in the Brazilian economy.

For the government, the only possible way to avoid public debt financing problems was to substantially raise the basic interest rate (Saad Filho and Mollo 2002: 121). Then, the combination between the consumption boom, the credit crunch, and the increase of interest rates resulted in an unparalleled escalation of defaults in the country, as shown in figure 9.

Figure 9.

Accumulated annual growth rates of monthly default indexes at t-3 and t-4 of the Brazilian economy.¹¹

As a reflection of the sharp rise of defaults, the growth rates of household consumption started to decrease, until reaching an almost null value in the second quarter of 1996 (see figure 7). Since the economy’s inventories had already increased in 1994, as we can see in table 4, capitalists did not have any choice besides decreasing production at the end of 1995 and the beginning of 1996.

Table 4.

Inventory Variation in the Brazilian Economy (in Million Reais [R$] at Constant 1995 Prices).

Years	Inventory Variation
1994	5,973.7
1995	−2,088.1
1996	1,305.4
1997	454.5
1998	495.4
1999	6,004.9
2000	12,645.1
2001	8,912.9
2002	−1,715.0

Source: Elaborated by the author based on IBGE/SCN 2000 Annual, IBGE/SCN 1985 and IBGE/SNIPC. Note: BCB = Brazilian Central Bank; IBGE = Brazilian Institute of Geography and Statistics; SCN = National Accounts System; SNIPC = National System of Consumer Price Indexes.

Seeing the deceleration of economic activity, the government started decreasing the compulsory deposit rate for new deposits, which reached 83 percent in July 1995 and 75 percent in January 1996. As we can see in figure 8, this was enough to maintain a low but positive growth rate of credit operations to the private sector from January 1996 to June of the same year. As demonstrated in figure 10, however, there is a substantial rise in the bankruptcies in 1996, since many companies were not able to survive the credit crunch.

Figure 10.

Bankruptcy declarations in the Brazilian economy.

The elimination of competition combined with timid credit expansion creates the feeling among capitalists that it is possible to continue the accumulation process, which is done in the last quarter of 1996. The new material conditions, however, did not allow it to be carried out at the same pace as before. First of all, there was the fiscal deterioration issue, which led to the reduction of the public administration consumption during the years 1996 and 1997 (see figure 7). Moreover, this circumstance was aggravated by the increasing deficits in the current account, as can be seen in figure 1, which also acted against the economic expansion by narrowing the conditions for surplus value realization. Finally, there was the already mentioned credit issue.

Without the leverage of credit, the expansion is supported, to a greater degree, on the real side of the economy. Nevertheless, after restarting, the accumulation was still based on the development of the productive forces, as can be seen in table 3. However, with the contradictory effects of the development of productive forces, the credit crunch, the decrease of government consumption, and the deficits in the current account acting all together in the narrowing of the conditions for the realization of surplus value, the tendency toward the increase of inventories arises once again in 1996. It would not be long until the limit of the mismatch between the conditions for the immediate exploitation and the conditions for its realization was reached, which happened in the third quarter of 1997. As we already discussed, this economic downturn in the Brazilian economy at the end of 1997 is interpreted by the traditional view as a consequence of the Real Plan. In our opinion, however, important elements of the analysis point to an overproduction crisis.

The reader may recall that the decomposition of the Brazilian GDP frequency spectrum showed the development in cycles of economic expansion and contraction as the standard behavior of the Brazilian economy. The reader may also recall that the acceleration of the economic expansion examined here is characterized by a productivity increase linked to a growing social capital organic composition. Hence, we have already demonstrated that the phenomenon established as the cause of overproduction crises was present in that expansion. In view of that, here is the final question we need to ask: is overproduction the essential characteristic of the Brazilian crisis? Let us answer that question by proceeding with our analysis.

After reaching its maximum value of 13,617 points on July 8, 1997, the Ibovespa stock index entered a downward trend that would only end at the beginning of 1999, as can be seen in figure 11. This deterioration of the fictitious capital market value is nothing more than the expression of the fact that economic agents realized that the industrial capital was facing difficulties maintaining the accumulation process at the same speed as before. Those difficulties, in turn, appeared because, as mentioned above, the limit of the mismatch between the conditions for the immediate exploitation and the conditions for its realization was reached.

Figure 11.

Ibovespa stock index (closing).

Unable to realize all their supply, capitalists started decreasing their production level in the third quarter of 1997, as can be seen in figure 3. This is one of the concrete forms assumed by the obliteration of the proportionality between the different branches and of the unity element of the pair of opposites production × consumption in contemporary capitalism, when supply chain management techniques predominate: productive capital in excess that cannot be used.

When, in October 1997, the Asian financial crisis spread terror on the stock exchanges of emerging countries (Schwartsman 1999: 20), the fictitious capital devaluation process intensified, unfolding into the destruction of part of the latent money capital of industrial capital that was seeking fictitious profits in the financial market and leading to more bankruptcies, as can be seen in figure 10.

The remaining competitors, in turn, were able to breathe for a while, not only due to the appropriation of the market share of those who perished, but also because, as of December 1997, the credit supply to the private sector (see figure 8) began to grow again. Another factor that acted in the same direction was the public administration consumption which, going in a different direction than the household consumption, started to show positive growth rates as of the fourth quarter of 1997, reaching 4.98 percent in the third quarter of the following year. Bankruptcies, however, plunged a significant portion of the proletariat into unemployment, as can be seen in table 5. This inevitably reduced the demand of both capitalists and proletarians, thus implying a reduction in the growth rate of household consumption (see figure 7).

Table 5.

Unemployment Rate of the Brazilian Economy.

Years	Unemployment Rate (%)
1995	6.70
1996	7.59
1997	8.46
1998	9.75
1999	10.44
2000	–
2001	10.06
2002	9.88

Source: IPEA (n.d.).

Besides, as our theory suggests, the expansion of credit could not act as a mitigating factor to the decrease in demand for long. It is no coincidence that, at the end of 1997, the default indexes started growing again, reaching growth rates higher than 30 percent in 1998. As for the government’s economic policy, its source of financing was doomed to exhaustion, because, in order to support both the expansionist fiscal actions and the exchange rate crawling bands, the treasury started to offer bills of exchange and dollars in the future market, offering hedge opportunities to speculators and socializing the exchange rate risk (Saad-Filho and Morais 2002: 16–17). This situation laid the ground for what D. Harvey (2013) presented as the vanguard of accumulation by dispossession. After the Russian financial crisis in 1998, the financial institutions’ attacks on Brazil generated profits at rates ranging from 200 to 400 percent in January 1999. In March, in turn, after the change of the exchange rate regime to a dirty fluctuation, the maintenance of high interest rates made another attack possible, this time against the dollar, yielding gains of 20 percent in just one month (Saad-Filho and Morais 2002: 17–18).

In 1999, the situation also deteriorated in the real side of the economy. With a high unemployment rate and negative growth rates for household consumption and GFCF, the supply chain management techniques were not enough to prevent the intensification of the opposition between production and consumption, leading to the overproduction of commodity capital, as can be seen in table 4, through the substantial increase in inventories.

As we can see, from 1997 to 1999, the Brazilian economy displayed all the essential characteristics of an overproduction crisis, as described by Marx (1969, 1973, 1991) and other Marxian authors. There was (1) financial turbulence, which attests to the overproduction of capital in its money capital form; (2) production cuts and unemployment growth, which attest to the overproduction of capital in its productive capital form and also to the action of the anarchy of production; (3) insolvency of companies, default of economic agents as a whole, and sharp increase in inventories, which attests to the overproduction of capital in its commodity capital form and also to the rupture of the contradictory units production × circulation and production × consumption; and (4) bankruptcy of companies, which is the crisis mechanism to restore the conditions of accumulation. In other words, the 1997 crisis was not a currency crisis, but a cyclical crisis of overproduction.

4. Final Remarks

The role of any scientific field is precisely to identify the laws of motion to which its object of study is subject, so that humankind can be favored by this knowledge. Therefore, it is necessary to look beyond the appearance of phenomena, since only their essential features have the stability needed to generate a predictable movement. We believe, however, that economic theory has been distancing itself from this guiding principle and analyzing reality more and more superficially. If, on the one hand, the examination of transmission mechanisms of simple causal relationships is increasingly refined and the accuracy in determining the cause-effect quantitative relationship has never been higher, then on the other, the more complex causal relationships, which involve the study of connections that are difficult to see and understand, seem to be going unnoticed.

By carrying out an analysis such as that of Mendel’son (2013), it is possible to identify what the several crises that have affected capitalist economies for the last two hundred years have in common. As we have said before, overproduction is their essential characteristic, and they are subject to a law that operates regularly in capitalism: the never-ending shock between the impulse toward unrestricted development of the productive forces and the capitalist antagonistic relations of production and consumption. Thus, it is necessary to understand such crises as a regular and necessary phenomenon so that one can fully understand the dynamics of capitalist development, which is cyclical. Understanding the distinctions between these crises is very important, but it borders on inertia when dissociated from the knowledge of its essence. The current analysis emerges, therefore, as an attempt to contribute to the understanding of the phenomenon in these terms, with the following conclusions stemming from it.

The execution of the Real Plan in fact interfered with the cyclical movement of the Brazilian economy. It accelerated the accumulation process by boosting competition and consumption, interrupted the peak stage by generating the 1995 credit crunch, and also anticipated the crisis stage by intensifying the narrowing of the conditions for the realization of surplus value. However, by accelerating the accumulation, it only exacerbated the essential characteristic of this process: the increase of the tension between the impulse toward unrestricted development of the productive forces and the capitalist antagonistic relations of production. Moreover, by further narrowing the conditions for the realization of surplus value, it only joined forces with the restrictions imposed by the manifestation of the effects of the productive force development within said antagonistic relations of production. The development through cycles of economic expansion and contraction is necessary for the capitalist mode of production, because of its constant tendency toward overproduction. It is true that exogenous elements can alter the intensity of this movement and also shift it around in time, but they can never transform themselves into its essential cause.

Overproduction is, therefore, the true nature of the 1997 Brazilian crisis. The government’s economic policy must be understood only as its nonessential cause, which determines its appearance, while the essential cause lies in the very nature of capitalist accumulation, producing the periodic shock between the opposite poles of the fundamental contradiction. The classification of this crisis as a currency crisis is therefore inaccurate, at least. For us, it is an overproduction crisis that has an external imbalance as a particular characteristic.

Footnotes

Acknowledgements

It is imperative to acknowledge that this article would not have achieved the present quality level without the RRPE’s review panel collaboration. We are extremely grateful for Lucas Milanez de Lima Almeida’s, Annina Kaltenbrunner’s, and David Barkin’s suggestions. We also would like to thank Enid Arvidson for her help during the entire submission process.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: We want to show our appreciation for the Coordenação de Aperfeiçoamento de Pessoal de Nível Superior, CAPES, which funded an important part of our research.

ORCID iD

Antonio Carneiro de Almeida Júnior

1

Neomonetarismo Tropical, in Portuguese.

2

The law is a dialectical materialism category defined by Rosental and Straks (1958) as “a necessary, essential, internal and stable relationship of the objects and phenomena, expressed in their movement” (: 160, free translation). The authors also present a more direct definition given by Lenin for whom the law is the relationship between essences (Rosental and Straks 1958: 156).

3

Fictitious profits are financial profits earned by fictitious capital owners in operations in the financial market. The concept was created by the Brazilian Marxian economist Reinaldo Carcanholo ().

4

Since the financial sphere does not generate new value, it needs to drain it from the productive sphere each time that economic agents decide to realize those profits. Hence, the valorization of fictitious capital also contributes to the imbalance created by the accumulation process.

5

According to : 107), the causes of phenomena can be put into two categories: essential and nonessential causes. The essential causes are the ones (1) without which the phenomenon would not occur and that (2) determine the phenomenon’s general and necessary characteristics. The nonessential causes, on the other hand, are the ones that (1) engender the peculiar and transitory characteristics of the phenomenon, (2) have limited impact on the phenomenon, and (3) are subordinated to the essential cause.

6

The total variation of any time series encompasses variation standards of different frequencies. Given the existence of the business cycle, when filtering the GDP of industrialized capitalist countries, two components are expected to be obtained: (1) a trend component encompassed by low frequency changes, which represents the tendency of capitalist economies to develop themselves, and (2) a cyclical component encompassed by high and/or medium frequency changes, which represents the law that subjects the economy to a cyclical dynamic.

7

The use of this particular filter implies losing information at the beginning and at the end of the series. For more information concerning the author’s choice of the filtering process and its parameters’ values, see Carneiro de Almeida Júnior (2016: 150–68), Baxter and King (1999), King and Rebelo (1993), A. C. Harvey and Jaeger (1993), Cogley and Nason (1995), and .

8

To increase the precision while identifying the changes between stages of the business cycle, we choose to work with quarterly and monthly data, which can, in turn, impose some challenges regarding the study of economic fluctuations. The issue here is that the smaller the base period of the data, the higher the chance of circumstantial events—such as the existence of less business days from one period to another, city blackouts and so on—causing significant impacts on the data growth rates, making it more difficult to follow the cyclical movement. In order to address the issue, when working with quarterly and monthly data growth rates, we use what we call real accumulated annual growth rates of quarterly or monthly data. This data treatment consists of calculating the percentage change of the growth accumulated in one year up to a certain moment in relation to the one accumulated in the immediately preceding annual period. They are obtained through equations 1 and for quarterly and monthly data, respectively, where T_n is the accumulated annual growth rate in period n, and x_i is the value of the variable in period i:

(1)

T_{n} = \frac{\sum_{i = n - 3}^{i = n} x_{i}}{\sum_{i = n - 7}^{i = n - 4} x_{i}} - 1

(2)

T_{n} = \frac{\sum_{i = n - 11}^{i = n} x_{i}}{\sum_{i = n - 23}^{i = n - 12} x_{i}} - 1

9

There was a significant increase in the capital goods import coefficient between 1993 and 1996 (: 12).

10

It is important to mention that these events are also a consequence of the productive restructuring taking place in Brazil during the period analyzed here. For more information, see .

11

The indexes are obtained by dividing the liquid debt default registration three and four months past due (received minus canceled) by the number of queries.

Author Biography

Antonio Carneiro de Almeida Júnior holds a PhD in Economic Development from PPGDE/UFPR, a master’s in Economic Development from PPGDE/UFPR, and is a graduate in Economics from UFPB. He is a member of the Sociedade Brasileira de Economia Política (SEP) and coordinator of the Projeto de Análises sobre os Ciclos Econômicos (PROAC). His research areas include: overproduction cyclical crises, the Brazilian economy, capital turnover, and the socialist mode of production.

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