The Trouble with Capitalism. By Harry Shutt, Zed books.
It is easy to see why the publishers have re-issued this book that first came out in 1998 – in it Shutt argued that a devaluation of capital assets could not be avoided for ever and that when it eventually did happen it would take the form of a big crash.
Mat Little, who interviewed Shutt for Red Pepper this January, summarised what Shutt sees as the contradiction of capitalism that leads to recurring business cycles of boom and bust:
“According to Marx, capitalism is a system of accumulation. Profits are made but can’t all be consumed by owners. Extra profits need to be recycled through the market. ‘The only way you can successfully recycle them is to either expand your existing business or diversify into another business,’ says Shutt. ‘It all depends on the ultimate consumer, consuming more and more. It has to grow, growth is built in.’ The problem is that as profits are invested into the market, generating more profits that in turn have to be reinvested, production expands until it reaches a level that can no longer be absorbed by consumers. The market is glutted, and recession results. But the destruction of capital and jobs creates pent-up demand for the whole process to begin again in time. That, in brief, is the business cycle.” (www.redpepper.org.uk/Prophet-of-doom)
Although Shutt does not write as a Marxist, this is one of the explanations of the capitalist business cycle put forward by some in the Marxist tradition. It implies that all capitalist crises are caused by the overexpansion (in relation to paying demand) of the sector producing consumer goods. But while the crash of 1929 can be explained in this way, the history of capitalism shows that the overexpansion of any key sector or industry can provoke a contraction of production through a knock-on effect on the rest of the economy.
Shutt explains the 25-year period of expansion after the end of WW2 in terms of the satisfaction of the market for affordable consumer durables and the end of this post-war boom as a result of the slowing down of this market. Capitalist enterprises were thus, he says, left with a ‘mountain of cash’, profits which could not be re-invested in expanding production, which he also describes as a ‘capital glut’ in the sense of an oversupply of investible funds.
What would normally happen in such a situation is that, in accordance with the law of supply and demand, capital would be devalued; which a crisis would bring about, so restoring the rate of profit (because this is calculated as profit divided by the value of capital). Only, according to Shutt, this did not happen on any large scale in 1974 because the authorities (governments and central banks) took steps to try to stop this, by facilitating the channelling of the surplus of investible funds into non-productive activities such as lending to consumers or speculation on the stock exchange or in property:
“This massive flow of funds – which is not being allowed, as would be dictated by traditional capitalist rationale, to self-destruct through the natural operation of the business cycle – has to find an outlet in more or less speculative forms of investment.” (p. 179)
Writing in 1998 Shutt saw the various financial crises till then – the stock market crash of 1987, the Mexican debt crisis of 1994-95, the financial problems of the Asian ‘tiger economies’ in 1997 – as signs that this was not sustainable and as harbingers of the Big Crash to come. Now, with the bursting of the dotcom bubble in between, he sees the Crash of 2008 as the expected big one:
“What the prolonged amassing of this huge surplus of capital cum fraud-driven credit bubble, means, according to Shutt, is the inevitable crash – the inexorable end of the business cycle – is going to be far more severe that it would otherwise have been. ‘I think we are looking at negative growth, for an absolute minimum of two or three years and I wouldn’t be surprised if it’s five or ten. That would be a depression,’ he says.” (Red Pepper interview).
Since our failure to foresee the post-war boom with our prediction that WW2 would most likely be followed by a slump, just as after WW1, we have tended to be wary of making such predictions ourselves. So, we will just record this as the opinion of one person who has studied the matter.
Adam Buick
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