News in Review: Wall Street slump (1962)

The News in Review column from the July 1962 issue of the Socialist Standard

Wall Street slump

Wall Street got the twitch last month and so did London and the Bourses on the Continent. The newspapers rushed out pictures of the panic in 1929 and then had to set their City Editors to work to explain why 1929 cannot after all happen again.

Everybody seemed to have forgotten that just before 1929 the financial experts were assuring us that the crash which was in fact just around the corner could never happen anyway. If this does not make the experts of 1929 look very impressive in retrospect, it must also teach us that the forecasts of all capitalism's economic experts are not worth very much.

Nowadays the experts are fond of pointing out the precautions which (they are confident) would prevent a runaway boom like the one which preceded the 1929 crash and therefore (they reason) would also prevent the crash itself.

This ignores the fact that slumps are not the result of an attack of jitters on the Stock Exchange; rather is it the other way round. Nineteen-twenty-nine was one of capitalism's classic crises and no amount of stock juggling could have averted it.

Nor should we assume that hotheaded speculation is dead. The Observer correspondent in New York reported that the “intellectuals" of Wall Street thought that: “By the end of last year the market had reached heights that brokers now, without blushing, describe as insane." and quoted one New York broker:

"The way some of (the big brokers) have been pushing over-priced stocks at naive investors is nothing short of criminal."

Perhaps a repeat of 1929 is not so impossible after all. For some of the experts were mystified by Wall Street’s 1962 twitch. The Guardian said: "The continuing retreat is puzzling commentators in that there seems to be no apparent reason for it. Mr. Walter Heller, President Kennedy's economic adviser, said there were no economic grounds for the condition of the market." Does this fill us with confidence that capitalism’s economists could not be taken unawares by a repeat of 1929? It does not.

Capitalism could have something up its sleeve, just as it had thirty-three years ago, to surprise the experts and impoverish the rest of us.

Liberal Party promises

Nobody can accuse the Tories of not being worried about the Liberal revival. Faced with the fact that some of the electorate undoubtedly find the Liberal Party attractive, the Conservatives have set out to prove that the very allure of Liberal policy lies in its irresponsibility.

This is being done in the time- honoured way of accusing the Liberals of pushing vote-catching policies without also mentioning that they would increase taxes to finance them. Mr. Iain Macleod has estimated that full application of the Liberal policy would put another eleven shillings on income tax. Most workers are convinced that they are the people who pay taxes: to them, the prospect of a standard income tax rate of 18/9d. in the pound must have seemed like black nightmare.

To back up his case. Mr. Macleod had his research boys dig out some choice examples of Liberal promise-mongering. He quoted Liberal policies for spending more on roads and education, for increasing pensions, repaying post-war credits and much more besides. The Liberals claimed that Macleod‘s quotes were taken out of context.

Yet in one way Macleod had a point, even if he did not know that he was making it. All capitalist political parties have to make a lot of attractive promises and boast that they can do things which they know are beyond their abilities. The Tories, for example, said in 1951 that they would stop prices rising.

Such promises can be effective vote-catchers. The one snag is that a party which is liable to be returned to power cannot make its promises too extravagant, because that would only make their betrayal that much more obvious. On the other hand, the more remote from power a party is, the more reckless its promises can be. The Liberals have little immediate prospect of becoming the government of British capitalism.

We may be sure that if the Liberal revival really gets under way their promises will become dimmer and more sober as the votes mount up. And if they ever get into power again most of the promises will disappear. Grimond and his men would run British capitalism in roughly the same way as the parties they now decry.

End of Eichmann?

No time was wasted, after the Israeli President bad written the quotation from the Bible across the petition for reprieve, in sending Adolf Eichmann to his death and scattering his ashes into the sea.

Why was Eichmann executed? For revenge? One man cannot adequately expiate the murder of six million people; a split-second execution is hardly revenge for the years of pitiless concentration camp horrors.

P

erhaps nearer the mark were those observers who think that the whole thing—the abduction, the trial, the execution—was meant to establish Israel as a political reality among the other capitalist nations. Political acts in themselves do have significance and for Israel to put to death the man who organised the extermination of the Jews is significant indeed.

Israel has asserted her power—even if, in terms of capitalist legality, she had little right—to bring the Jews' tormentors to book.

But what else has Israel done?

Perhaps she has made a martyr of the clerk-like Eichmann. Racial theories still live in capitalism's jungle; the execution of Eichmann could be the grain of sand around which they crystallise and flourish.

There is no easy explanation of the Eichmanns of the thirties and forties; Nazi Germany will remain a horrifying enigma for a long time to come. But we can say that part, at any rate, of the reason for the electoral success of the Nazis was the crisis of German capitalism after 1918 and the despair and cynicism which this bred in the minds of the German working class. In this mood, they would have supported anyone who sounded as if he had the answer to their problems. And Hitler, with his race mania, sounded like that to them.

Capitalism is always liable to convulsion and in any case it will never stop looking for scapegoats for its own shortcomings. This means that racial hatred is still with us and that even the madness of the Nazis need not be very far away.

The world may not have seen the last of its Adolf Eichmanns.

Coal profits

The nationalised coal mines made £28.7 million operating profit last year. If the Coal Board were a normal commercial company, said chairman Lord Robens when he announced these figures, it would be paying a dividend of 2½% from its profits.

But the coal mines are not, of course, a normal concern. The N.C.B. is liable to pay out on fixed interest stock and loans, which means that its dividend payments bear no relation to its working profit.

Last year the N.C.B’s interest payments came to £42.4 million, which turned its working profit into an accounting deficit of £13.7 million.

There are three things to be said about this.

Firstly, nationalising the coal mines was obviously a good move from the point of view of those who get the £42.4 million interest from a profit of only £28.7 million; much more than they would have got from Lord Robens' two-and-a-half per cent!

Secondly, the fact that millions of pounds profit is being wrung from the coal mines is proof—if anymore were needed—that nationalisation does not alter the capitalist nature of society. For profit, in private or state industry, can only come from the exploitation of workers in the industry.

Which brings us to the third, conclusive point. Many workers in this country were misled into supporting nationalisation because they thought it had something to do with common ownership. The figures which the National Coal Board has produced, and those which the other nationalised industries turn out year by year, show up that it was nothing of the kind.

The Origin and Growth of Nazism (Conclusion) (1943)

From the October 1943 issue of the Socialist Standard

Link to Part 2.

Like a thunderbolt, the world slump struck German economy amidships towards the end of 1929. The capitalist magnates of New York, London and Paris who had financed Germany’s industrial comeback, hastily called in whatever part of their loans they could lay their hands on. Thus the German crisis assumed even more disastrous proportions than that of other countries. Her industry had rehabilitated itself on foreign credit and when this credit vanished, the bottom fell out from Germany’s reservoir of production.

This crisis of “overproduction” is an inevitably recurring feature of capitalism. It is “overproduction” indeed, over-production of the surplus value accumulated by its capitalist owners and which they cannot use or dispose of profitably. But for the workers it means unemployment and reduced standards of living. For the German masses the post-war years had been a continuous ordeal of extraordinary strain. The new republic had never settled down politically because the economic background was seldom stable enough (in the capitalist sense of “stability”) to allow for the mental adjustment necessary. When, therefore, the government of Bruening (Right Wing Catholic) was defeated in the Reichstag in July, 1930, the electorate went to the polling booths on September 14, 1930, in an atmosphere of a world  crisis which appeared to them as the consummation of years of distress and bewilderment. From this election the Nazis emerged as a mass party. They secured 6,400,000 votes and 107 seats in the Reichstag – eight times the number polled by them in 1928. The percentage of total voters who actually voted jumped from 50 per cent to 73 per cent: nearly four million new voters had entered the lists. It is estimated that most of these, probably three million, hitherto non-political elements, went to the Nazis. Thus the party of  “National Socialism” is revealed as a product of the world crisis – a party of wild despair and wild hopes.

The Nazis owed this unparalleled success to the fact that in the eyes of many their policy and make-up promised a complete break with the past. The fanatical fervour of the “Brownshirts,” their demagogy and displays, did not appear out-of-place under the circumstances. It reflected the neurosis of the modern troubled world. Compared to them, the parties of the republic, particularly the Social Democrats, were compromised with the “old order” and completely lacking in  “dynamic.” The German Communist Party, under the circumstances prevailing a possible rival to the Nazis, secured 3 ½  million votes. They, too, competed for the votes of those who wanted a break with the “old system” (in fact, large blocks of votes repeatedly fluctuated backwards and forwards between the Nazis and the Communists), but their past inconsistency and support of Social Democracy lowered their standing as a political party. And their ties with Moscow limited their appeal as a Russophile organisation. German industrialists  and big business owners now turned in increasing numbers to Hitler’s party as a means of helping them to give Germany what they were pleased to call “political stability.” They themselves, as “Nationalist” and  “Conservative” parties, had dismally failed to secure any backing of consequence among the people. In the September elections they had even lost a good deal of their previous support to the Nazis. In the “National Socialist” movement they saw an organisation that could compete for “mass appeal” with the Social Democratic and Communist  parties whilst at the same time providing a check to the political and economic threats of the disgruntled workers.

The union between the Nazis and a large section of the German capitalist class was publicly sealed by the parliamentary co-operation of Hitler’s party with the “nationalist” bloc led by Huegenberg, the leading business magnate. This does not mean, however, that the two parties had merged or that the capitalists of Germany were willing to commit their fate into the hands of the Nazi leaders. Nor would it be correct to assume that the Nazis from then onwards became the puppets of the German capitalists. There was in fact a great deal of distrust between the two groups. The Nazi movement was at no time comparable to the orthodox political parties which capitalism had hitherto thrown up. They were not a “class” party in the sense that the Conservative Party in Britain is the party of present-day British capitalism. Their membership and supporters held views as varied as the colours of the well known chameleon. The Race-mythology which attempted to concoct a special philosophy of its own, was merely one wing, and not the whole, of the Nazi movement. Its spokesmen is Alfred Rosenberg (this is definitely a Jewish name). The mass-appeal of the Nazis certainly does not rest on the race-myth. The S.A. (Storm-troops) led by Captain Ernst Roehm was largely composed of unemployed as wells as those dregs of society which Marx called very descriptively the “Lumpenproletariat.” It was this body that carried the terror against the Jews and other opponents of the Nazis. Numerically the most powerful section of this political hybrid was the “radical” wing led by Gregor Strasser. Strasser later attempted to detach this wing from the party and come to terms with trade union and Social Democratic elements. He, like Roehm, was later murdered by his former “comrades” in the “blood-purge” of June, 1934.

This political incoherency is the real explanation of the “Leader-cult.” The more backward and confused politically a people are, the stronger is the gravitation toward absolute personal leadership as a unifying force. Conversely, to the extent that the masses become politically enlightened, the need  for “leadership” disappears.

These differences, as well as the appetites for power of individual Nazi politicians, caused serious conflicts within the movement. But the momentum of the crisis, plus the powerful financial backing from the capitalists, boosted the Nazi Party from strength to strength. In July, 1932, the Nazis polled nearly fourteen million votes, and thus became the strongest single party in the country. To illustrate the unscrupulous lengths to which these political adventurers relied on the credulity of the German electorate (or a large part of it), the following items from their “Immediate Economic Programme,”  published at this election, can be quoted:

“Four hundred thousand houses for single families to be built within a year!”

“To increase the annual yield from German agriculture by two milliard marks,” a fantastic notion.

And, of course, these “revolutionary economists” proposed to abolish the gold standard!

What was the reaction of the so-called “working class” parties to this mortal challenge to all the principles and traditions which the workers since the time of Marx and Engels have built up by their historic struggles? Now, after the event, accusation and counter-accusation are hurled at each other by the parties involved. The worker who has no knowledge of the recorded events is confused. The facts, however, condemn both the Communist Party of Germany and the Social Democrats as equally guilty. The Communists who still claim that they proposed a “United Front” would have defeated the Nazis are, as usual, lying. They had no intention of combining forces with the Social Democrats against Hitler. On the contrary, their avowed purpose was to destroy the German equivalent of the Labour Party by every means, fair or foul. So intense was their hostility that they supported the plebiscite on August 9, 1931 organised by Huegenberg’s reactionary “Stahlhelm” and the Nazi Party, to turn out of office the Social Democratic Government of Prussia. As late as May, 1934, after more than a year of Nazi tyranny, Palme Dutt, the well-known British Communist, declared in his book, Fascism and Social Revolution:

“It would be more correct to say of Social Democracy and Fascism: their aims are the same (the saving of capitalism from the working class revolution); they differ only in their methods.” (Page 155.)

It was a year later, in 1935, when the Russian Government had reason to fear  the threat of war from Nazi Germany, that the Communists obediently turned themselves inside out again and clamoured for “Unity against Fascism.”

And yet no argument can be shown to prove that a combination of Social Democracy and “Communism” would have stayed the Nazi onslaught against the Weimar Republic. This Republic had virtually ceased to exist when Bruening became Chancellor in the spring of 1930. Bruening governed the country by emergency decrees which were authorised by Hindenburg (President of the Republic since 1925). Hindenburg, the Monarchist General, who had not a good word for the republic, but who nevertheless had taken the oath of loyalty to the Weimar Constitution. Bruening’s emergency decrees violated the constitution, but the only party in the Reichstag, who genuinely upheld the principles of Weimar, the Social Democrats, shrank from challenging Bruening and the popular figure of the President who was behind him. They feared that the defeat of Bruening would mean the triumph of Hitler. It was the age-old reformist illusion of compromise; the suicidal tactic of the “lesser evil.” In pursuit of this self-destructive policy the Social Democratic Party of Germany first linked itself with the Junker Generals, then with the catholic Centrists, and lastly again with the militarist Junker, Hindenberg. These alignments sapped the German Labour movement of most of its strength, destroyed the hopes and enthusiasm of  its working class supporters, and finally handed the sorry remains to the Nazis for the death blow. How many more tragic lessons must the workers learn before they abandon once and for all the folly of the lesser evil?

By the end of 1932, the world crisis was at its climax. The markets of the world, glutted by the fertility of modern wage labour, became additionally restricted from the high tariff walls erected by the frightened governments. The Ottawa Agreement barred the way to the raw materials of the British Empire. The capitalist class of Germany were confronted with problems involving their very existence. One half of their industry was at a standstill (the unemployed numbered six and seven millions). Their attempts to impose a semi-military rule on the country through Hindenberg, Von Papen, and general Schleicher, had broken down owing to the hostility of the Reichstag. Germany, although its peculiar development and abnormal condition had, for the time being, brought the democratic forces to failure and disaster, was yet too highly developed to be governed by a regime which did not grow out of a mass political organisation in the country. The Nazis, although they suffered a set-back at the election following their triumph in July, 1932 (they only polled 11,730,000, and thus lost two million votes within a few months, i.e. on November 6, 1932), were the only hope of consolidating German capitalism. Consequently, an agreement was reached between Von Papen (the confidant of Hindenburg) and Hitler, and by it Hitler was installed as Chancellor by Hindenburg in January, 1933. Immediate preparations were made for a further election in order to present the new government to the country as a “national” government so as to strengthen the popular support. The elections, held March 5, 1933, gave the Chancellor, with the backing of the President, attracted millions of additional Nazi votes. Seventeen million votes were cast for them at this election. The seats in the Reichstag were divided as follows:-

Nazis………………………………………….288

Social Democrats………………………….......120

Communists………………………..……….......81

Centre…………………………………..…….....73

Huegenberg’s Nationalists ……….…..................52

All others……………………………..…….........14

 Total                                                                     647

88 per cent of the total electorate voted.

Thus the Nazis together with the nationalists, with whom they were in coalition, held a clear majority. The question arises: To what extent were these figures representative of national opinion freely expressed?

The Reichstag Fire (February 25, 1933) had been blamed on the Communists, and this party was certainly at a grave disadvantage. Nevertheless, the party lost only 19 seats compared with the previous election (November 6, 1932) and a mere eight seats compared with the elections previous to that (July 31, 1932). The Social Democrats lost only one seat.

This proves not only that the votes cast were, in the main, representing popular opinion (although it must be remembered the facilities for propaganda were almost wholly monopolised by the Nazis and their Nationalist allies), but more important still, despite the fact that Hitler was chancellor and his Brownshirt thugs roamed the streets at will, a considerable section of the German people, mostly the industrial working class, were yet determined enough to declare their opposition to the new regime, and the new rulers were not able to prevent them from doing so. Only later, when the government had managed to pass a special measure through the Reichstag, did they abolish the old constitution and establish the dictatorship of the “Third Reich.”

It is admittedly an impossible task to assess here comprehensively the import of events to which tomes have already been dedicated, and of which some aspects remain obscure. The main conclusions from the foregoing analysis are stated herewith:

Political democracy was born in Germany under most unpromising circumstances and against an unfavourable historical background. Its birth was not the result of a struggle by the workers nor the desire or need of the German capitalist class. It was thrown to the nation by the defeat of 1918 and the temporary impotence of ruling class elements.

Nevertheless, the power of the constitution was such that only a mass movement could break it. The Nazi Party was able to rally those sections of the masses who were most backward politically and who had not yet shed their dependence on absolutism. Their success was contributed to by the weak and compromising character of German Social Democracy which attempted to combine the role of working class reformist party with the guardianship of capitalist interests. The Communists drew a large section of the working class into opposition to the democratic method and so the elements whose co-operation was essential to ensure a popular basis for the Republic, were split from the beginning.

The militarist class or junkers who had been the real power behind the absolutist throne up till November, 1918, were seriously weakened by the army’s defeat. The re-arming of Germany placed them once again into a key position in German politics. This time, however, they were dependent on mass-parties for their link-up with the people; this was provided in the first period by Social Democracy and other Republican parties. The world crisis in 1930-33 barred the world market and access to raw materials to the capitalist class of Germany (most of whom are industrialists). This determined the capitalist and militarist elements to embark on a policy of territorial annexation involving war. The Nazi Party then appeared as a means of ending the violent political fluctuations and preparing the country materially and psychologically for the coming conflict. The Nazis, therefore, could never have formed a stable regime of any permanency. Their rule was bound to involve a series of climacterics leading to war. They were in the last analysis a party of crisis and war.

Finally, the Nazis owed their triumph directly to the world economic crisis. Thus the periodical crises of capitalism now emerge as a powerful force for the shaping of political mass opinion. In this particular instance the circumstances combined to give the spoils to a party of reaction. But the future may well atone for this setback. With the fuller experience of workers everywhere, the crises to come -“planners” notwithstanding – should provide an immense stimulus to the world movement for Socialism.

Sid Rubin

The Futility of Reformism (2000)

Book Review from the February 2000 issue of the Socialist Standard

‘Labour in Crisis – The Second Labour Government, 1929-31’. By Neil Riddell. (Manchester University Press)

The Labour Party, they used to say, was a broad church. Tony Blair, though he has sanctimoniousness in buckets, has spent much of the last five years trying to narrow it down a little. But he has not always found this easy. The strength of Riddell’s book is to show clearly just how much of a compromise the Labour Party always was.

First the facts of the second Labour government. It was elected as a minority in 1929 under the clouds of the impending crash. It imploded in 1931 amid squabbles over a cut in the dole, and after the desertion of Prime Minister Ramsay MacDonald to form the National Government (a Tory-dominated coalition).

This much is well known. What Riddell does that is new is to trace relationships between different sections of the Labour movement (the part, that is, which constituted the Labour Party) as capitalism’s latest crisis left the politicians gasping. Except “relationships” isn’t always the right word. “Hatreds” might sometimes be better. Senior trade unionists (who Sidney Webb called “pigs”) and politicians came close to blows at least once. A broad church maybe, but saintly it was not.

What were the aims of different parts of the movement, which Riddell maintains never could have been reconciled? The TUC wanted a government answerable to them, committed to removing the anti-union laws passed after the general strike. MacDonald, of course, had no intention of giving it them.

Local Labour parties with union backing agreed with the TUC. The rest, always broke because of union resistance to pooled funds, just tried to stay afloat. Union-sponsored MPs generally went along with the TUC line too. Other MPs split, some supporting the Independent Labour Party (ILP) in its quest for “a living wage”. This was proposed first as a remedy for under-consumption, later as a “transitional demand” by which capitalism would be bankrupted. Some for a while were sympathetic to Mosley. Most could only hope that their seats would be safe when the fiasco ended.

Riddell devotes much space to what he calls “the intellectuals”. Looking at what they supported, now and later, this is surely to flatter them. Generally, they plumped for some sort of nationalisation as the way ahead.

Different again was MacDonald himself, a keen proponent of “the inevitability of gradualness”. He believed that meaningful change could come about through piecemeal reforms of capitalism. Snowden, his chancellor, was firmly committed to balanced budgets, free trade and the gold standard. Both craved respectability. (Sound familiar, anyone?).

No wonder R. H. Tawney could call their 1929 manifesto “a glittering forest of Christmas trees, with presents for everyone”. And it was undeliverable. As for the alternative, propagated in the pages of this paper then as now, there was not a whisper from anyone.

Disappointments were inevitable, and MacDonald’s non-spin doctored public relations only made things worse for him. What really knocked the apple from the tree though was capitalism’s slump. When the government did crash, it was spectacular.

The movement, of course, resolved that such a thing must never happen again. Webb went off to look for a different dream, and found it in the USSR. (Soviet Communism: a new civilisation? was published in 1935, but reprinted two years later without the question mark). Generally, the party took up a different brand of reformism in the 1930s and 1940s, looking ever more to nationalisation, finance controls and management by “experts” working through a benign state. “Gradualism” was too slow; and the next Labour government was quicker off the mark.

But what difference would it make? It wasn’t just MacDonald’s leadership which was found wanting in 1931. It was the whole idea that capitalism could be reformed into something kindly and user-friendly. It couldn’t and it can’t. Blair is the face of a Labour Party that accepts this basic truth.

Toby Crowe

Boom goes bust in Asia (1998)

From the October 1998 issue of the Socialist Standard

Thirty countries covering a quarter of the world’s population are officially in recession. Even defenders of capitalism are now compelled to use the term “world economic crisis”.

It had to happen. Given the chronic state of overcapacity and potential overproduction in relation to the market in all the key sectors of global industry—electronics, computers, vehicle production, pharmaceuticals, shipbuilding, steel—the boom in Asia had to come to an end sooner or later. It already had in Japan, by far the biggest economy in the region and in fact the second biggest in the world after the US. Now the rest of East Asia—Korea, Malaysia, Thailand, Indonesia, Hong Kong and other so-called tiger economies—has followed.

It is difficult to believe that at the beginning of the decade Kinnock, when leader of the Labour Party, went into the 1992 general election holding up the Japanese model of incestuous government-corporation partnership as the way forward for Britain. Those who pointed to the relatively rapid rate of capital accumulation in East Asia to deny the socialist contention that world capitalism has been in a depressive state since the end of the post-war boom in the early 1970s have also had their come-uppance. Marx was right. They were wrong. There can be no such thing as a permanent boom. That’s only a dream peddled by smooth-talking politicians and ageing Keynesian professors.

Marx was right

Marx, the first person to provide a convincing analysis of how the capitalist economic system worked, concluded that, whereas capital accumulation—or economic growth, if you like—was a key feature of capitalism, this did not take place smoothly. Capital accumulation proceeds by fits and starts, periods of relatively rapid growth being followed by periods of contraction and stagnation. The graph of long-term growth under capitalism is not a straight line moving up from left to right but a jagged line with peaks and troughs, with each peak normally higher than the previous one. Marx argued that this cyclical pattern of growth was not just accidental but was inevitable under capitalism—it was the way capitalism functioned and developed, its “law of motion” as he put it—with each period of rapid growth ending in a slump and each slump preparing the conditions for the next round of growth.

The history of capitalism since Marx’s day has amply proved the validity of this analysis. In order to maintain or increase their share of the market and realise the surplus value embodied in their products, capitalist firms are compelled by competition to reduce their costs by improving their productivity, in particular by the introduction of more productive machines. This leads to an increase in overall productive capacity. During the period of recovery that follows a slump this poses no problem as the market is beginning to recover and expand again.

However, as the competitive pressures to increase productive capacity continue, the point is eventually reached when productive capacity in a key industry or group of industries comes to outstrip the market demand for its products. At this point a crisis of overproduction breaks out. As profits fall, production is cut back, workers are laid off and, through the knock-on effect on other industries, the market shrinks, so inaugurating the period of slump. During the slump, the least productive machines are taken out of production and capital is depreciated or simply written off. This purge of under-productive machinery and over-valued capital eventually creates the conditions which allow capitalist growth to recommence, so beginning the boom-slump cycle again.

This is how capitalism has developed and continues to develop, only now that (as Marx foresaw) capitalism is a global system the periods of rapid growth and purging slumps also occur on a world scale. The big slump of the 1930s was a world phenomenon, as was the post-war boom of the 1950s and 1960s which ended in the early 1970s. So of course is the current world economic and financial crisis.

Mad money

Just because the 1930s slump was preceded by the Wall Street Crash of October 1929, some people jump to the conclusion that it is financial crashes that cause slumps. Actually, it’s the other way round: financial crashes usually reflect the situation in the underlying real world of economic activity. Where they occur this is a sign that something has already gone wrong in the real world, that, to be precise, productive capacity and production has come to outstrip market demand or is threatening to. As J. K. Galbraith showed in his book The Great Crash, this is what happened towards the end of the 1920s; when the gamblers on the stock exchange realised that overproduction was occurring they tried to convert their paper wealth into real wealth and provoked a crash. The slump followed but as a result of the preceding overproduction not of the stock market crash, which at most only exacerbated the economic crisis.

It’s the same today in Asia. The financial crisis there is a reflection of the fact that stock exchange and foreign currency gamblers have realised that the countries of East Asia have expanded their productive capacities beyond market demand. This has been obvious for a few years in the case of Japan where overproduction has led to full-scale recession with lay-offs and factory closures. But Korea, Malaysia, Thailand, Indonesia and the others were in the same situation of potential overproduction since a significant part of their growth had been in the same industries which Japan had overexpanded: car and other vehicle production, and electronics and computer hardware.

The reason why governments and central bankers in Europe and North America are so worried about the financial crisis in Asia is that their own real economies are in the same state of potential overproduction as the Asian countries and that this could provoke a financial crash in their countries too. The king is naked here as well.

So far they have managed to avoid this though current indications are not good. Even if these countries avoid a full-scale crash this does not mean that they also have to power to avoid an economic slowdown or downturn. Such slowdowns and downturns can occur without a financial crash. Indeed this to an extent is what has already happened. Since the early 1970s the world economy has been in a period of slow growth, punctuated by falls in production from time to time. This is a reflection of the a lower rate of profit and of the unresolved problem of productive capacity having outstripped market demand in key technologically advanced industries such as aerospace, petrochemicals, pharmaceuticals, and computers.

One consequence of this period of slow growth is that significant amounts of profits are not being reinvested in production but, instead, are being held in liquid form and invested in financial assets with the aim of making as large a short-term profit in as short a time as possible. All the multinational corporations and other big companies now have treasury departments engaged in financial speculation of one form or another whether on the stock exchange, the bond market, currency transactions, commodity markets or dodgy hedges such as derivatives. In France in recent years many major companies have even set up or taken over banks for just this purpose.

This extra demand for financial assets, deriving from non-reinvested profits, has driven up their price, so creating the anomalous situation of a stock exchange boom in what is essentially a depressed economy. Nothing could illustrate more clearly how divorced is the world of finance from the world of reality. Most of the financial transactions that take place on the world scale today are not investments of productive capital—are not used to set up factories or to buy machinery, equipment or raw materials—but are to buy and sell shares or bonds or foreign currencies or commodity futures or property or failing companies to asset strip them.

Such purely financial transactions are utterly unproductive, even from a capitalist point of view. Not only do they not result in the production of a single extra item of wealth but they don’t even increase the amount of surplus value available for sharing amongst the various sections of the capitalist class. It’s a zero-sum game. As socialists have always maintained, stock exchanges are places where capitalists gamble and try to cheat each other with a view to acquiring as large a mass as possible of the surplus value that has already been produced by and robbed from the workforce.

Rising share prices—and despite dramatic falls from time to time, there has been a steady long-term rise in the share price indexes of most stock exchanges—do not represent an increase in real wealth. They merely amount to a rise in the book value of the real wealth-the productive capital of the companies in question-that shares are supposed to represent. It’s a rise in paper values not real value. When a share goes up in price this means that you can get more for it if you sell it. If you don’t sell your shares all it means is that their book value has gone up, but if everybody or even large numbers tried to realise this book value by selling their shares, the real situation would soon reassert itself. The price would fall, bringing down the book value of the corresponding productive capital to its real value.

Is the Big One coming?

Even some supporters of capitalism, among them the arch-speculator George Soros himself, have begun to express concern about where the parasitic and volatile nature of global finance capital may lead the world. At a congressional hearing in Washington on 15 September Soros even spoke of the danger of the “disintegration of the global capitalist system”. We have always been cautious in predicting a 1930s-scale slump, but if even supporters of capitalism are discussing this as a serious possibility who are we to insist that they’re wrong?

One thing is certain, though. Until the problem—for capitalism—of excess productive capacity and potential overproduction in relation to market possibilities is resolved, there can be no return to any period of rapid economic growth as in the post-war boom when growth rates were twice the maximum that has obtained in any of the already industrialised countries since the early 1970s. But the only way this problem can be resolved is by a bigger slump than we have yet seen since the war in which the system would be purged of its excess productive capacity and overvalued capital.

If this does not happen, then global capitalism will continue in its present state of slow growth against a background of high unemployment and declining welfare provisions, staggering on from financial crisis to financial crisis and from mini-boom to mini-slump. Can this really be the end of history?

Adam Buick

Stock Market shake-out (1989)

From the January 1989 issue of the Socialist Standard

They said it would never happen again. Never again would there be mass unemployment. Never again would there be a stock market crash. Capitalism had overcome its contradictions and prosperity would be permanent. Marx was wrong and Keynes was right. This was the message put over by the economic gurus of capitalism in the 1950s and 60s.

This illusion began to shatter in the early 70s when falling profit levels led to closures. redundancies and rising unemployment in all the major industrial countries of the world. Soon the number out of work in these countries reached mass proportions. Ten, eleven, twelve, thirteen per cent of the workforce rather than the two or three per cent that economists claimed would be the norm under post-war capitalism.

Despite this industrial slump the boom on the stock market continued after a slight falter. But sooner or later this boom too had to come to an end, since capitalism can't change the fact that the source of wealth remains the actual production of physical goods and services and not financial juggling. No wealth is created on the stock exchange or on any other financial market. All that happens on these markets is that existing wealth changes hands. The same is true of all financial institutions — banks, insurance companies, building societies, pension funds and so on — they are all involved in mere money-changing, not wealth creation.

The basic economic role of financial markets under capitalism is to channel finance to productive industry, although these markets can also develop a life of their own divorced from the reality of production. The stock exchange is a market on which the stocks and shares of capitalist firms are traded. Normally the price of a firm's share reflects its profit-making record and prospects but, as on all markets, day-to-day prices are determined by supply and demand. If the demand for shares keeps on rising then so will share prices. This is precisely what happens in a stock market boom. Share prices keep rising, not because the profit prospects of the firms whose shares are traded are improving but simply because the monetary demand for shares goes on increasing

Under these circumstances people can make money simply by using a telephone, buying shares on credit in the morning and paying for them in the afternoon after selling them at a higher price. (This is all the Yuppies used to do.) But share prices can't go on rising for ever. Sooner or later the bubble must burst. As it did on the Stock Exchanges of the world at the end of October 1987 Reality reasserted itself and the stock market boom came to an end.

Because the Great Slump of the 1930s was preceded by the Great Stock Market Crash of 1929. many wondered whether the Crash of 87 was not going to herald some Great Slump of the 1990s. Labour MP Ken Livingstone, for instance, immediately went on record with a prophecy: "It's not just a slump that has happened on the stock market: it will be the worst recession that has happened since the Second World War and it will change all political relationships and all economic and military relationships" (Guardian, 26 October 1987).

The trouble with a prediction of this sort is that it ignores a fundamental difference between the crash in 1987 and that of 1929. The 1929 crash occurred in a period of capitalist prosperity, the source of the demand that fuelled the stock market boom being the increased profits made in productive industry. 1987's crash , on the other hand, occurred in the middle of a slump, the source of the extra demand for shares being the cash capitalist firms had available because they were not investing in productive industry. In other words, the 1987 crash does not need to herald a slump since it occurred in the middle of one.

In any event slumps are not caused by financial crashes even if, historically, they have often been preceded by one. They occur as a result of developments in what even capitalist economists have taken to calling “the real economy", that is to say, the world of the actual production of wealth. Under capitalism wealth is not produced for use but for sale at a profit. Profit is in fact the motivating force of the capitalist economy. All firms seek it and all their activities are subordinated to this end.

A slump is by definition a time when firms have cut back their investment in production, but they will have done this because investment in production on the previously-existing scale has ceased to be profitable. Profit prospects fall when a market has become glutted through overproduction (in relation to market demand not real needs, we hasten to add), as inevitably happens from time to time under capitalism since the competitive struggle for profits between rival firms leads to over-confidence and the production between them of more than the market for their goods can absorb, at least at a price that yields a profit.

If this overproduction has occurred only in some minor sector of the economy then the cut-back will be largely confined to that sector. But if it occurs in some key sector, such as steel, shipbuilding or car manufacturing. then this will have a knock-on effect on the whole economy as its suppliers, and their suppliers, and so on, are forced too to cut back on production and lay off workers. The result is a slump, be it a really major one as in the 1930s and 1880s or less severe one like that we have been in since the mid-1970s.

The stock market crash on top of the mass unemployment that returned in the 1970s, finally disposed of the myth cultivated by defenders of capitalism in the exceptionally long boom that followed the Second World War.

Is Another Slump on the Way? (1937)

Editorial from the April 1937 issue of the Socialist Standard

Professor D. H. MacGregor, in his “Enterprise, Progress and Profit,” has proved that there is a “trade cycle,” a regular succession of booms and slumps. The Economist (March 6th, 1937) is highly gratified that this question has been settled, but is reluctant to admit that the next slump cannot be very long delayed. According to MacGregor’s reckoning, the period between slumps in this country before the war averaged 8¼ years, though running sometimes to as much as 10, and sometimes to as little as 5, years.

What the Economist does not relate is that Fourier, Marx and Engels, Hyndman and others, had grasped the essentials of the trade cycle long before MacGregor was born.

Frederick Engels wrote the following in his “Socialism, Utopian and Scientific,” in 1877: — 

  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. And the character of these crises is so clearly defined that Fourier hit all of them off when he described the first as “ crise pléthorique,” a crisis from plethora.

Again, in an article in the London Commonweal, March 1st, 1885, Engels said: —

  Forty years ago England stood face to face with a crisis, solvable to all appearances by force only. The immense and rapid development of manufactures had outstripped the extension of foreign markets, and the increase of demand. Every ten years the march of industry was violently interrupted by a general commercial crash, followed, after a long period of chronic depression, by a few short years of prosperity, and always ending in feverish over-production and consequent renewed collapse.

It is, after all, rather funny that the people who all agree in regarding Marx out of date should be so far behind him in understanding their own capitalist system of society.

The Last Crisis

All the bankers, politicians and business men who have been pondering over the threatened next crisis are confident that it can and will be prevented. ”Something will be done,” they say. Unfortunately, they cannot make up their minds what that something is. The Economist's most helpful thought is that “since the War in fact suspended the working of the cycle, human action can plainly suspend it—if that action is sufficiently violent and sustained.” (Economist, March 6th, 1937). But even that blighted rose has a thorn, for the writer goes on to say that “suspension is not abolition.”

While we cannot place any hopes in the ability of these gentlemen to prevent the next crisis, because that can only be done by abolishing capitalism, we are entitled to ask whether they are even competent to recognise the nature of crises. Did they, for example, recognise the inevitable approach of the last one, or understand it when it happened ? The answer is an emphatic No!

Mr. Alexander, City Editor of the Evening Standard, who informs us (Evening Standard, January 22nd, 1937) that “we shall never have a slump like that again,” is one of the many experts (another was Mr. Francis Williams, formerly City Editor, now Editor of the Daily Herald), who believed that gold would lose its value entirely as a result of the so-called abandonment of the gold standard!

The Bank Chairmen, in their speeches at the annual meetings this year all advised a return to Free Trade as a means of avoiding the next slump, as if crises did not occur just as unfailingly under Free Trade as under Protection. What were these gentlemen saying before the last crisis, which was coming to a head in 1929? In their speeches in January, 1929, they were blandly ignorant of the precipice before them. The Economist at the time (February 2nd, 1929) could record that "the first thing to strike the reader of this year’s speeches is an air of quiet confidence in the country’s industrial future.”

More than that, Mr. McKenna, Chairman of the Midland Bank, could find that “considerable progress has been made towards a more ordered and prosperous world.” The Economist added, "while recovery was certain, it would be a slow process.”

In other words, in 1929, when they were at the top of a boom, following expansion after the former crisis of 1921-22, these experts did not know it, they thought they were in a depression! The financial mountaineers who were perched on the edge of a precipice thought they were climbing out of a valley!

In January, 1930, when the crisis had already shown its symptoms for all to observe, Mr. Goodenough, of Barclays Bank, cast his eyes over the previous year and could see “some improvement” in trade, and the depressed trades showing “substantially better figures." (Economist, January 25th, 1930.)

In January, 1931, just before the full force of the crisis had struck this country, the Bank Chairmen were arguing learnedly with each other as to whether high wages, maldistribution of gold, or other causes were mainly responsible. They were, says the Economist, “by no means wholly in agreement." (Economist, January 24th, 1931.)

These are the gentlemen who are going to ward off the next crisis!

What Hopes for the Next Crisis?

The bankers advice to trust to Free Trade and discouragement of speculation as means of preventing a crisis are merely fatuous. But most of their critics are in no better case. The Editor of the Daily Herald has for years banked on freedom from the gold standard as the surest means. But he based that view on the myth of a shortage of gold. We need only recall that gold production has been mounting all over the world to record heights in defiance of the learned report of the League of Nations “ experts," who predicted a steady decline.

Another Labour Party remedy is “high wages," but it is only a few years since these same people were assuring us that “high wages" in the U.S.A. had already done the trick, and brought permanent prosperity. Henry Ford, we were told, had proved Marx wrong! Mrs. Mary Agnes Hamilton, one of the influential members of the Labour Party and I.L.P., friend of MacDonald, wrote in the Daily Herald (January 20th, 1926) about this permanent prosperity. She had visited the U.S.A., and found

  prosperity so widespread and, since the temporary setback of 1921-22, so continuous, that unemployment, except in localised and special groups . . . has vanished.

But it all came to nothing. Mr. Ford hadn’t proved Marx wrong. The “temporary setback" of 1921-22 was duly followed by the year-long “temporary setback" of 1929-1933.

Now the Daily Herald (February 5th, 1937) has found new gods, in Mr. Keynes and President Roosevelt, and applauds their proposals.

  Our Government should be at work on the idea (of economic planning). It should appoint a central planning committee at once and tell it to prepare a plan of special anti-slump public works now.

Another piece of sticking-plaster for an earthquake.

There is a further useless idea Mr. Keynes and the Labour Party have in common, the transfer of wealth from capitalists to workers by means of taxation. It is based on a fallacious theory, but we need not worry about theory, since the facts are known over a long period of years. Those facts are that income tax, death duties, excess profits taxes, etc., have completely failed to stop the accumulation of still greater fortunes in the hands of the rich, and have left the poor as they were. That is capitalism.

In short, all who cherish the hope of keeping capitalism and avoiding crises are in for yet another disappointment.

Lamont's long wait (1992)

From the October 1992 issue of the Socialist Standard

  “We have already weathered the worst of the storm and signs of stability are already appearing".

So said Lamont on 6 December . . . 1930. No, not Norman, but Robert P. Lamont, President Hoover’s Secretary of Commerce. As Marx once remarked, when history repeats itself the first time is a tragedy, the second a farce.

Following the Wall Street Crash in October 1929 industrial production in America fell continuously until by the second half of 1932 it had dropped by nearly a half. During this period the politicians and economic “experts” regularly predicted that the bottom had been reached and that recovery was just round the corner:

1 January 1930:  “I have every confidence that there will be a revival of activity in the spring and that during the coming year the country will make steady progress."—Andrew Mellon, Secretary of the Treasury, in his New Year message.

15 February 1930:   “The bottom of the business decline appears to have been reached.”—Cleveland Trust Company.

15 September 1930:  “Business appears to be turning the corner, and industrial activity seems to be increasing."—Cleveland Trust Company.

5 November 1930:  “The prospect is that by March unmistakable signs of business recovery will be available."—Standard Statistics.

21 March 1931:  “The business decline, if not already ended will end in the present half year, and be succeeded by general business improvement."—Harvard Economic Society.

27 May 1931:   “We believe that the worst of the industrial depression has been witnessed."—Standard Statistics.

18 October 1931:   “The depression has been deepened by events from abroad which are beyond the control either of our citizens or our government."—President Hoover.

26 October 1931:  "Important forecast: During the winter and early spring, business will round out the U-bottom trough."—Babsons.

1 February 1932:  “In our opinion, evidence now at hand strongly suggests that business sounded bottom in the last quarter of 1931.”— Babsons.

As in Britain over the past two years, these predictions were worthless. And for the same reason. Capitalism is an uncontrollable economic system which will bend neither to the wishes of politicians nor to the opinions of experts. But Marx was wrong. Not about slumps being inevitable from time to time under capitalism but about what happens when the same event occurs twice in history. The predictions of Robert P. Lamont in 1930 were as farcical as those of Norman N. S. H. Lamont today.

(The source of the quotes above is Faith, Fear and Fortunes by Daniel Starch, published in New York in 1934.)

50 Years Ago: Wall Street slump (2012)

The 50 Years Ago column from the July 2012 issue of the Socialist Standard

Wall Street got the twitch last month and so did London and the Bourses on the Continent. The newspapers rushed out pictures of the panic in 1929 and then had to set their City Editors to work to explain why 1929 cannot after all happen again.

Everybody seemed to have forgotten that just before 1929 the financial experts were assuring us that the crash which was in fact just around the corner could never happen anyway. If this does not make the experts of 1929 look very impressive in retrospect, it must also teach us that the forecasts of all capitalism’s economic experts are not worth very much.

Nowadays the experts are fond of pointing out the precautions which (they are confident) would prevent a runaway boom like the one which preceded the 1929 crash and therefore (they reason) would also prevent the crash itself.

This ignores the fact that slumps are not the result of an attack of jitters on the Stock Exchange; rather is it the other way round. Nineteen-twenty-nine was one of capitalism’s classic crises and no amount of stock juggling could have averted it.

Nor should we assume that hotheaded speculation is dead. The Observer correspondent in New York reported that the "intellectuals” of Wall Street thought that: "By the end of last year the market had reached heights that brokers now, without blushing, describe as insane.” and quoted one New York broker: “The way some of (the big brokers) have been pushing over-priced stocks at naive investors is nothing short of criminal.”

Perhaps a repeat of 1929 is not so impossible after all. For some of the experts were mystified by Wall Street’s 1962 twitch. The Guardian said: “The continuing retreat is puzzling commentators in that there seems to be no apparent reason for it. Mr. Walter Heller, President Kennedy’s economic adviser, said there were no economic grounds for the condition of the market.” Does this fill us with confidence that capitalism’s economists could not be taken unawares by a repeat of 1929? It does not.

Capitalism could have something up its sleeve, just as it had thirty-three years ago, to surprise the experts and impoverish the rest of us.

(From “The News in Review”, Socialist Standard, July 1962)

The Great Crash of 1929 (1969)

From the October 1969 issue of the Socialist Standard

The events of October 1929 which have become known as the Great Crash have been written not only into capitalism’s history but also into the system’s mythology. There are still plenty of people living who remember it, who recall with bitterness the seemingly endless unemployment, the contemptuous clerks at the Labour Exchange, die indignities of the Means Test. Many political prejudices were set solid in those dark days, forty years ago.

The economists also remember and promise us that 1929 will never happen again—which might have more force, were it not for the fact that in 1929 the economists were confident that the Crash could not happen in the first place. The promise, in any case, is always conditional on our doing as the economists say, with 1929 held over our heads much as Napoleon held the threat of Jones' return over the animals in Animal Farm. This, for example, was Harold Wilson’s warning to the 1966 TUC about what would follow a rejection of the government’s policy of wage restraint:

  . . . one false, careless, regardless step . . . could push the world into conditions not unlike those of the early Thirties.

Wilson is here making the familiar claim that the economy is now under control, even if sometimes it needs drastic measures like wage freezes and devaluations to remind it of the fact. And behind this lurks the notion that the economists of capitalism have learnt something from the Great Crash which they will never forget.

As 1929 started, the world was not entirely empty of optimism. Since the last great depression of the 1890’s there had been many developments in fields like electricity, the motor car and telecommunications and these were widely assumed to be bringing in their train greater freedom and equality. It was true that in Britain there was a chronic unemployment problem but the United States was in the midst of a prolonged stock exchange boom which convinced millions of people that mass production, credit trading and private enterprise were among the best things ever invented by man.

At the year’s opening the Conservatives in Britain were looking back with satisfaction on the work Parliament had just finished on amendments to the Book of Common Prayer; if there was an unemployment problem, they were confident they had dealt with it in their Derating Bill and Tory politicians toured the country telling everyone that prosperity was on the doorstep. This hilarious tone was kept up by Stanley Baldwin during the general election that year, when he managed to forget that basic industries like coal, steel and shipbuilding were depressed and pointed joyfully to the unmistakable signs of recovery to be found in the export of Cornish broccoli to Europe. Perhaps it is not surprising that the Tories lost the election.

The unpalatable fact was that Britain’s economy had been in decline for something like sixty years and in particular had emerged from the war to find the tendencies which had previously undermined British dominance — foreign competition, tariff barriers and the growth of home industries in former markets abroad-—were all accentuated. Soon after 1918 there was a surprise boom, largely due to the replenishment of war-depleted stocks. Prices shot up to impossible heights and, despite the demobilisation of 4 million servicemen, there was virtually full employment. But as raw materials which had been held up by the lack of shipping began to come onto the market the boom collapsed. By early 1922 prices had been halved; in 1921 unemployment exceeded 2½ million.

The slow recovery from this recession was probably due to the British government’s decision, in 1925, to return to the Gold Standard. The government were aware of the possible effects of this, but they found themselves in something of a cleft stick, having to choose between slowing down a possible recovery and risking contamination by the inflation which was destroying so many European currencies. (At the end of that inflation, prices in Poland had risen 2½ million times their pre-war level; in Russia 4,000 million times; in Germany one million million times.)

In America, where the Great Crash was first heard to rumble, things were rather different. The American capitalist class had had a lot to win in the 1914/18 war and came out of the peace talks as an exceedingly strong power. Their exports were increasing in trades which were expanding—in contrast to those of Britain, Which made most ground in declining trades. America suffered a few short recessions during 1920/21, 1924 and 1927 but always recovery followed quickly and taken as a whole the period from 1922 to 1929 was one continuous boom.

These conditions were of course registered on Wall Street, where the New York Times index of 25 industrial stocks rose in a smooth curve from 110 in early 1924 to 338 in January 1929. Just before the Crash, in September, it reached 452. This was the sort of evidence which persuaded many people, anxious to make their own paper fortune, that eternal prosperity had arrived. The monetary authorities seemed to be alone in their concern at the hectic activity on the stock exchanges —on one day just before the Crash over 12 million shares were traded and during the period 1927 to 1929 the bank borrowings of stock brokers rose from $3,500 million to $8,500 million—and when the slide started in October they welcomed it, in mistake for a minor adjustment which would quickly be followed by another bout of expansion.

Early in the New Year there was indeed a slight recovery and the experts announced the recession’s end. But then agricultural and raw material prices nosedived and this was followed by three waves of bank failures between the end of 1930 to mid 1932 which destroyed deposits, caused a panic-stricken contraction of bank loans and finally brought paralysis in the winter of 1932/3.

The bank failures revealed a new and poignant aspect of the Crash. Now it was not only the unemployed industrial and agricultural workers who were queueing and begging; they were joined by small businessmen, shopkeepers and stockholders who had seen their life savings disappear and who, when ruin stared them in the face, sometimes chose to end it all with a bullet or a jump from an apartment window.

The American government, following the customary policy of treating symptoms rather than deal with causes, tried to force prices up by cutting back production and restricting competition. In many cases this policy was superfluous; producers who were faced with a glutted market needed no official prompting to destroy food, and industrialists who found that they could not sell their goods had no alternative to closing their works. From the point of view of capitalism, it was all very logical but it meant that the world was presented, in what was supposed to be a great age of freedom and prosperity, with the spectacle of millions of underfed people while wheat was being burned; of men searching desperately for employment while factories were shut, while the winding wheels stayed still at the pit shafts and the great cranes hung silent and motionless in the almost tangible gloom of the shipyards.

Yet even these drastic and inhumane measures did not work. Tom Johnston, who was one of the Labour ministers given the job of ending unemployment in Britain, spoke about them with grim realism:

  It is in vain that the United States keeps 250 million bushels of wheat, or contact wheat, off the market in an endeavour, by a limitation of supplies, to peg or to stabilise prices. Only the other day wheat sold in Liverpool at a lower price than it has been sold since the days of Charles II. lower than it had been for two and a half centuries. (House of Commons. April 16 1931).

The Great Crash, and the slump which followed, have been subjected to innumerable autopsies and inquests. Perhaps the most familiar has been the theory of overproduction, that the world had simply made much more than it needed. At the time, some experts believed that the developing productive techniques were held back from exerting their full effect by the 1914/18 war, and afterwards made themselves felt in a more concentrated manner. As a result of these developments, productivity increased faster than real wages—one estimate for new manufacturing industries was three times as fast—which led to a surplus of goods on the market with no wages to buy them. (It is worth commenting that nowadays the explanation for economic crises is exactly the opposite — real wages increasing faster than productivity.)

Undeniable as it is that people without money cannot buy anything, the overproduction theory does not explain the fact that the “surpluses” existed while people were literally starving and only too anxious to consume more. It is a theory which only meddles with the symptoms of the crisis and does not touch the cause, nor the stupidity and inhumanity of it.

Then there were the financial theories, which blamed the Crash onto the wild antics on Wall Street and the subsequent slump onto a loss of confidence in investing in production, public works and so on. These ideas cannot tell us why it affected so many countries, whether they had had a stock exchange spree or not; they do not explain why an investment flood should so mechanically bring an investment drought, nor why both these opposite conditions should be blamed for having a similar effect. It is true that capitalism's financial machinery, which is supposed to be such a model of efficiency and such an aid to production can often aggravate a recession. But it cannot produce one—at the most a stock exchange, like a barometer, registers conditions but does not alter them.

What the Great Crash did illuminate was the impossible anarchy of capitalism, the basic contradiction in a system where wealth is socially produced but privately owned. The Thirties might have been years of productive advance but they turned out to be a decade of collapse and stagnation, when capitalism was in the throes of a crisis which hit all states, whatever surface differences there were between their political and economic organisations and whatever remedies they tried.

The political results of the Crash were varied. In some countries the working class opted for what they thought was change; in others they turned for assurance to the more traditional parties. In America, Roosevelt defeated Hoover in the 1932 election by the staggering margin of 472 electoral college votes to 59 and the Democrats won large majorities in both House of Congress. Roosevelt’s New Deal was later given much of the credit for the end of the slump but in fact it was a matter of luck. He had campaigned on a promise to cut Federal spending by 25 per cent and to balance the Budget. But he was as impotent to control events as anyone else and when a policy of deficit financing was forced upon him this happened to coincide with the beginnings of the recovery.

In the same way, the Nazis were lucky in Germany. The recovery started as they came to power, allowing them to spend on armaments and communications and this was enough to convince many people that Hitler also had a magic formula, which included replacing parliamentary democracy with a “strong man” dictatorship and crushing the trade unions.

In Britain the workers took shelter with the established parties. One of the first acts of the 1931 National coalition was to cut unemployment pay but this did not prevent the working class gratefully voting for them in 1935, running up big Tory votes in industrial centres like Manchester, Liverpool, Newcastle and Sheffield.

The Great Crash, then, did nothing to undermine capitalism and it did not. as many left-wingers expected, cause the system to collapse. It merely contributed another chapter to capitalism’s mythology, in which one set of politicians were stubbornly blind to remedies which were obvious to another. And this leads on to the other myth—that the new enlightened experts have learned how to control the system and we should all be grateful to them and if we’re not—why, then, we will have Jones back and 1929 will happen all over again.

As if those were the only two choices.

Ivan

[In a future issue we shall be serialising an abridged version of our pamphlet "Why Capitalism Will Not Collapse." This pamphlet, which w'as published in February 1932, examines the after-effects ,of the Great Crash and showed what influence they had on capitalism,]

1929: Labour's Cruel Memory (1969)

From the June 1969 issue of the Socialist Standard

Forty years ago this month—on June 5 1929—the second Labour government in British history came into office. They had, in fact, won the election with about 300,000 votes less than the Conservatives but the electoral system had given them 27 more seats. They relied for their majority in Parliament on support from the 59 Liberal MPs—support which, in their previous attempt at government in 1924, had let them down. The Prime Minister, Ramsay MacDonald, was quite firm that there would be no repetition of that; “I am,” he said, “going to stand no monkeying.”

The Labour governments which have been elected since 1929—Attlee’s in 1945 and Wilson’s in 1964—faced problems similar to those which savaged MacDonald’s between 1929 and its collapse in 1931. All of them have struggled to defend sterling as an international trading currency and to energise a drive to capture export markets. But the 1929 government also had on their hands the effects of a world depression and chronic unemployment which was responsible for what the economist Pigou called “the intractable million”—the figure below which the number of unemployed in Britain could not be reduced.

When Labour took office in 1929, a great investment boom was under way on Wall Street and there had indeed been considerable optimism expressed about the chances of beating the depression. As the year opened Philip Snowden, who was to be Labour’s Chancellor of the Exchequer, wrote in the Daily Express:

  There are some grounds for hope that trade will improve in the year on which we are now entering . . .  On the whole I think the outlook for 1929 is better than at the opening of any New Year since 1922 . . .

In truth, there was little cause for optimism among the British capitalist class or their administrators in 1929. By that time it was clear that they had little chance of regaining their pre-1914 dominance. Many of their investments abroad had had to be sold to pay for the war and the basic British industries had lost many important export markets. Some hope was put in schemes to re-organise old industries and to develop new ones but this needed substantial injections of capital, and after the years of bad trade there was little confidence or incentive for that.

For some time before the first world war, the British capitalist class had enjoyed a position which depended extensively upon the dominance of their coal, textiles, and heavy engineering. In 1913 coal and textiles contributed 55 per cent of British exports and cotton alone provided a quarter of the value of total exports. Before 1914 unemployment had fluctuated; it was between 3 and 4 per cent in good years and rose to 10 per cent in bad. But after the war it soon became apparent that the basic industries had suffered a setback. The coal mines were affected by the development of new forms of power and by the more economical use of coal in power stations. More serious was the loss of export trade, of the markets in Russia, Poland, and the Baltic countries and the competition from increased exports from Germany, some of which went out as war reparations. This decline was the background to the bitter struggle between the miners and the owners over wages and hours, which reached its peak in 1926.

The textile industry was hit because many countries which had once been ready markets for British produce had built up their own production — often with plant imported from Britain. In India, for example, cotton output trebled between 1913 and 1929 and the Indian government imposed protection against British goods. By 1929 Japan had captured 19 per cent of the world’s trade in cotton, after starting from virtually nothing in 1913. It was a similar story in iron and steel; between 1913 and 1923 British exports to Italy fell by 38 per cent, to Japan (which started importing from India and China) by 87 per cent, and to France (which had turned to local production after the accession of Alsace-Lorraine) by 63 per cent.

Dole queues grew
The war was followed by a mild boom in Britain and the post-war governments were reluctant to upset this by returning to the gold standard which, they thought, would hinder industrial renewal and development. This policy was changed with the serious inflation of the European currencies and in 1925 the pound became once again convertible into gold, at the pre-war parity—a measure which, the unemployed were doubtless overjoyed to hear, was "making the pound look the dollar in the face”. As usual, there was a division of opinion among the experts over the wisdom of this attempt to re-establish pre-war monetary and trading conditions; in the Labour Party Snowden was in favour and Pethwick-Lawrence against, although by 1931. when the gold standard was abandoned, Pethwick-Lawrence had changed his mind.

But no amount of financial juggling could save the leading British export industries. From 1925 onwards, with hardly a break, the dole queues grew longer. As American investments were drawn into the Wall Street bonanza, and as the French government adopted a policy of building up their gold reserves in preference to investing abroad, British financiers were left alone trying to make the gold standard work and virtually financing the depression themselves.

This was the situation when Labour took office in 1929. The gravity of unemployment had made it the main issue of the election and one of MacDonald’s first acts as Prime Minister was to appoint a special, high ranking committee of Ministers to study the problem and suggest remedies. Of course this went down very well with the men lining up at the labour exchanges, who had too much to think about to remember that ever since it came on the scene unemployment had been studied and probed and had been the subject of countless nostrums.

The committee—George Lansbury, Tom Johnston, Oswald Mosley, and J. H. Thomas —was not one of the happiest episodes in the history of Labour government. Lansbury and Johnston did little to distinguish themselves, and Mosley, who was sold on Keynesian theories and who produced masses of memoranda, resigned when the frustrations of the job became too apparent to him.

Nothing but promises

But the most remarkable figure on the committee—perhaps in the entire government—was Thomas. He had come up through the trade unions—he was once secretary of the NUR—and obligingly conformed to all the music-hall conceptions of the cloth-cap worker turned foreman. He dropped aitches here and stuck them back there; he loved dressing up and mixing in high society; at the Lord Mayor's banquet he ended up slumped drunkenly across the table. Beatrice Webb described him in her diaries: “. . . a boozer, his language is foul, he is a Stock Exchange gambler, he is also a social climber.”

Yet Thomas was no joke. Millions of workers were desperately relying on him to relieve unemployment and he was not above cruelly raising their hopes. In August 1929, for example, he went to Canada with the accepted mission of arranging markets for British products. In fact there was never much reason to think that Thomas would succeed; nevertheless he carried the hopes of all those men in the dole queues. On the way back he cabled: "Satisfied in my mission and certain that work for the unemployed will result.” On his return he would not be drawn further, except to hint: "I have a lot of things up my sleeve.” A few days later he was more specific: “I have a complete cure. There are a few people who won’t work and we can’t do anything for them. But for all ordinary forms of employment, yes.” But it soon became clear that Thomas had brought back nothing more than promises — there were no orders for coal, or textile goods, or for ships to carry them. Very quickly Thomas’s mission faded into memory.

Arthur Henderson (who was a political rival) said that Thomas was “. . . completely rattled and in such a state of panic that he is bordering on lunacy . . .” and perhaps, to be charitable, that explains the lies which continued to come from him. All along he kept assuring the unemployed that things were about to improve (and in this he was not alone):

November 4 1929: ‘‘I have no hesitation in saying there is a trade improvement.”
February 12 1930: “I think the bottom has been reached.”
March 12 1930: “Thinks could only improve.’’
March 20 1930: “The worst is past.”

But by August 1930, after he had lost his job at the head of the special committee, Thomas dropped his mask and made this callous remark which presumably was supposed to be funny:

Do not be too keen about this humbug of breaking records. I broke all records in the number of the unemployed.

After Thomas and his blather had been dismissed to the Dominions Office, unemployment kept on rising while the economists and the politicians looked on helplessly. Some of the experts were sure that an energetic programme of public works — road building, land reclamation and so on—was the answer. They were, if anything, farther from the real world of capitalism than were men like Thomas, who at least had to face the fact that a slump, most of all, is the time when capital cannot be directed at the stroke of a pen and that in any case public works could offer employment for only a fraction of the out-of-work and then not at once. A road, for example, cannot be built by assembling all the necessary labour and materials at one go—this must be a gradual process, in time with the progress of the work. Any public works programme, supposing it were economically possible and supposing it had any noticeable effect, would have taken about two years to make itself felt through the economy.

In the autumn of 1929 the great boom on Wall Street collapsed and the downward slide became an avalanche. In America, bankrupt capitalists, who had always preached the virtues of hard work to their employees, committed suicide when they became confronted with the possibility of having to do some themselves for a living. On March 28 1930 Margaret Bondfield, Minister of Labour, described the government’s bewilderment at the events which had overtaken them:

  Nothing in the case of the live register before Christmas gave any inkling of the phenomenal rise (in unemployment) which has taken place since the turn of the year.

Thenceforward, Labour was caught in what MacDonald later called an ’economic blizzard’—just as if it had not always been their boast that they could control the winds and the weather of capitalism. '

MacDonald’s advice

This is not the place to tell the rest of the sorry story of that government—the story of millions of underfed people existing alongside ’surpluses’ of food, of Labour’s desperate search for economies to reassure the international financiers and of their final collapse into the National government of 1931. Nor is this the place to tell how that National government, which was formed specifically to deal with the emergency, also failed. Let it be enough to say that when MacDonald's men took over at Westminster, pledged to cure unemployment, there were 1,163,000 out of work. When Parliament broke up on July 31 1931 for the last time under Labour—there were 2,713,000.

The final surprise was that the Labour Party survived. When MacDonald called his junior Ministers together to tell them that he was going to lead a National government, he advised them, as ambitious men (no word about principle, or Socialism, or even softening capitalism) not to follow him; they should, he urged them, consider their future careers; it would in the end be more profitable for them to dissociate themselves from him and the National government and to join the Labour opposition. They took his advice—men like Attlee, Morrison, Dalton. The Labour Party lived—just—to fight another day and although it took time, in the end they managed to blame for that debacle of 1929-31 a combination of a 'bankers’ ramp’, the ignorance of the economists, and MacDonald’s treachery.

By 1945 the British working class had all but forgotten the experiences of 1929 and they were ready again to trust Labour as the party with a heart. In fact there are many parallels between the Attlee and Wilson governments and that of MacDonald — and we can all think of Labour Ministers of 1945 and 1964 who are counterparts of men like Thomas and Snowden. Labour, like any other party of capitalism, does not change. It is all up to the workers with the votes; when, we may ask, will they ever learn?

Ivan