[Marxism] Insight article by Sam Marcy on 1987 that is very revelent to now

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Wall Street CRASH: What does it  mean? 
By Sam Marcy 
November 2, 1987 
[This pamphlet by Sam Marcy, published in February 1988,  was originally 
written as an article for Workers World newspaper shortly after  the 1987 stock 
market crash. It is filled with Marxist insight into the nature  of the 
capitalist system, together with valuable information illuminated by  those insights. 
The central role of the stock exchange in the capitalist system;  the role of 
the exchange in promoting colonialism; the central contradictions of  
capitalist overproduction and the anarchy of production are all described in  order to 
lay bare the underlying forces behind the 1987 stock market  crisis. 
The basis for Marcy’s confidence in the revival of the  class struggle was 
the changed character of the working class. Technology was  undermining the 
predominance of the higher-paid workers and expanding the  lower-paid workforce. 
This new workforce was composed of more and more Black,  Latin@, Asian, women 
and lesbian, gay and (now it is recognized) bi and trans  workers. This 
low-paid workforce would bring the energy of the oppressed into  the class struggle 
and would be able to lead it under conditions of economic  crisis. The Wall 
Street crash of 1987, which came a year after Marcy had written  his book 
High-Tech, Low Pay, seemed to foreshadow that crisis and open  the road to an early 
revival of the class struggle 
The following quote is from the upcoming book Colossus  with Feet of Clay by 
WWP Secretariat member Fred Goldstein, now in  production. It explains why 
Marcy's prognosis on the question of an economic  crisis after the stock market 
crash of 1987 was correct under the circumstances  of the time, but was then 
superseded by catastrophic world developments that  could not be anticipated. 
"Marcy and other communists were rightfully anticipating  that the high-tech 
assault on the workers would lead to an upsurge of the class  struggle in the 
near period. The basis for this prognosis was both subjective  and objective. 
The process of pauperization of the working class would project  the more 
militant sections of the workers forward, while the increase in the  productivity 
of labor would turn out more and more commodities which would be  harder and 
harder to sell in the limited world capitalist markets. This would  intensify 
the classical capitalist malady of overproduction, accelerate an  economic 
crisis and stimulate the class struggle. But the collapse of the  USSR transformed 
the world  situation and, along with it, the immediate prospects for class 
struggle in the  U.S. and the imperialist camp as a  whole.” 
In fact, the fall of the Berlin Wall and the collapse of  the USSR from 
1989-1991 opened up a  period of the first territorial expansion of imperialism 
since before the  Bolshevik Revolution of 1917. The sphere of exploitation of 
imperialism had  contracted steadily for 75 years under the impact of socialist 
revolutions and  national liberation movements, including the Chinese socialist 
revolution of  1949, which removed one fourth of humanity from imperialist 
domination. With the  collapse of the socialist camp, hundreds of millions of 
workers were newly  available for super-exploitation. The anti-labor offensive 
that Marcy refers to  in the pamphlet intensified in the U.S. and other 
capitalist countries.  This collapse and the retreat of China from the road of 
socialist  construction opened up vast new markets all over the world for 
imperialist  investment and trade, giving the capitalist system a new, temporary lease 
on  life. 
Whether or not the present gyrations of the stock market  are a harbinger of 
a major capitalist collapse, whether or not the sub-prime  mortgage crisis 
will ripple through the capitalist economy and precipitate a  crisis of 
overproduction, this pamphlet by Marcy gives invaluable assistance in  sharpening the 
tools of analysis in the present situation and in preparing for  the coming 
struggle of the workers and the  oppressed.] 
When the decline in the stock market took on a really  swift momentum in 
mid-October [1987] and the market started to drop by 50, 60  and even 100 points, 
the financial analysts, stockbrokers, and investment  banking officials, all 
apologists for the capitalist system, insisted that these  momentous drops were 
merely a "correction." They held firmly to that position  even after the 
market crashed 508 points on that critical Monday, Oct.  19. 
Even then, the apologists continued to defend their  views. They feared the 
truth might deepen the crisis. For instance, among the  networks, ABC and NBC 
continued to stick with the word "plunge." Only CBS dared  to call it a crash, 
but then corrected itself and retreated back to  plunge. 
Rockefeller: It's a crash, but  … 
Only here and there did any stock analysts mention the  term crash. Finally, 
when the results were only too obvious, it took none other  than David 
Rockefeller himself, appearing on CNN on Oct. 29 and 30, to  legitimize it as a 
stock-market crash of the dimensions of 1929. But he then  added, and again 
reiterated a week later, that it "might cause a recession" if  Washington  didn't 
institute "the right policies" (meaning, of course, deep budget cuts  affecting 
the vital interests of the working  people). 
Thus, the first inclination of the apologists for the  capitalist system was 
to deny what had actually happened - an unprecedented  stock-market crash that 
went beyond the dimensions of the one in 1929. And even  after the debacle, 
the ruling class economists continue to allege that the crash  was unrelated to 
the "fundamentals," meaning the economic  situation. 
They persist in propagandizing the view that this global,  cataclysmic 
phenomenon was something strictly within the framework of the stock  market and did 
not affect the economic situation. In this way they try to  divorce the stock 
market and the banks - that is, the nerve center of the  capitalist system - 
from its anatomy, the entire economic and class structure on  which the stock 
market is built. 
Only slowly does it begin to come out that there may be  "economic 
consequences," as they put it. 
Can't have it both ways 
For decades now the bourgeois economists have been  trumpeting the glories of 
the stock market and its vital significance for the  economic wellbeing of 
the country as a whole. Now their first instinct on  sensing the emergence of 
the crash is to deny what they have been saying for  years, and, in fact, to say 
the very opposite! They want to have it both  ways. 
It soon became impossible to maintain this position, so  they moved away from 
it ever so slightly, some saying that the crash might have  "marginal 
significance" for the economy as a whole. But they immediately  qualified this with 
the hopeful note that a rebound is  inevitable. 
Yes, a rebound is inevitable, as the whole history of  capitalism shows. But 
when? One week from now, one year, ten years? And on what  historical scale? 
Will a rebound of the stock market alone be able to avoid the  inevitable 
economic collapse? 
What happens at the stock market is a representation of  the conditions of 
capitalist production. Before much time passes, all this will  surely become 
clear. But it is indispensable to say it, because capitalist  propaganda shrouds 
in mystery the functions of the stock market and financial  dealings in 
general. It cultivates the greatest amount of confusion and  deception regarding the 
true nature of the capitalist  economy. 
Millions directly  affected 
How broadly does the financial crisis reach? "As of the  early 1980s, three 
out of four men, women and children in the  U.S. either owned shares of 
corporate  stock or stock mutual funds directly in their own names or had an indirect 
stake  through their pension funds, insurance policies, savings accounts or 
other forms  of institutional investments." (From the Money Encyclopedia, 1984, 
edited by  Harvey Rachlin.) Now they're trying to play it  down. 
The stock market, which had been an example of capitalist  prosperity, now 
will turn out to be the instrument to facilitate the wholesale  expropriation of 
millions of workers and middle-class people through the loss of  their 
savings, pensions and other retirement funds, insurance funds and other  
institutions, all of which have played the stock  market. 
The onus is put on the yuppies, but their numbers have  been greatly 
exaggerated in the capitalist media during the period of capitalist  stability, so as 
to take the heat off the giant multinationals, banks and the  stock exchanges 
and divest them of responsibility. 
Engels on the stock  exchange 
Before going further, it is necessary to put in  historical perspective the 
role of the stock market in the capitalist economy,  without either 
embellishing it or denying its vast significance. As long ago as  1894, Frederick Engels, 
in supplementary notes updating Volume 3 of  Capital, said about the stock 
exchange: 
"The position of the stock exchange in capitalist  production in general is 
clear from Vol. III, Part 5. … But since 1865 when the  book was written, a 
change has taken place which today assigns a considerably  increased and 
constantly growing role to the stock exchange, and which, as it  develops, tends to 
concentrate all production, industrial as well as  agricultural, and all 
commerce, the means of communication as well as the  functions of exchange, in the 
hands of stock exchange operators, so that the  stock exchange becomes the most 
prominent representative of capitalist  production itself." 
Engels also provided valuable insight into the relation  of foreign 
investment to the stock exchange, in England as well as the U.S. At that  early stage 
of the imperialist epoch, when it was still on the very edge of the  
transformation of competitive capitalism into expansionist monopoly capitalism,  Engels 
already discerned that colonization was "purely a subsidiary of the stock  
exchange"!!! 
It was in the interests of the stock exchange, wrote  Engels, that the 
European powers partitioned Black Africa and the French  conquered parts of northern 
Africa and Vietnam. "Africa [was] leased  directly to companies (Niger,  
South Africa, German  South-West and German East Africa), and Mashonaland and 
Natal [were] seized by [Cecil] Rhodes for the stock  exchange." 
Stock exchange concentrates  production 
How many bourgeois historians of the colonial era ever  show this connection 
between the stock exchanges and the exploitation and  enslavement of the 
colonized peoples? Today the hundreds of billions in  indebtedness of the oppressed 
countries are a continuation on an immense scale  of what was merely in 
embryonic form when Engels noted  it. 
How prophetically Engels put it, almost 100 years  ago! 
The stock exchange even then was becoming increasingly  more important. Why? 
Because it tends to concentrate all industry, agriculture,  commerce and the 
means of production in the hands of stock exchange operators.  They should be 
understood not in the narrow sense of stock exchange officials  alone, but more 
broadly as encompassing the heads of the biggest banks  (particularly the 
central banks such as the Federal Reserve in the  U.S.), the heads of other 
exchanges  and the governmental agencies like the Securities and Exchange 
Commission. All  these make up the network of what is nowadays referred to as the 
financial  industry. So that the stock exchange has indeed become the most 
prominent  representative of capitalist production itself. 
Temporary ups and downs in  market 
Of course, it should be stated that not every stock  market plunge results in 
a capitalist economic crisis. Some just reflect the  temporary gyrations of 
the moment and may be due to one or two financial  disasters, such as when 
Lockheed or New York Central went bankrupt. An  individual industrial or financial 
collapse, even of such a large corporation,  may have only limited 
significance for the economy as a  whole. 
There have also been oscillations of this or that  industry. For instance, 
only recently there was capitalist overproduction in  microchips, followed by a 
moderate recovery based partly, in this case, on  limiting Japanese imports. 
What if there were overproduction in such a key  industry as lumber? This would 
affect construction, housing, furniture -  probably most forest products. But 
again, it might affect only an individual  industry, even thought it has 
multiple effects on the  economy. 
In understanding the nature of the present crisis, it  helps to examine the 
summary provided by Engels in Socialism: Utopian and  Scientific that describes 
how a capitalist crisis develops, bearing in mind  that each crisis occurs in 
a specific historical  setting. 
When a crisis does occur, says Engels, "Commerce is at a  standstill, the 
markets are glutted, products accumulate, as multitudinous as  they are 
unsellable, hard cash disappears, credit vanishes, factories are  closed, the mass of 
the workers are in want of the means of subsistence, because  they have 
produced too much of the means of subsistence; bankruptcy follows upon  bankruptcy, 
execution upon execution. 
"The stagnation lasts for years; productive forces and  products are wasted 
and destroyed wholesale, until the accumulated mass of  commodities finally 
filters off, more or less depreciated in value, until  production and exchange 
gradually begin to move again. Little by little the pace  quickens. It becomes a 
trot. The industrial trot breaks into a canter, the  canter in turn grows 
into the headlong gallop of a perfect steeplechase of  industry, commercial 
credit, and speculation which finally, after breakneck  leaps, ends where it began 
- in the ditch of a crisis. And so over and over  again. We have now, since 
the year 1825, gone through this five times, and at  the present moment (1877) 
we are going through it for the sixth  time." 
Relation of stock market to capitalist economy as a  whole 
We challenge the innumerable bourgeois economists who  have been awarded 
Nobel prizes for "economic science" since this was written to  present a clearer 
exposition of the capitalist cycle of development! Don't they  instead try to 
obscure it? 
How do we relate the current historical market crash to  the classical 
Marxist concept of an economic crisis?   
The stock market is an integrated element of the entire  financial services 
industry, as it is now called, and is intimately bound up  with all the credit 
institutions - the pension funds, the multitude of banks,  credit unions, 
insurance companies, mortgage associations and so  on. 
In the outline of a general economic crisis depicted by  Engels, the 
financial crisis comes at the very height of the capitalist cycle.  The collapse of 
the market brings about the period of  stagnation. 
The capitalist economists put the shoe on the other foot.  They have been 
telling us that since there has been no economic collapse, the  economic 
fundamentals, as they put it, are still sound. Only the rate of growth  has slowed; 
therefore there cannot be an economic collapse and the Marxist  criteria don't 
apply. According to them, what happened in the market may be only  an episodic 
event and not the kind of sweeping one which entails an economic  catastrophe. 
But the stock market is an integral part of the financial  industry, and its 
crash is a forerunner of the economic situation, not the  aftermath. This is 
what the bourgeois economists are deliberately  confusing. 
Market is best indicator that capitalist cycle has  reached crisis point 
Of the many bourgeois economic analysts who have made  pronouncements since 
the crash, only one of them, Alan Sinai from Shearson  Lehman Brothers, in a 
report during congressional testimony covered on CNN, said  of the stock market 
crash that it reflects not the past performance of the  economy as much as 
"what the future holds in  store." 
How does one measure the nature of the capitalist cycle  of development in 
the current historical context? Can it be done on a national  scale where there 
is admittedly a global economy? Does one really know precisely  when 
capitalist production has reached its  pinnacle? 
Certainly there are a mass of economic indicators, like  the gross national 
product, but in the final analysis there is no way of knowing  in advance 
precisely when a collapse may begin.  
Credit, which was developed in order to facilitate  capitalist production by 
expanding purchasing power, also greatly extends its  bounds, so that it takes 
on ever-larger risks, thereby exaggerating and  aggravating capitalist 
overproduction and its concomitant - the contraction of  working class purchasing 
power. 
Slow economic growth is a relative concept, not an  absolute one. To the 
workers, to the millions of unemployed, there has been a  recession for years now. 
But the crisis becomes generalized when there are too  many sellers with few 
buyers, not just in the industrial sector but in all the  sectors of the 
capitalist economy. The stock market is the generalizer that  makes this apparent. 
It is not just a barometer but an economic summary, an  economic resumé; it 
can speak of the future rather than of the past, as Engels  showed. 
1979-82: Concrete confirmation of Marxist analysis of  crisis 
We have just seen how Engels described the development of  a capitalist 
crisis. We have a concrete example of one that happened less than a  decade ago, in 
the period of 1979-82. 
As early as 1974, a precursor of the coming downturn  could be seen in the 
collapse of the Franklin National Bank. This event of  formidable international 
dimensions was followed by a significant number of  smaller business failures 
and accompanying stock market declines. However,  before the economic crisis 
really took hold, there was a brief speculative binge  in 1978. 
The economic crisis of 1979-82 greatly accelerated the  restructuring of 
capitalist industry, which had already begun in the  seventies. 
Capitalist economists today stress that the crisis was  overcome through the 
"cooperation" of labor with capital, that productivity was  raised on the 
basis of a partnership with the official labor leadership  (bureaucracy). What 
this rise in productivity really signified was an  intensification of 
exploitation. 
This intensification of exploitation used to be called  the rationalization 
of industry; today it is called restructuring. It entails  not merely the 
introduction of labor-saving devices but a whole new concept  known as the 
scientific-technological revolution, which is a quantum jump in  development far 
surpassing all the earlier strides made by inventions and  discoveries. 
The period of the late 1970s and early 1980s saw the most  significant 
advance of the scientific-technological revolution. It caused the  mass displacement 
of millions upon millions of workers on a global scale and  their replacement 
by lower-paid workers, particularly in the so-called service  sector. This 
sector is by no means exempt from the ravages of the next economic  crisis, as 
the developing layoffs in the financial area are now  showing. 
An article in the June 4, 1987, New York Times entitled  "As Output Gains, 
Wages Lag" shows how restructuring works. One example given  (among many) is the 
refinement of a computerized machine at Goodyear Tire and  Rubber that used 
to take four hours or more to be retooled to make tires of a  different size. 
Now, the retooling takes only three  hours. 
This tendency for capitalist restructuring to make labor  "superfluous" was 
described by Engels in Socialism: Utopian and  Scientific. "It is the 
compelling force of anarchy in social production that  turns the limitless 
perfectibility of machinery under modern industry into a  compulsory law by which every 
individual industrial capitalist must perfect his  machinery more and more, 
under penalty of ruin." 
It is no accident at all that there is such a mad race  among the capitalists 
to develop ever smaller microchips, more perfect robots  and other advanced 
forms of automation. 
Engels referred to Marx's Capital: "Thus it comes  about, to quote Marx, that 
machinery becomes the most powerful weapon in the war  of capital against the 
working class; that the instruments of labor [computers,  robots, etc.] 
constantly tear the means of subsistence out of the hands of the  laborer; that the 
very product of the worker is turned into an instrument for  his 
subjugation." 
Keeping in mind the Goodyear example, we read on:   
"Machinery, the most powerful instrument for shortening  labor time, becomes 
the most unfailing means for placing every moment of the  laborer's time and 
that of his family at the disposal of the capitalist for the  purpose of 
expanding the value of his capital . . . 
"Accumulation of wealth at one pole is, therefore, at the  same time, 
accumulation of misery, agony of toil, slavery, ignorance, brutality,  mental 
degradation, at the opposite pole." 
After crisis, what brings a  revival? 
The bourgeois economists tell us that the revival period  since the last 
recession has lasted for 54 months. In this period of incredible  prosperity (for 
them), which started as a trot, became a gallop and broke into  an all-out 
steeplechase, they amassed tremendous  super-profits. 
How does capitalist production become revived? What are  the forces upon 
which it relies? 
First, it feeds on the devastating destruction wrought by  the economic 
collapse. Many firms go bankrupt, plants close, some are completely  liquidated, 
dismantled and sold at auction, and so on and so forth, The weaker  
establishments are weeded out; the larger ones swallow up the smaller, which  have barely 
been able to survive. This is the effect of the centralization of  capital, as 
Marx explained it. 
This destruction can of course be vastly magnified by the  havoc of 
imperialist wars and counter-revolutionary  interventions. 
Secondly, the work of destruction brought by the  capitalist crisis, 
especially the huge unemployment, initially weakens the  working class. The 
capitalists subject those who are employed to more  intensified exploitation in order to 
retrieve more profits and continue the  process of capitalist accumulation 
and expansion. The intensification of  exploitation is absolutely indispensable 
in the process of capitalist  revival. 
If the period from 1982 to the present had been a normal  revival phase like 
those that occurred earlier in the long evolution of  capitalist development, 
it should have resulted in a material improvement in the  condition of the 
working class, with a commensurate increase in wages. The  facts, however, 
demonstrate incontestably that this lengthy period of so-called  capitalist recovery 
was marked not by an improvement but by a drastic  deterioration in the wage 
level of the workers, in particular the oppressed  Black, Latino and 
undocumented workers, and in the general income of the mass of  the people. 
1980s 'revival' brought lower  wages 
Data on this is now voluminous. The most recent figures  appeared in the 
Business section of the Sunday, Nov. 1, New York Times: "Real  wages are now below 
1963 levels, and 80 percent of the jobs created in the 1980s  are in retail 
sales and miscellaneous services where average wages, adjusted for  inflation, 
are below the national average wage in 1949." This is an astonishing  
admission! 
A report put out on Aug. 7 by the Council on  International Public Affairs 
confirms this, as its title makes clear: "Real  Wages Drop Below 1962 Levels." 
An article in the May 1987 Scientific American by  economist Lester Thurow 
discussed a conservatively taken survey that revealed  the growing polarization 
between the very rich and the mass of the people.  "According to the U.S. 
Bureau of Census, the share of total income that went to  the top 20% of all 
families was 43% in 1985. Conversely, the income share of the  bottom 60% of the 
population declined to 32%, the lowest level ever recorded."  (!) 
We demonstrated a year and a half ago that the high-tech  revolution 
signifies lower wages [High Tech, Low Pay by Sam Marcy, WW  Publishers, 1986]. At that 
time we said that it had been accompanied by six long  years of an anti-labor 
offensive. And the assault hasn't stopped  yet! 
There continues to be a shift to lower-paid service  workers and a lowering 
of wages in general based on the restructuring of  industry on a global scale. 
This objective development is deepened by the  anti-labor offensive. The 
Reagan administration has aggravated the oppression of  the working class and 
raised it to new heights by its policies, but Reagan is no  more the cause than 
Hoover was the cause of the Depression or  Theodore Roosevelt the cause of the 
1907 panic. 
The capitalist government didn't cause the crisis, but  aggravated it. But 
crisis comes entirely independently of the will of the  capitalist class or its 
government, which is merely its executive committee, as  Marx pointed out. 
Capitalist overproduction is still the outgrowth of  capitalist production, 
notwithstanding all the research, the sophisticated data,  the computerized 
telecommunications at the disposal of the  capitalists. 
Anarchy leads to  overproduction 
And anarchy reigns in capitalist production, as Engels  explained in 
Socialism: Utopian and Scientific, because "No one knows how  much of his particular 
article is coming on the market, nor how much of it will  be wanted. No one 
knows whether his individual product will meet an actual  demand, whether he will 
be able to make good his cost of production or even to  sell his commodity at 
all." 
The deep-going causes of crises arise from the  contradictory nature of the 
capitalist system, which enshrines private ownership  of the means of 
production and yet has developed these same productive forces to  the point where they 
have far outgrown private ownership and are really social  in character. 
Bourgeois economists try to explain away this  contradiction by resorting to 
mystical expositions on the monetary phase of the  capitalist crisis or on 
interest rate swings. Some blame it all on unscrupulous  speculators, high 
rollers, common thieves in high places and, more recently, on  the existence of the 
yuppies. But they shy away entirely from the deep causes,  concentrating on 
the symptoms of the malady rather than explaining the nature of  the disease. 
What fueled the hyper  speculation 
As for these symptoms, it is necessary to explain the  significance of hyper 
speculation, which enthralled the ruling class and brought  them to dizzying 
heights of optimism in their system, only to dump them in the  doldrums. 
No really large-scale speculation in stocks, bonds and  commodities can take 
place without the banks. They are key and central to all of  it. It's the 
banks that supply the loans for the speculation, that take all  kinds of stock, 
mortgages, or whatever as collateral for their  loans. 
The banks are the fundamental agent of the speculation,  if we understand 
that we are talking today about a broader concept of banking  than what prevailed 
early in this century. Even then, the banks as the  depositories for the cash 
were not immune to loaning it out for speculation,  although their 
opportunities (and losses) were somewhat restricted under pain of  criminal prosecution. 
1930s legislation was supposed to prevent dangerous  speculation 
The high speculation before the 1929 crash and the  devastation of the 
economic collapse caused the Roosevelt administration to promote massive legislation 
of  two types. One included the well-known social reforms of the New Deal, 
like  unemployment insurance and social security, which were calculated to 
create a  cushion, or as it is now called a safety net, to soften the effects of 
the  economic debacle. 
The other type of legislation enacted was meant to  prevent such a collapse 
from occurring again. Such, for instance, was the law  that set up the 
Securities and Exchange Commission as well as the statutory  provisions that regulated 
banking, strengthened anti-trust laws and so  on. 
And this was received by many in the ruling class with  extreme bitterness. 
They regarded it as against the free enterprise system, as  being 
anti-capitalist in nature, but in reality it was devised to defend the  system against 
excesses, to curb not only speculation but fraud so as to dampen  any crash that 
might take place in the future.  
With the impact of the high-tech revolution, banking  itself has changed, as 
we said earlier. "The economic currents that began in the  1970s," says the 
authoritative Money Encyclopedia, "permanently altered our  money practices and 
ushered in a financial service industry which continues to  evolve on an 
almost daily basis. Today banking is no longer a matter of  depositing savings in a 
regular passbook account for safekeeping and a small  yield and keeping a 
no-interest checking account to pay bills. In the 1980s it  is the investment in 
instruments giving the highest possible return … that more  closely defines 
banking." 
1970s revolution in  banking 
In fact, there has been a revolution in world  banking. 
Banks are no longer confined to a single state. They've  stretched their 
offices across the nation. Banks are no longer limited to  collecting deposits and 
making loans. Today they act as discount stockbrokers,  suppliers of credit 
cards, and as paid consultants in areas ranging from estate  and tax planning 
to investing. They no longer conduct business according to  banking hours, 10 
a.m. to 3 p.m. Instead, they provide access around the clock  through automated 
teller machines. 
Citibank, for instance, began to diversify early in the  1980s. The purpose 
was to lessen its heavy dependence on international  activities for its 
earnings, which at one point accounted for more than 80% of  the company's net 
income. Over the years they have tried to dump these loans on  other, weaker 
shoulders. It is truly a giant transnational corporation on which  the sun never sets 
and precisely because of that it absorbs all the  contradictions and 
weaknesses of the capitalist  system. 
The banks have become very high-risk adventurers. The  retirement of Walter 
Wriston, the former head of Citicorp, was undoubtedly  hastened because of his 
reputation as "an ultimate risk  taker." 
On June 21, 1984, the New York Times wrote: "Over the  long term, the 
question remains whether Wriston's new world of banking will  prove to be healthy, 
flexible and sinewy or whether it will repeat the  experience of the 1920s, when 
extraordinary risk taking by banks and exotic  financial techniques turned 
into the disaster of the Great  Depression." 
Reaganites loosen restrictions on  banks 
The bankers are no longer satisfied to keep idle funds in  checking accounts 
that by law pay no interest. In the seventies, banks couldn't  pay interest on 
deposits that matured in less than 30 days. But not now. Banks  are engaged 
in the sale of CDs, certificates of deposit. The companies that buy  them have 
the option of selling them at any time to other investors. For the  purposes 
of the companies, these are similar to short-term deposits on which  interest 
would be earned. 
The virtual revolution in banking did not automatically  grow out of the 
economic and technological developments of the earlier epoch.  Much of it has been 
helped by either new legislation, by administrative  decisions or by the 
Reagan administration. 
For instance, one of the ways the New Deal legislation  hoped to limit the 
excesses of capitalist speculation was to separate the  underwriters from the 
banks, so that only underwriters would distribute and sell  securities and act 
as advisers to corporations. Today, however, they work as  part and parcel of 
the banks. 
A great deal was made of the fact that the Roosevelt administration broke up 
the securities  industries by narrowing the field for underwriters, insurance 
companies and  commercial banks. The law compelled them to make financial 
disclosures, to make  their balance sheets more detailed so as to reveal more of 
their real situation.  Also enacted were various bank regulations that gave 
more power to the  regulators and inspectors. Brokerage houses were restricted 
from letting their  customers play the market on a minimal amount of  margin. 
Most of this massive legislation calculated to restrict  speculation, to 
force disclosure and to curb the excesses resulting from  capitalist financial 
dealings has to one way or another under the Reagan  administration been either 
abolished by statute or invalidated by administrative  decisions of the 
agencies concerned. Particularly weakened are those divisions  under the regulation 
of the Federal Trade Commission, the Securities and  Exchange Commission and 
other agencies which are the very ones supposed to act  as guardians against 
speculation and fraud. 
Moreover, the banks themselves have been given free rein  to virtually 
disregard the previous protective legislation. While once banks  could only operate 
in the states of their origin, they now have been given the  green light to 
expand interstate and to lend to excess. By enlarging their field  of 
operations, they have enlarged their risks as the lenders of  capital. 
While the banks themselves have been generating the hyper  speculation, we 
must repeat that speculation is not the cause of the crisis  itself. It is the 
effect, in the first place, of the enormous accumulation of  capital that has 
been extracted from the workers, especially during the period  of the 
capitalist recession of 1979-81. It was then driven even higher by the  high-tech 
restructuring of industry at the expense of the  workers. 
A monetary crisis usually accompanies an economic crisis.  They don't always 
go together, but certainly one of the features this time is a  monetary 
crisis, and it concerns the U.S. more than any other country at  this historical 
juncture. 
The U.S. dollar is considered a world currency reserve.  What does that mean? 
It means that other countries, and especially their  governments, have been 
obligated over the years to hold a certain amount of  dollars as their reserves 
in the same proportion as they would gold. This  special position in the 
world monetary situation arose from the favorable  position the U.S. was in 
economically and  financially after World War II. 
While the economies of Europe and Japan were battered or ground down in the  
military struggle, the U.S. merely served as a supplier  until near the end of 
the war, fortifying its military positions with the atomic  bomb. Its 
formidable economic strength in the postwar period was in sharp  contrast to what 
prevailed in Europe, Asia and even Latin America and Africa. 
Formidable though it was, however, it was not nearly  strong enough to remain 
on the gold standard. The U.S. and the  other imperialist countries had to 
abandon it after the 1929 crash, and have  never gone back. Before that, gold 
backing to support paper currency had always  been regarded as the key to 
stability in monetary  affairs. 
In the period immediately following the war, the dollar  as a reserve 
currency for all of the other capitalist countries was  unquestioned. And today, too, 
it is still a reserve currency in most of the  capitalist world. Even 
socialist countries are obliged to hold dollar reserves,  if for no other reason than 
to trade to the extent possible with the capitalist  countries. 
But the period when the stability of the dollar was  unquestioned began to 
wither - for very material reasons. In the 1950s the  U.S. gross national 
product  constituted as much as 50% of the world's gross product. But since then the 
 U.S. gross national product has been  shrinking in relation to the rest of 
the world. 
As late as the 1970s, it was estimated to be about 30%.  Now, with so much 
switchover from manufacturing to service industries, with the  introduction of 
high tech and the competition with its capitalist rivals, the  U.S. gross 
national product in relation to the world as a whole has again  significantly 
shrunk, if for no other reason than that the battered capitalist  countries have 
recuperated and in some cases, like Japan, have exceeded the U.S.  in a number 
of industrial and technological spheres.   
Moreover, the U.S. has become a debtor nation as a  result of its borrowing 
from other capitalist countries. This has been done  through the sale of bonds 
and stock, which earlier fueled its recovery. But as  the U.S. debt has kept 
mounting, the  fears of its capitalist rivals have become more and more 
pronounced.   
What are these fears worldwide with respect to the  U.S. as a world currency 
reserve?  Take this example. Suppose you as a central banker for country X 
have in your  treasury a reserve of $100 million, which is a very, very tiny 
amount of  dollars. If the U.S. devalues the dollar by 1/10th of  1 percent, you 
lose $100,000! 
Worldwide fears of U.S.  devaluation 
Now, supposing you have a billion dollars, which is also  not an enormous 
amount by any means, even for one of the countries highly  indebted to the U.S. A 
devaluation by that same 1/10th of 1% means losing $1  million, which is a 
lot of money. 
But there are those who hold many, many billions of  dollars. For countries 
like Japan, England, West Germany or even Saudi Arabia,  letting U.S. currency 
"fall," as they say, holds immeasurable  consequences. 
Hence, on the outbreak of the stock market crash, the  Wall Street Journal 
and practically all the capitalist politicians, from Reagan  on down, were 
urging a monetary conference of the Big Five (the U.S., Britain,  West Germany, 
Japan and France) or the Big Seven (those five plus Italy and  Canada) to get 
together and stabilize the dollar. They hoped this would help the  falling stock 
market and prevent an economic  debacle. 
The U.S. ruling class has been desperately trying to  reduce the value of the 
dollar so as to increase its exports and put a lid on  imports. But if 
there's an economic collapse, particularly in those imperialist  countries to which 
the U.S. wants to export, they will be unable to absorb U.S.  exports. 
Moreover, they will become more insistent that unless the U.S. opens  its markets to 
them, they won't be able to sustain their own economies, let  alone try to 
help the U.S. 
The prospects, then, are not just for a rerun of earlier  economic collapses, 
but for one that could be on a profounder and deeper level  even than 1929. 
Regardless of its dimensions, however, it will reopen the  struggle of the 
working class and change the character of the entire  international situation.
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