Journal of Socialist Theory

Critique Notes 53

This issue is being issued as a book as well as an issue of the journal. The overall theme is that of the Marxist concept of crisis in the present time. Marc Mulholland has outlined his conception of Marx’s view of crisis, which provides a more general background for the 3 other theoretical articles. Michael Hudson provides a new historical/theoretical understanding of Finance Capital, basing himself particularly on Capital Volumes 2 and 3. Jack Rasmus provides a critique of orthodox economic s and business views of the economy and crisis, so showing the importance of a different political economy from that which is dominant, while the Economakis collective explores the different Marxist views of Crisis, particularly the variety of views around the concept of the falling rate of profit. Hillel Ticktin discusses a synthesis through the concept of surplus capital, based on the limits to investment set by monopoly/oligopoly plus the overextension of producer goods relative to consumer goods, under conditions where governments provide or fail to provide the safety valve. His debt to Hilferding and Lenin is clear. The remaining two articles are case studies of the political-economic effects of the crisis. Savas Matsas describes the particular basis for the Greek crisis in the present day tracing its long term history, as well as its contemporary connotations.

It is a virtue of contemporary Marxism that there are a variety of schools of thought on the nature of the present day crisis. In principle, a Marxist can stress the imbalance of finance and the rest of the economy, the tendency of the rate of profit to fall over time, whether as a secular or periodic tendency, underconsumption, disproportionality, or a combination of these. This issue/book discusses the different views, with different authors taking their own viewpoints.

The Second Stage of the Crisis: Government Cuts

The question of government and business attitudes to the downturn and ostensible recovery is discussed in the articles, but the cuts and the resistance to those cuts are still evolving. The issue has taken a sharp turn to the right in the middle of 2010, with the apparent endorsement of the G20 and the Eurozone of the conservative line for sharp reductions in government deficits and government borrowing.

It remains very unclear why a section of the ruling class is going for these cuts. It is one thing to reduce government spending and raise taxes during an upturn, as Canada did in the nineties, and quite another to do so today. The large scale unemployment consequent on such reductions in the public sector is being matched with substantial salary reductions. As there are often disproportionate numbers of female employees in the sectors being proposed for downsizing, the measures will bear heavily on women and families. There are suggestions that the poorest will be protected but this is a figleaf to provide a semblance of humanity. The poorest may be protected but most people are by definition not in that category, but are nonetheless scraping by, with incomes a fraction of the so-called upper middle class. Whatever their viewpoint, they will be jolted into opposition to the government and ultimately to the system.

The government and bodies associated with the ruling class, or influenced by them, are doing their best to supply reasons why the cuts are necessary and inevitable to sustain the various economies affected. There is no doubt it is having an effect, depending on the country. It may well even win the day for a short period, but it is a hard sell. The appearance of the downturn was of the bankers causing the crisis itself, for which governments have had to borrow money. Why then should ordinary individuals have to bail out those bankers, it is, and will increasingly, be asked? The effect of what amounts to a co-ordinated system of reductions in government expenditure over the Europe, will at best retard an upturn and at worst force a ‘double-dip recession’, which has every potential of lasting some time. People will turn against government policy and increasing minority will go further and themselves turn against a system which has so patently failed.

It may well be that all trade union action and all the coming demonstrations will have little effect on government policy, apart from toughening up law and order. There is no left of any substance today, so we might anticipate spontaneous action, co-ordinated up to a point by such left groups as exist or come into being. There can be no doubt that the initial forms of action will be outmanoeuvred or defeated. A new generation of activists will be formed, which, like the seventies, will turn young people into the militants of today and tomorrow. As the atomisation of the Soviet Union cannot be duplicated, history cannot be wiped out and we may expect a return to the socialist demands of yesterday, shorn of Stalinism and social democracy. There is little doubt that this process is slowly getting under way. What is less certain is the nature of the reaction of the ruling class. Are they really as stupid as they seem? Do they not have a plan B, to deal with the failure of the contemporary cuts?

Capitalism today is less rational than it was in its heyday. That appears obvious, given imperialism, fascism and two world wars. Short termism rules, and it has indeed worked remarkably well up to now. If capitalism is doomed then delay is a sensible tactic and pragmatic delay is one way of doing it. Given the inevitable absence of an international ruling class, but rather the presence of a ruling class dominated by the superordinate finance-capitalist power, the USA today, it acts in its own interests, and these are strongly influenced by its own imperial position. In other words, the USA is in decline, and consequently it is acting to preserve its own position, which may be at the expense of its role as the guarantor of capitalism. It may not be able to see the wood for the trees. As capitalism declines the dominant capitalist power necessarily declines, and vice versa. As the dominant capitalist power declines, capitalism itself declines. This would not be inevitable if there were room for another finance capitalist power to arise, but there is not. China, India, Brazil etc are not going to fulfil that function. The Eurozone is clearly too weak, but also based more on industry than on finance capital and the UK is the original imperial/finance capitalist power, which has ceded its position, lost its empire and lost most from the current crisis.

It is clear from the last few sentences that the capitalist class today is less united than it has been since before the Second World War. The end of the Cold War has had a series of crucial effects, as is made clear in the articles, particularly in the decline of ideologicial control and the economic use of the arms sector. To these has to be added the absence of an overriding enemy which allowed a form of international control through Nato, the IMF and other institutions and meetings. As a result, it is much harder to impose a single line on capitalist policy today.

This makes it more difficult for a consistent policy to be followed. When the US was able to impose its policy, whether it was stupid or intelligent, it had to be followed. Today, the situation is almost a nightmare for capitalism. In the first place, they did not a have clear policy as to what to do with the course of the crisis. They have simply been reacting to events, often rather late in the day. This is a policy of muddle through which can be regarded as intelligent pragmatism by apologists, but it is obviously not working too well. In the second place, there are clear differences between the more conservative wing, which wants balanced budgets at all costs and the Keynesian wing which is less concerned with them and more worried about ending the real downturn, and avoiding a double-dip recession. In the third place, the leading Eurozone nations want to check, regulate and possibly muzzle finance capital, irrespective of the conservative politicians at their helm. Thus, Angela Merkel’s unilateral banning of short selling of German bonds was in clear conflict with policy in the financial markets of London and New York. This, of course, is expressive of a more general conflict between industrial and finance capital, which Is partly taking a national form at this time.

Because different strings are being pulled at the same time, policy has tended towards irrationality. We have to ask why, for instance the British conservative party, now holding political power in the UK, wants to cut so severely, when the risks are so obvious. The reasons given by them and their generic supporters are four in number, as far as I can see.

Firstly, and, least unbelievably, they argue that increased borrowing will frighten investors and the rating agencies. However, this is not automatic. Most of UK borrowing is from UK investors and the time period for redemption is over 12 years, points made time and again in the newspapers and journals, and so presumably well understood by those investors. So, the UK does not have the same issue about balance of payments, and the need to redeem bonds, as is the case in Greece and elsewhere. In any case, the previous Labour government had already implemented cuts, but was intending to restore balance over a longer period than the Conservatives. Neither party was bent on destroying capitalism or taking a reckless populist line. Why then would investors be concerned, under conditions where there is a vast surplus of capital. After all, investment in the United States is the only other solution and it is fraught with problems, given the precarious nature of the dollar. It is, of course, true that if the pound were to fall further against the dollar investors would try to hedge their bets, but the pound, which has risen against the Euro in the last period, will, in fact, only fall if money is taken out of the country. This is more likely to depend on factors other than the budget deficit.

Secondly, it is argued that inflation will take off and so cause the pound to devalue further so sparking a flight of money from the UK. In addition, inflation is regarded as necessarily a bad thing, as it leads to, or is caused by rising wages, and can result in increased power for the trade unions. Under conditions of diminished demand this scenario is highly unlikely, leaving aside some price rise due to devaluation and the rise of commodity prices. This debate has taken place quite widely. Apart from the difference between monetarists and Keynesians, there are also diffences in the assessment of the political situation.

In the third place, supporters of private enterprise hold that the public sector is crowding out the private market, or indeed the market itself, by absorbing the lions’ share of available funds. This is a simple ideological argument, which has obvious and important political consequences. If one rejects the implicit view that private enterprise is necessarily superior to the public sector, the argument falls. Indeed, it is very likely to be tested in the next few years, as the only way that the deficit can fall substantially is through growth, particularly industrial growth. Leaving it to private enterprise to grow is an overoptimistic policy, given British history over the last fifty years. The problem is that without government intervention, industrial growth is unlikely to take off by itself, if it will take off at all.

In the fourth place, there is worry over the British balance of payments, given the decline of British industry and the new problems of British finance capital. However, reliance on rising taxes and a reduced public sector does not do the job of raising British exports in itself, unless it is felt that private enterprise will automatically build up industry, which is unlikely, as indicated above.

In one way or another these issues are part of the current crisis for most countries though differently for different countries. There appears, however, to have been a common policy to use Keynesian deficit financing and monetary expansion in 2008-9, whereas at the mid-2010 meeting of the G20 it was agreed to do the reverse, cut deficits and restrain the money supply for the developed countries. The United States did not agree, continuing to support an expansionary policy, even if it is somewhat limited. It, also, did not fight very hard to impose its own viewpoint. As a result, there are two views as to the effects of adopting a restrictive economic policy, with various influential figures warning of a double dip-recession resulting1. Indeed, it is hard to see how it could be avoided. If all the countries of Europe cut back, while China is also reducing the money supply, given the inflation, and rising wages in China, growth can only be reduced, if it is not actually negative, while unemployment will continue to rise, as it is doing in the United States.2

It hard to avoid the conclusion that capitalism has no way out. If it cuts its deficits the downturn continues, but if it expands it risks all the effects described above, including sovereign crises. In addition, China is now experiencing widespread strikes for higher wages and better conditions, while the trade unions and left political parties are demonstrating and striking in many of the countries of Europe. Harsh political measures will lead to the rapid growth of the far left and new generation of left wing militants, while concessions risk market failures in bonds and currencies.

In reality, the right wing arguments for cuts to the public sector have another agenda, as former Chancellor of the Exchequer, Darling, made clear. 3 Keynesian arguments , are more sensible concerning the immediate crisis, indeed their arguments are irrefutable. However, the crisis is not simply a periodic crisis, but a crisis in both the strategy of capitalism and its structure, and Keynesians are not addressing these issues, whereas the right, consciously or unconsciously, is trying to come to terms with the real underlying political economic problems of capitalism. The only solution, from their point of view, even if historically limited, is a restoration of capitalism back to the controls existing before the Great Depression, or before the First World War. This requires mass unemployment, a very limited welfare state, applicable only to the very poorest, and the restoration of commodity fetishism, in part by privatising everything that can be privatised including health and education. It amounts to an epoch making defeat of the working class, establishing the unlimited supremacy of capital.

The mediating mechanisms whereby capitalism continued to function in the past century are no longer applicable. Logically, capital is forced back on to its unmediated form. They have no alternative but to go that way but, at the same time, it is historically impossible.