What's this crisis about?

The real credit squeeze

Since the current recession arrived  economic academics and commentators have all of a sudden forgotten their earlier proclamations of having solved economic instability and now become "crisis conscious." These economists had believed that crises could be avoided, the swings of the economic pendulum damped, the irregularities of the cycle ironed out, the days of boom and slump ended, by some adaptation of the monetary or credit system, by state intervention, by increased "elasticity" of wages or by a more equal distribution of incomes with the help of taxation; in other word, by reforms which would improve the workings of the capitalist system without touching its basis - private property in the means of production. Their various proposals for guaranteeing a healthy economy and full employment were based on the conviction that nothing is fundamentally wrong with the economic system. It is a symptom of the general crisis of capitalism that this naive faith in the internal harmony of the capitalist system is shattered in the minds both of practical businessmen and of the theoreticians of capitalism.

Capitalism’s charlatans mistake the shadow for the substance and think that if only there is faith all will be well. They have not the slightest knowledge of the basis of economic crises. They fail to see that crises are not produced because of lack of faith, but that there is no faith because the markets are stagnant. At such a period everyone seeks to realise their assets into hard cash. Accordingly demands are made all round for obligations to be fulfilled. These demands sometimes overtake banks, who are unable to pay over, with the result that a financial crisis ensues. It is to stabilise the banks and ensure confidence that the recent bail-out and nationalisations and take-overs have been taking place in the financial world. But it is all in vain. So long as production is carried on for profit there is bound to periodically result “crises” on the markets of the world. Wall St and the City of London  may well seek reform of their regulation but they cannot avoid the convulsion that accrues from time to time, because the markets, both home and foreign, become congested. It is only when production is free from the market and orderly organised upon a basis of social well-being instead of private gain can we escape the anarchy of capitalism.

This system cannot ensure the harmonious growth of the economy, cannot ensure work and well being for all the working people, cannot avoid economic crises and the destruction of the productive forces and the values created by the sweat and blood of the working people. The strategy of the wealthy in the conditions of the crisis is aimed at intensifying exploitation, further increasing the concentration of capital and production, carrying out various changes to create the best conditions for the extraction of maximum profits, shifting capital to the areas of maximum capitalist profit whether at home or abroad.

The employers are shifting the burden of the crisis onto the backs of the working people and increasing the tribute it exacts from the whole of society. The exploitation of the workers is being intensified through the cutting of real wages, imposition of redundancies, the intensification of work through speed-ups etc., the imposition of worse working conditions, and so on, facilitated by the pressure of the vast reserve army of the unemployed. State expenditure is being transferred away from social spending such as on health, education, benefits and the burden of direct and indirect taxation is being increased to cover the state expenditure as a whole.

The capitalist class pretends that it has the solution to the crisis and promises “recovery” provided the workers accept the shifting of the burden of the crisis onto their backs. The government is demanding further sacrifices of the workers in terms of further reduction in real wages, further increases in productivity, etc., as the condition of ensuring recovery. But in reality neither has control over the course of the  crisis. The demand that the workers accept further unemployment and further speed-ups and further reductions in real wages, social services, benefits, etc., is simply a demand that the workers accept still more of the burden of the crisis on their backs so as to ensure the recovery of profits which is the real concern of business.

The motive of capitalist production is profit and the only issue of “recovery” for the rich is recovery of profits. Such “recovery” will not alter at all the condition of the working class as wage slaves, or change the conditions of the exploited in relation to the exploiters. The recovery of the profits  can only take place on the basis of the further intensification of exploitation, the further impoverishment and ruin of working  people.  Because of its political implications this point must be stressed, especially in connection with state spending on the social services. That capitalism is no longer able to finance an adequate welfare state, and is in fact driven to make severe cuts in this area, indicates not that spending on the welfare state is the cause of the crisis but signifies that capitalism can no longer provide the basic requirements (health care, education, social services, etc.) for the millions

Some on the Left imply that the Marxist analysis of economic crises can be put down to under-consumptionism which very briefly means capitalism reduces the ability of the people to consume these goods by continually driving down their wages and living standards until workers are unable to purchase the very goods they themselves have produced. As inviting as this explanation appears it is wrong.  Economic crises are due to the basic features of the capitalist system and one feature is the anarchy of production. Businesses decide what kind of things to produce and how many to produce either individually or in small groups. Production is not planned by any central agency. Over time, disproportions between the activities of various firms and different industries eventually occur. The effect of this unplanned method of production under capitalism causes either too many products or too few products on the market. If we take into account that even in modern monopoly capitalism with its high concentration of production and capital there are many thousands of independent productive units, every one producing for the unpredictable contingencies of a vast market, every one dependent on the decisions of millions of other private producers and consumers, and every one directed only by the desire to make the maximum profit, it is not so astonishing that this absurd system tends to break down. It is astonishing that it functions somehow, for some time. The whole process of production, normally a process of expanding production, can only continue if the mass of capitalist producers find on the market a sufficient demand to enable them to sell their product at what they regard as a reasonable profit and a sufficient supply of the means of production (machinery, raw materials and labour) and at such prices as will enable them to reproduce their capital, to continue their production on an enlarged scale.

This feature of capitalism – the anarchy of production and the arise of  disproportions in the economy affect the capitalists’ profits. When businessmen do not make the expected level of profits, they run down production. Order cancellations to sub-contractors, factory closures, and bankruptcies cause a chain reaction leading to economic paralysis, which is called a crisis. Part of the chain reaction of the economic slow-down and contraction is a falling level of working-class consumption. Another reaction is growing unemployment. However, it is the economic contraction which causes a decline in wages and working-class consumption and growing unemployment, not under-consumption by the working class that causes capitalist economic crises. Marx and Engels repudiated a crude, oversimplified theory of under-consumption. Marx points out that "crises are precisely always preceded by a period in which wages rise generally" and that this "relative prosperity" of the working class occurs always only "as a harbinger of a coming crisis." Engels stresses the point that under-consumption of the masses, i.e. the limitation of their consumption to the bare minimum, existed thousands of years before capitalism emerged, but only with capitalism does the new phenomenon of over-production emerge. Under-consumption is a chronic fact in capitalist society while crises recur periodically.

Why is the question important? The under-consumptionist line channels the working class away from militant class struggle and into dead-end reformism. Struggle is confined to making appeals through the system to this or that politician.

For the reason that if an organisation supports the line that under-consumption is the reason for capitalist economic crises then there is no need for revolution. All the working class has to do to solve its problems is to demand some tax relief and extra spending on the part of the capitalist state. It is a return to Keynesian intervention with increased government spending and investment in infrastructures. As long as the capitalists are in control, production is based on profits not social needs, and workers will never have cheap, abundant medical care, food, education, leisure activities, and so on. Just having higher wages or less taxes does not make capitalists produce more. Those can simply be “financed" by printing more money. Total production may remain the same while prices rises with the ensuing inflation.

In Marxist terms the real question at issue here is this: Is the capitalist system one founded on the production of goods and services to satisfy human needs, or is it one based on the production of surplus value in which the production of use values is purely incidental to the process?

As we know Marx answers this latter question in the affirmative. The production of wealth takes place only in so far as the production of surplus value takes place. So to the extent that goods, wealth and income are, via public spending, generated at the expense of surplus value, far from alleviating the crisis of capitalism such spending must only serve to aggravate its underlying contradiction – which takes the form of an inability to generate sufficient profit on the capital currently in existence. In financing its activities the state creams off a portion of surplus value from private capital. Even if we assume that taxation were reduced and private investment increased by an equivalent amount this would not necessarily lead to an increase in surplus value. For this would depend entirely on the conditions of production, the conditions for the extraction of surplus value, etc. Only by a concrete examination of these conditions can that question be answered one way or the other. If, on the other hand, the surplus value which was otherwise creamed off by the state was to lie idle in the hands of the capitalists this could clearly lead to no increase in surplus value. For such surplus value would no longer be capital but merely a hoard.

The progress of new technology, the growth of the productivity of labour, which is the necessary pre-condition of an improvement of the living standard of the people, of progress to a higher level of civilisation, becomes, under the contradictory conditions of the capitalist system, a curse, a cause of permanent economic insecurity, of mass unemployment and recurring crises. The cure of the evil is not to stop or to retard the development of productive forces, but so to change the basis of economic life that the satisfaction of the needs of the people, instead of capitalist profit, becomes the driving and regulating principle.