Fundamentals of Capitalist Crisis

Marxism offers a unique and challenging explanation of the development of capitalism. While academic economists have acknowledged the business cycle - periodic rises and falls in economic activity, most believe that policy has tamed the worst of these fluctuations. Marxists, on the other hand, believe that capitalism fundamentally begets crises of all kind: political, social and economic.

By fundamentally, we mean, regardless of policy actions, crises will arise again and again because of inconsistencies - what Marxists call "contradictions" - in the very nature of the capitalist system.

What elevates Marxist economic theory beyond a mere opinion or semi-religious dogma is the testability - the availability or absence of real world evidence - for the claims of the theory.

With the global economy spiraling into a seemingly bottomless pit, with policy makers searching frantically for answers to the decline, and with the vast majority of the world's population facing insecurity and deprivation, the evidence is mounting that not only is capitalism failing, but the comforting theories that justify capitalism have failed. The dominant academic economic theories and the popular assumptions spouted by the media appear now to be mere apologies for a system unable to serve the interests of working people.

Conversely, the persisting realities of economic decline serve as evidence that Marxist economic theory, with its prediction of inevitable systemic crisis, better captures the trajectory of global capitalism.

Since there is an understandable growing interest in alternatives to the reigning economic orthodoxy, there are many versions of Marx's theory of crisis circulating, some from pretenders, others from those simply confused.

The global capitalist economy is very complex with numerous divisions and multiple layers. To dissect this body in a theoretically revealing way, Marxists employ three interrelated concepts that are both unique to and essential for an analysis of capitalism. They are:

1. Class Marxists see a great division in capitalist society between those who create the wealth of society and those who expropriate a surplus of that wealth -profit - without themselves creating it. In a capitalist society, private ownership is the precondition and exploitation the mechanism for expropriating wealth from the producers.

2. Profits At the heart of capitalism system - the purpose that sustains it - is the private accumulation of greater surplus, both absolutely and relatively. The surplus is acquired through private ownership and remains private in the hands of one class.

3. Exploitation The process of expropriating a surplus - profit - by the capitalist class from the productive class is the basic motor of capitalism.

Though there are other important concepts in Marxist economic theory, these three notion serve as a cornerstone for understanding capitalist crisis. Generally, when self-proclaimed Marxists get off track, they fail to take all three fundamental notions into consideration. For example, a theory of crisis that stresses that production often outstrips the ability of economic consumers to acquire commodities (overproduction) may very well express an important insight: an increase in exploitation and class inequalities may often precede or coincide with capitalist crisis. As inequalities grow, the purchasing power of those outside of the capitalist class diminishes as well, restraining the potential growth of production.

But this insight overlooks two important points:

1. Economic periods of overproduction in and of themselves will not generate crisis, except if these periods also disrupt the growth of profits. It is not instability, human suffering, dislocations, cyclical changes, etc. that force the system into crisis; it is a marked decline in profits that disable the capitalist system.

2. Overproduction, like dislocations, imbalances, underinvestment, and the many other factors that may interrupt the smooth operation of capitalism are subject to policy correction. The tendency for the capitalist system to fail to generate profits is not.

The popularity of Keynes' economic theory after the Great Depression probably accounts for the widespread adoption of the crisis theory of overproduction by Marxists. Keynes is widely and correctly touted for demonstrating that a capitalist system will not automatically achieve a balance between productive output and that output's successful exchange in the marketplace. While this conclusion came as a blow to conventional economics, it actually implied that a full understanding of market failure would generate policy remedies that would, in fact, restore balance or equilibrium to markets. In other words, the Keynesian diagnosis gave rise to policy prescriptions that should, theoretically, heal an ailing capitalism. Even more to the point, proper understanding of the treatments should effectively blunt the onset of any future crises.

Neo-Keynesians - friendly to the Marxist critique of stable capitalism - like Joan Robinson, helped to popularize a thoroughly Keynesian version of crisis theory among Marxist economists.

Theories of overproduction, imbalance, underinvestment, dislocations, etc address the anarchy of markets, a reality not to be denied. Certainly economic exchange organized within markets will always generate disruption, but if Keynes is right, the policy tools for correction are available or, in theory, can be constructed. For a Marxist to base capitalist crisis solely on market aberration is to rest on the faith that capitalist policy makers will stumble or err and not upon sound theory.

One of the great myths spread widely is that the neo-liberal turn inaugurated with the Thatcher-Reagan revolution booted out Keynesian economics. Conservatives promote this view because they are out to decimate New Deal programs which are mistakenly viewed as coextensive with Keynesian policy. But the idea that conscious policy decisions can modify effective demand is alive and well, especially in the area of military spending and its related areas. The huge military budget and its attendant costs - the cost of empire - account for roughly half of the US federal budget and function as the chief policy instrument for fiscal stimulation. Military Keynesianism is Keynesianism to the bone.

In addition, capitalism constantly creates and modifies stimulative tools to boost effective demand for productive outputs. The expansion and evolution of credit, for example, serves as a source of purchasing power for consumers. Time payments, layaway programs, mortgages, credit cards, loan consolidations, second mortgages, unconventional mortgages, etc are all instruments that expand buying power beyond current incomes. As stimulative agents, they replace direct assistance, jobs programs, and other entitlements. The advantage to capitalism is obvious: they generate profit - albeit deferred profit - where social programs may well not. Thus, neo-liberalism replaced the stimulative function of welfare economics with an advanced, expanded mechanism of credit.

But in Part III, chapter 13, of volume III of Capital, Marx sketched a theory of crisis, not based upon market anomalies, but upon the tendency for the capitalist system to fall in profitability. While only a brief and undeveloped argument, Marx placed great stress on the important insight that the capitalist system was inherently prone to pressing economic growth - in pursuit of profits - to the point where competition and an increase in labor productivity would actually inhibit profit. The argument was strictly a logical argument and turned upon a highly schematic model of capitalism and assumed the labor theory of value. Over the years, Marx's theory was widely criticized and came in for considerable scorn. Nonetheless, the notion that capitalism's ability to generate profit stood at the core of Marx's crisis theory. Marx, I believe, understood that it was the direction of profitability, in all cases, that determined the relative health of a system based upon social production for private gain.

The argument in volume III of Capital was never meant to be descriptive of capitalism in his time or any other, but an exposure of how the basic mechanism of capitalism could hang itself by its own rope. Marx left it to others to elaborate this process with regard to a constantly evolving capitalism. As Marx said in a correspondence with Engels in 1868: "the tendency of the rate of profit to fall as society progresses [is] the great pons asini of political economy to date." (quoted in Maurice Dobb's Political Economy and Capitalism, p. 81)

With the advent of state-monopoly capitalism - the current era of capitalism - the expropriation of society's surplus takes more complex, more varied forms. The exploitation of productive labor remains the ultimate source of society's wealth, but the methods of directing and distributing the surplus have become infinitely more diverse. Monopoly capitalist enterprises rely more and more on predatory methods: marketing campaigns, mergers, acquisitions, shaping perceived needs, etc. to acquire a larger share of the surplus as well as the cooperation of a state that serves their and, to every extent possible, only their interests.

Nonetheless, the drive for profits remains the cornerstone of capitalist development and the source of crises. The roots of the current crisis follow on the heels of a long period of economic stagnation in the 1970's and early eighties that saw profitability and incomes lagging while inflation raged. The deindustrialization and rising rate of labor exploitation of the eighties in the US produced a growth in profits, but the fall of the Soviet Union and the socialist community gave capitalism and its profit potential the greatest boost. The incorporation of new markets and the destruction of alternative trade relations paved the way for the process popularly called "globalization", a process of simply absorbing the ex-socialist community and those developing world economies that formerly had other options available. With both an advanced mobility of productive enterprises and huge pools of cheap labor, production and trade expanded rapidly. A new division of labor developed with productive and service activities located in areas of low labor costs and financial activities located in the advanced capitalist countries, especially the US. Of course, this expansion and division of labor produced a sharp rise in the rate of labor exploitation and a consequent leap in the rate of profit.

The technological advances associated with computers and sophisticated programs promised to further increase labor productivity at the end of the twentieth century. The possibilities of both radically restructuring the means of production and exploiting an enormous consumer market drew billions and billions of investment monies to this high-tech sector. Of course, the goal of these investments was greater profits. But the investments far out-stripped the real potential for profit causing a severe downturn, primarily in the hi-tech sector, and the loss of trillions of dollars of capital.

Policy makers sought to isolate the damage from other sectors with monetary policies, lowering borrowing rates to unprecedented levels, and creating an environment of easy credit. This action encouraged riskier actions in order to boost the rate of profit. At the same time, a weak labor movement and a brutal campaign of restructuring and concessionary labor agreements combined to further raise the rate of exploitation and shore up profits. As a result, the capitalist world, principally the financial sector, found itself awash in capital, but with fewer and fewer customary investment opportunities for high return, as the Wall Street Journal noted in 2003.

To hold capital without any place to invest it profitably is a neither a desirable nor stable position for the capitalist. In a real sense, it is comparable to Marx's schematic presentation of the tendency for the rate of profit to fall, where investment in new machinery to raise productivity has the unwanted effect of lowering the profit rate. Idle capital plays the same role insofar as its not used to generate profits.

The enormous concentration of wealth in the US financial sector created and extended new, obscure, and risky investment instruments to utilize this capital. As Maurice Dobb wrote in 1945, "New methods of extending the field of exploitation - extending it to new and untapped strata beyond its former frontiers - [has] to be pioneered" as "compensation for a falling rate of profit which seems to constitute the primary difference between the crises of the earlier and later stages of capitalist economy." In our time, the pioneering spirit of capitalism pushed even further.

Though the numbers are only speculative, some estimate that the financial sector created securities and other opaque financial instruments totaling $60-70 trillion in order to draw investment towards a promised profitability.

Often the current crisis is referred to as "the mortgage crisis" or "sub-prime crisis", but clearly mortgages were merely the opportune vehicles for constructing an enormous edifice of speculation. The persistent rise in housing values and easy, stable credit made mortgage speculation attractive, but other areas would have been found if necessary.

As a counter to the tendency of profits to decline, the financial gambit proved to be a bust. The failure at the base with failed mortgages shook the entire edifice, amplifying what would otherwise be manageable losses to waves of financial destruction.

From a policy perspective, there are two concerns - the same concerns that occupied policy makers in the Great Depression: Do we rescue profitability? Or do we rescue the billions of victims of capitalist profit-seeking?

To date, US and other policy makers have reduced this to one question: How do we rescue capitalism? It is unimaginable within the board rooms and legislative chambers to separate the interests of the masses from the forward march of capitalism.

In the Great Depression, human misery and militancy forced action benefiting the victims upon both Hoover and Roosevelt. At the same time, capitalist failure opened minds to alternatives for hundreds of thousands of capitalism's victims - alternatives that included socialism.

Despite all the nonsense about "socializing assets", "nationalization", "partial government ownership" that circulate around ruling class attempts to restore profitability in the current crisis, policies have advanced no further than the furtive efforts of the Hoover administration. In fact, Hoover's Emergency Relief and Construction Act, adopted on July 21, 1932, addressed the issue of mass suffering far more than anything on the table today. ERCA provided for relief as well as public projects to generate employment.

Capitalism will stabilize when the rate of profit is restored. The fate of the millions harmed by the crisis will be dealt with when we make our rulers understand that people come before profits.

Joe, the Plumber: Class Traitor

A man that is a credit to "Our Red White and Blue."
His head is made of lumber, and solid as a rock;
He is a common worker and his name is Mr. Block.
And Block he thinks he may
Be President some day.

Joe Hill, songwriter for the working class, wrote the above lyric in 1913. A different blockhead, Joe - actually, a Sam - has become the darling of the media. Joe had the audacity to walk up to Presidential candidate Barack Obama recently and challenge his tax policies. It seems that Obama wants to increase taxes on all those making more than $250,000 a year while reducing those below that threshold, a commendable proposal, indeed. Now most workers would see Obama's proposal as a positive move, but not our Joe, the plumber. Joe's unhappy because he wants to buy his boss's business which he judges to be worth $250,000.

And so the love fest with the media began. Joe became the voice of the working class to our incorruptible, unbiased journalists. His every word was closely examined for signals of the mood of those alien to the elites - workers. Joe proved to be such an "everyman" - a Long John Willoughby in Capra's movie, Meet John Doe - that his deep thoughts dominated the final debate between the major party candidates.

A bit of research by the Cleveland Blade - not the prestigious New York Times, The Wall Street Journal, the networks, or the cable shouters - turns up some interesting facts about the Ohio native: Ole' Joe is not really a plumber - he had no license; he wasn't a registered plumber - but a plumber's helper. Well, actually, his boss also wasn't registered, so I guess he wasn't a plumber's helper, either. With Joe making about %40,000 a year, it will be a long time before he buys the bosses business especially since he'll have a hard time getting a loan with a lien against him for failure to pay property taxes. It seems Joe's against property taxes, too.

So Joe is a windbag - filled with strong opinions and cocksure of his destined success. We all know people like him; there's always a few in every working class neighborhood.

Joe brings to mind the poll results from a few years ago. I can't remember the source, but the poll asked respondents if the thought they were, or would be, in the top 1% of incomes. Approximately 20% said they were and another 20% said they would be! Joe, like Joe Hill's Mr. Block, undoubtedly fits into one of these two groups.

Now some will say that I'm too hard on Joe; after all, "class traitor" is a pretty strong charge. Certainly Joe is not alone with his twisted ideas, ideas reinforced by elite word mongers on talk on talk radio, Fox News, and the rest of the lapdog media who make much more money than Joe will ever imagine. I suffered through a Fox interview with Joe, thinking "Joe, how can you let this rich rich white guy in a business suit make such a fool of you?" The interview makes an obscene amount of money for journalistic buffoonery; he stands to pay more with the Obama tax plan; and Joe lets the creep use him to attack working class interests. Yes, Joe's a class traitor.

But it is satisfying to watch the politicians and media courtesans squirm when they encounter working class people - I'll give that blockhead Joe that much. They act as though they are in the presence of a newly discovered species - not unlike their unease around African-Americans.

Welcome

For several years, I have been contributing to a website with the goal of presenting the ideas of Marx, Engels, and Lenin - the leading figures of the modern Communist movement - to a larger audience. The fall of the European socialist community and the decline of many formerly powerful Communist Parties left many on the left discouraged and without a compass. Several comrades and I felt an urgent need for a website that maintained fidelity to the century and a half of Communist tradition, while applying Marxism creatively to the events and issues of the moment. We hoped, in a modest way, to add our labor to that of others internationally who shared our goal. Thus, was born mltoday.com (Marxism-Leninism Today).

In the several years since the website's inception, we have been able to reach a larger and larger audience and stir interest and interaction with a growing number of Communist activists and interested friends. But more importantly, we have been encouraged by a renewed interest world-wide in both Marxism and socialism. We are buoyed by the determined resistance to imperialism in the Middle East, Latin America, and Eastern Europe as well as other regions. And the struggles for justice and equality throughout the world are becoming more militant and demanding - a source of further inspiration.

The current crisis of the world economic system is both calling capitalism in question and demanding new, daring ideas. Today's news reports tell of a surge in sales of various tracts authored by Karl Marx and Frederick Engels. Staid, conservative politicians are secretly reading Marx for ideas. While a specter is not now haunting Europe, certainly Marx's shadow is looming over the world economy!

Given the fast-moving events of the moment, I thought a blog - ZZ's blog - would be timely, allowing me to share some thoughts - perhaps ill-formed and incomplete - on those events. Hopefully, others will find these comments of interest and join me in developing them.

Zoltan Zigedy