[Marxism] A Depression sized event

Louis Proyect lnp3 at panix.com
Tue Sep 1 08:18:57 MDT 2009


The Unfolding Capitalist Crisis – a nightmare for workers everywhere
Written by Rob Sewell Monday, 31 August 2009

The capitalist system is passing through its deepest crisis since the 
1930s and the Great Depression. The apologists of capitalism – including 
those in the labour movement – had completely ruled out such a scenario. 
After all, they explained, capitalism has changed and governments are 
now able to over-come any deficiencies experienced by the markets. They 
have learned the lessons of the 1930s.

“Never again will we experience the horrors of the inter-war period”, 
the apologists of capital claimed. “We have abolished boom and slump”, 
was their confident boast. Consequently, they declared that the ideas of 
Marxism were completely out of date.

Marx was right against the apologists of capitalism when he claimed the 
crises would return. Drawing by Latuff.
Now these people are being forced to eat their words. “Today, they are 
struggling with the deepest recession since the 1930s, a banking system 
on government life-support and the danger of deflation. How can it have 
gone so wrong?” These are the words of Martin Wolf, economic strategist 
at the ‘Financial Times’. “Most of us – I was one – thought we had at 
last found the Holy Grail. Now we know it was a mirage.” (FT, 6/5/09)

     “We have gone to the edge of an abyss that few thought was ever 
possible”, stated Stephen Roach, chairman of Morgan Stanley, Asia. “If 
the world pulls together, we can avoid the Armageddon endgame.” 
According to Bernie Sucher, head of Moscow operations at Merrill Lynch, 
“Our world is broken – and I honestly don't know what is going to 
replace it. The compass by which we steered as Americans has gone.” (FT, 

Marxism long ago predicted this deep crisis. “In the coming epoch”, 
wrote Ted Grant and Alan Woods, “a new depression on the lines of 
1929-31 is inevitable.” (World Perspectives, 1994) It was not possible 
to establish the precise timing of this eventuality as economics is not 
an exact science. However, while Marxism cannot provide a timetable of 
events, it can analyse and explain the general processes and 
contradictions unfolding within capitalism.

Ever since its origins, the boom and slump cycle has been an inherent 
feature of the capitalist system. It is equivalent to the normal 
inhaling and exhaling of a human being. However, capitalism has piled up 
contradiction upon contradiction, which at a certain point, was always 
destined to produce a massive collapse of the productive forces. Over a 
sustained period, in an attempt to escape from these contradictions, 
astronomic amounts of fictitious capital and credit were artificially 
pumped into the capitalist system. The Federal Reserve made three 
interest rate cuts to boost consumer spending in 1998, to levels not 
seen since the 1950s. As a result, the personal consumption share of 
real GDP rose from 67% in the late 1990s to 72% in the first half of 
2007. The booming housing market – a classic speculative bubble - also 
allowed extensive borrowing on the increased paper value of property. 
This created the biggest credit bubble in history. Credit, which allows 
capitalism to go beyond its limits by temporarily expanding the market, 
exploded. Nevertheless even cheap credit has its limits. Debts have to 
be repaid with interest sooner or later. House prices can fall. The 
“credit crunch” was an expression of this limit as borrowers began to 
default on a massive scale. All the factors which served to fuel the 
boom have now dialectically turned into their opposite, causing a mighty 

World capitalism is experiencing a deep slump - indeed in many ways the 
present crisis is potentially even more serious than that of 1929-33. 
Its scope is much wider than the thirties and its impact has been far 

Between 1929 and 1933, the decline of industrial production in the 
United States was more than 48%. The decline in the current crisis has 
been similar, with US industrial production falling by 12.5% over the 
last 12 months. In Japan, the situation has been more serious with 
industrial production falling by 37% in 2008 and a projected fall of 25% 
this year, making the decline over two years more than 60%. In the Euro 
zone the fall in industrial production over the last year was in the 
order of 20%. In Eastern Europe and the Baltic States the situation is 
extremely grave, with Hungary chalking up a fall of 29% in industrial 
production over the last year. The exposure of Western banks in the 
region is a massive $1,600bn, a significant proportion held by Austrian 
banks, an ominous reminder that it was the collapse of the Austrian 
Credit-Anstalt bank that further intensified the slump in 1931.

Despite all the talk of “green shoots” of recovery, the situation 
remains extremely serious for capitalists internationally. According to 
two leading economists, Barry Eichengreen and Kevin O'Rourke, the recent 
slide of global industrial output tracks the decline in output during 
the Great Depression “horrifyingly closely”. Within Europe, the decline 
in the industrial output of France and Italy has been worse than at the 
same point in the crisis as in the 1930s. In Britain, Germany, USA and 
Canada, the fall has been very similar.

The collapse in the volume of world trade, at around 10%, has been far 
worse than was the case during the first year of the Great Depression. 
Despite the recent bounce, the fall in world stock markets is far larger 
than during the corresponding period of the Great Depression. The 
conclusion of both economists is posed starkly: “Globally we are 
tracking or doing even worse than the Great Depression... This is a 
Depression-sized event.”

What we are experiencing is a fundamental crisis of capitalism, with 
collapsing markets and over-production, leading to mass unemployment and 
cuts in living standards across the world. Apologists of capitalism 
today talk glibly of the crisis being caused by various things, such as 
“de-regulation”, speculation (‘short-term’ selling), lack of credit, bad 
luck and so forth. We would say that these are nothing more than the 
appearances of crisis as opposed to the real causes of the crisis. While 
there are many secondary causes of capitalist crisis inherent in “the 
real movement of capitalist production, competition and credit”, 
Marxists have always explained that in the final analysis real 
capitalist crisis is always a crisis of over-production. This means 
general over-production, both of consumer and capital goods for the 
purposes of capitalist production. This in turn, is caused by the market 
economy, and the division of society into mutually conflicting classes. 
Such a phenomenon is peculiar to capitalist society alone.

“The ultimate reason for all real crises”, explained Marx, “always 
remains the poverty and restricted consumption of the masses as opposed 
to the drive of capitalist production to develop the productive forces 
as though only the absolute [physical] consuming power of society 
constituted their limit.” In other words the capitalists are constantly 
revolutionising production, throwing enormous amounts of commodities 
onto the world market, which periodically come into conflict with the 
limits of consumption caused by the exploitation of the masses who are 
unable to buy the goods they produce, having been robbed of the full 
fruits of their labour by the bosses.

Capitalists do not simply sell commodities, but aim to sell them at a 
sufficient profit to accumulate wealth for themselves. In a slump, they 
cannot continue to sell their commodities at a price that guarantees the 
necessary average rate of profit for the bosses. Prices are reduced. The 
surplus-value contained within the commodities cannot be realised as 
before, resulting in a collapse of profits. Factories are therefore 
closed and workers made unemployed, further reducing demand for consumer 
and capital goods in an ever downward spiral.

“In these crises there breaks out an epidemic that, in all earlier 
epochs, would have seemed an absurdity – the epidemic of 
over-production”, explained Marx.

Capitalist economists do not like referring to “over-production”, but 
prefer the term “over-capacity”, which is basically the same thing and 
expresses the limits of the market. “The world is awash with goods…” 
explained ‘Newsweek’.

     “For economists, over-capacity is a tricky concept. Human wants are 
unlimited, so how could the world ever produce too much of a good thing? 
The key is what people can pay: In many goods sectors, prices still 
aren't low enough to bring forth enough buyers. There will have to be 
some combination of falling prices and destruction of productive 
capacity before supply and demand come back into balance.” (Newsweek, 

This crisis of over-production has been unfolding on a world scale. As 
the ‘Newsweek’ article continues, “That's not to say the Obama 
Administration is on the wrong track with its nearly $900 billion-plus 
stimulus plan. But it's important to have realistic expectations. The 
stimulus can ameliorate the downturn, but not prevent continued 
contractions in the sectors of the economy where global over-capacity is 
the most extreme. The world is able to make 90 million vehicles a year, 
but at the current rate of production, it's making only about 66 
million, according to estimates from market researcher CSM Worldwide. 
Global production of semiconductor wafers is running at only about 62% 
of capacity, estimates market researcher iSuppli.”

In relation to car production, ‘Business Week’ makes the following 
observation: “Having indulged in a global orgy of factory-building in 
recent years, the industry has the capacity to make an astounding 94 
million vehicles each year. That's about 34 million too many based on 
current sales, according to researcher CSM Worldwide, or the output of 
about 100 plants.” The article continues, “To become profitable, 
according to Michelle Hill of consulting firm Oliver Wyman, U.S. 
automakers will need to close at least a dozen of their 53 factories in 
North America in the next few years.” (Business Week, 31/12/08)

As we can see, we are not simply dealing with a normal cyclical crisis 
of capitalism. Such crises will continue periodically until the death of 
capitalism itself. Today we are seeing a cyclical crisis exacerbated by 
what Marxists refer to as an organic crisis of the capitalist system 
itself. Capitalism has become a barrier to the development of society, 
where the productive forces – industry, technique and science – are 
increasingly constricted and hemmed in by the nation state and private 
ownership of the means of production. This organic crisis is graphically 
illustrated today by the inability of capitalism to fully utilise the 
productive forces it has brought into being. It has become a fetter and 
drain on the productive forces, which are the key to the development of 
society. In times of boom, capitalism can only use 80% of productive 
capacity and in times of slump only 65%. In other words, 20%-35% of 
production cannot be utilised profitably. This clearly shows the impasse 
of the modern capitalist system and the unprecedented degree to which it 
is holding back society. “The world's productive capacity is simply too 
big”, explains ‘Newsweek’. “That means prices need to fall further, or 
more factories need to close in the US and abroad, or some combination 
of the two.” (Newsweek, 4/2/09)

This organic crisis, which emerged with a vengeance during the inter-war 
period, was temporarily overcome by the massive development of world 
trade following the Second World War. This development in turn had a 
dramatic beneficial effect on world production. The whole system of 
capitalism, where every factor interacts on every other factor, requires 
rising production, investment and an increased market in an upward 
spiral. With growing living standards, this provided the system with 
relative social stability. The 1974-75 world recession signalled the end 
of the upswing and ushered in a new period of crisis where capitalism 
could no longer reach the figures of growth, investment, profitability, 
etc., of its so-called Golden Age.

While they were able to put off a deep crisis in the 1980s and 1990s and 
even into the new century, capitalist crisis has now returned with a 
vengeance. Today, all the fundamental contradictions have re-emerged and 
have served to intensify the crisis at all levels. World trade has 
collapsed, dragging down production. The development of the productive 
forces has reached a complete impasse as production tumbles in one 
country after another. The anarchy of the capitalist system itself has 
become a barrier to the progress of society, with millions losing their 
jobs, workplaces closing down and living standards falling. After a 
protracted delay of some 50 years, the capitalist system is returning to 
its “normal” state of chronic instability. It is what Lenin and Trotsky 
called the “historical crisis of the whole capitalist system.”

A further contradiction that bears down upon capitalism and aggravates 
the crisis has been the tendency of the rate of profit to fall. The 
massive development of the productive forces following the war meant a 
colossal increase in investment. As the source of surplus value comes 
from the unpaid labour of the working class, the more spent on capital 
investment (constant capital) in proportion to that employing workers 
(variable capital) eventually results in a falling rate of profit. Marx 
referred to this double-edged “law” as a tendency due to the fact that 
there were a whole series of counter-veiling factors, such as the 
increased exploitation of the working class, which could neutralise or 
reverse its effects – for a time anyway.

Throughout the post-war period, this tendency for the rate of profit to 
fall intensified the pressures on the capitalist class. After a period 
of high profitability throughout most of the 1950s, the rate of profit 
began to fall steeply by the mid-1960s. This decline carried on until 
the 1980s, when after a series of defeats for the working class, the 
capitalists began an all-out offensive to drive up profitability. The 
election victories of Thatcher and Reagan were the signal for this 
onslaught and a “counter-revolution” on the shop-floor. Down-sizing, 
multi-skilling, short-term contracts and other techniques were 
introduced. This squeezing of the working class resulted in an increase 
in absolute and relative surplus value. In Marxist terms, this reduced 
necessary labour-time and increased surplus labour-time, and so 
increased the rate of surplus value.

In the last decade, despite the loss of a million jobs, workers in 
British manufacturing have increased production by 50%. In other words, 
the capitalists have squeezed more unpaid labour from fewer workers. 
Other factors, such as pressure on real wages, the cheapening of 
commodities, globalisation and the intense exploitation of world markets 
also served to increase the rate of profit.

Between 1989 and 1997, US corporate profits increased by about 82% and 
the corporate rate of profit by 27.8%. By 1997 profitability in the 
corporate sector had returned to within 15% of its 1960’s high. The 
non-manufacturing sector had recovered to above its 1969 level to within 
15-20% of its heights in the post-war boom.

Despite a dip in profitability during the recession of 2001, profits 
went on rising until the financial crisis hit in 2007.

Today, with the world slump, the rate and mass of profit have collapsed. 
This is directly linked to the collapse of markets and the emergence of 
over-capacity and over-production. As Marx explained, “It [capitalism] 
comes to a standstill at a point fixed by the production and realisation 
of profit, and not the satisfaction of requirements.”

The credit boom allowed capitalism to artificially escape serious crisis 
for a whole period of time, but by using such measures to extend the 
market – and therefore boost their profits - during a time of upswing 
rather than downturn, like pouring petrol on a blazing fire, they in 
turn laid the grounds for a massive collapse of the financial framework 
propping up the whole world capitalist edifice. The virtual 
disappearance of bank lending, as the world banking system rushed to try 
and shore up their wildly overstretched finance, left many firms unable 
to cope with even a small blip in their profits hence the cascade of 
closures and downsizing. That which had aided capital in the past is now 
having a reverse effect.

This has resulted in a massive attack on the workers in Britain and 
elsewhere in an attempt to make them pay for the crisis of capitalism. 
British Airways workers were asked to take wage cuts or to work for one 
month without pay! The bosses are still intent in cutting wages and 
propose the sacking of some 6,000 workers “to save the company”. More 
than half of British workers have experienced a cut in pay or hours or 
benefits since the recession began. Now six million public sector 
workers are being threatened with a pay freeze to help plug the swollen 
budget deficit.

This is the real meaning of capitalist crisis for millions of workers. 
But despite the difficulties workers are not simply accepting these 
attacks lying down. Workers in Royal Mail, London Underground, Visteon, 
Vestas, the construction industry and many other sectors, have taken 
industrial action, and even occupied their workplaces, in defence of 
their livelihoods. There is enormous anger in the ranks of the working 
class that is threatening to explode. Even the capitalists are very 
worried about this increasing anger.

     “There are many questions hanging over global financial markets, 
but none more pertinent, perhaps, than the following: will the global 
economy rebound in time to quell rising discontent among the millions of 
workers who have turned – violently in some cases – against capitalism?” 
asks Joe Quinian, a strategist at the Bank of America.

     “The capitalist global order was under attack even before the 
current crisis began, but the virulence against free enterprise has 
become more intense in the last year. And with the global economy in the 
midst of the deepest declines since the Great Depression, the backlash 
is bound to intensify.” (Financial Times, 12/5/09)

As a result, the capitalists are desperately looking for an economic 
recovery. But they are concerned that the present green shoots may well 
be no more than a false dawn. However, even when the recovery comes, as 
is inevitable, it will be very slow, painful and shallow. There is a 
dread that the world economy will go the way of Japan in the 1990s, with 
weak growth punctuated by periods of contraction. “Empirical evidence of 
the effect of past crises shows … that the economy will not return to 
its pre-crisis expansion path but will shift to a lower one. In other 
words, the crisis will entail a permanent loss in the level of political 
output”, states the recent European Commission report (FT, 3/7/09).

The massive overhang of debt - personal, business and state - will be a 
colossal lead weight on the economy. The move to reduce the 
unprecedented levels of government deficits will result in massive cuts 
to public spending in the years that lie ahead. The British Treasury 
thinks that there will be a permanent loss of output amounting to 5% of 
national income, making households worse off by around £75bn every year 
- forever. Government finances are spiralling out of control. The 
Institute of Fiscal Studies believes that public finances, which will 
require more than £20bn cuts each year for at least the first 
parliament, will not return to “normality” for another two decades. This 
means 20 years of austerity! Trish Haines, head of the Society of Local 
Authority Chief Executives, stated: “People are talking about possible 
reductions in public spending of 10 to 15%, even of up to 30%.” These 
will be draconian cuts whoever wins the next election.

The capitalist system has now become an enormous fetter on human 
society. The re-emergence of this organic crisis has enormous 
implications for the working class: a socio-economic system which proves 
incapable of developing the productive forces enters into steep decline. 
A new era of social revolution has opened up on a world scale, an era of 
revolution, counter-revolution and profound instability at all levels. 
Such a period will repeatedly propel the working class internationally 
to look for a way out of the crisis. It will place the socialist 
reconstruction of society on the order of the day as the only answer to 
capitalist crisis and the ills that go with it.

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