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Bubblecom - new economic paradigm exposed

Marxist Analysis · 2026-05-13

Core Argument

Brooks argues that the "new economy paradigm" — the claim that information technology has abolished the business cycle and ushered in a permanently higher growth trajectory — is a transparent ideological justification for a speculative financial bubble. The central thesis is that the dot-com boom is not a rupture with capitalism's laws of motion but a classic instance of fictitious capital inflation, driven by herd behaviour and the chase for short-term gains rather than any fundamental transformation of the system's underlying contradictions. The bubble will burst not because of external shocks but because the divergence between paper valuations and the real extraction of surplus value becomes unsustainable. Far from representing a "new economy," the episode repeats patterns seen in the railway manias of the 19th century and the 1920s stock market boom.

Theoretical Grounding

The analysis is rooted in Marx's theory of fictitious capital — shares and other financial instruments whose "value" depends entirely on anticipated future income streams, not on any underlying productive asset. Brooks draws on the distinction between the real economy (production of surplus value) and the financial superstructure, arguing that share prices systematically diverge from the value of the productive assets they supposedly represent. The article also deploys Marx's insight from the Grundrisse that information technology, by reducing the role of direct labour time in production, undermines the very basis of exchange value — a contradiction that capitalism cannot resolve.

The analysis sits within the Marxist tradition's long critique of "long wave" theories, particularly Kondratiev's. Brooks follows Trotsky's argument in "The Curve of Capitalist Development" that long periods of capitalist development are determined not by internal cyclical rhythms but by "external conditions" — historical conjunctures, class struggles, and the uneven diffusion of technology. The article rejects technological determinism: innovations are not self-generating but are taken up only when profitable markets exist. The distinction between invention, innovation, and diffusion is central to this argument.

Conjunctural Relevance

The article was written in July 2005, five years after the dot-com crash of 2000-2001, but its analysis remains directly relevant to the current conjuncture. Brooks identifies several structural features that have only intensified:

  • Fictitious capital inflation: The price-earnings ratios Brooks cites (44 on the S&P 500 in early 2000) have been exceeded repeatedly in the subsequent two decades, particularly in the tech sector. The "momentum" trading he describes — buying because prices are rising — has become the dominant mode of financial accumulation.

  • Productivity paradox: Brooks notes that productivity gains were concentrated almost entirely in computer manufacturing itself, not diffused through the broader economy. This pattern has persisted: the productivity gains from digitalisation have been slower and more uneven than proponents claimed, a phenomenon now widely discussed as the "productivity puzzle."

  • Uneven development: The article observes that large parts of the world — East Asia, Latin America, sub-Saharan Africa — were in recession even as the US boomed. This unevenness has become a permanent feature of the post-2008 landscape, with the US and China pulling ahead while much of the global South stagnates.

  • Infrastructure vs. profits: Brooks predicts that internet firms will not capture the gains from the technology they pioneer, just as railway companies did not. This has been borne out: the major beneficiaries of digitalisation have been platform monopolies (Amazon, Google, Meta) that extract rent from the infrastructure, while the underlying technology becomes a utility.

  • The bursting mechanism: Brooks warns that when paper asset prices collapse, the knock-on effects on the real economy are severe — debts remain fixed while collateral evaporates. This is precisely what happened in 2008, and the pattern has repeated in subsequent financial crises.

Where the Argument Continues

The article leaves several threads that are developed elsewhere in the Marxist corpus:

  • The tendency of the rate of profit to fall: Brooks mentions the equalisation of profit rates across industries but does not develop the TRPF as an explanation for the long downturn after 1974. This is taken up in other IDOM articles on the profitability crisis and in Robert Brenner's The Economics of Global Turbulence.

  • The nature of the post-1974 period: Brooks asserts that the "golden age" is definitively over but does not fully theorise the character of the subsequent period — what has been called "neoliberalism" or "financialised capitalism." This is explored in IDOM articles on the 2008 crisis and in David Harvey's The Enigma of Capital.

  • The role of the state: The article focuses on private speculation and does not address the role of central banks, quantitative easing, or state-backed financial rescues — all of which have become central to maintaining the system after 2008. This is taken up in IDOM's analysis of "money printing" and the 2020 pandemic response.

  • The political implications: Brooks concludes with a hope that workers will "learn from bitter experience" but does not develop a strategic perspective for how the left should intervene in financial crises. This is addressed in IDOM articles on the need for a revolutionary party and in the RCI's broader political programme.

Connections

  • Marx, Capital Volume 3: The theory of fictitious capital and the credit system.
  • Marx, Grundrisse: The passage on information technology and the breakdown of exchange value (quoted in the article).
  • Trotsky, "The Curve of Capitalist Development": The critique of Kondratiev and the argument that long periods are determined by external historical conditions.
  • Kindelberger, Manias, Panics, and Crashes: The empirical history of financial bubbles, cited by Brooks.
  • Robert Gordon, "Does the New Economy Measure Up?": The academic source for the productivity data Brooks uses.
  • IDOM articles on the 2008 crisis: The analysis of how the housing bubble replicated the dot-com pattern.
  • Against the Stream episodes on financialisation: The podcast series that develops the theory of fictitious capital in the current period.

Key Quotes

  1. "Shares don't have an inherent value. They are just pieces of paper. True, a share is supposed to represent part ownership of a firm. But the price of the shares systematically differs from the value of the underlying assets owned by the firm... A share's sole function is to allow its owner to make money."

  2. "Marx called pieces of paper whose 'value' depends entirely on what you expect to get out of them fictitious capital. If the value of shares is fictitious there is always the possibility of a bubble developing."

  3. "The 'new economy' theory is a product of market euphoria... The assertion that the bubble will never burst, that it will just keep on growing for ever and ever — is the basic hallmark of the new economy paradigm."

  4. "Capitalism is not a technically driven system, it is a profit-driven system. However there are eras of capitalist development with their own characteristics, which are often stamped upon them by the clusters of technology taken up and used by the system at that time."

  5. "The internet is an inherently co-operative venture put together by millions of enthusiasts who just want to help other people or put their point of view, and don't expect to be paid. Capitalism has found it difficult to colonise this environment. Information is a public good. It is too cheap to distribute to be worth monitoring."

  6. "Capitalism has taken us to the threshold of abundance and slammed the door in our face. Instead of artistic and scientific development of individual potential, under capitalism internet technology has given us a new outlet for greed and huckstering."