Editorial: Manpower and the Crisis (1947)

Editorial from the March 1947 issue of the Socialist Standard

Remedy the Labour Government Cannot Use

Capitalism breeds war, waste and want as a jungle swamp breeds pestilence. Practically every minister in the Labour Government has acknowledged the truth of this some time or other and has pointed the obvious moral that if you want to remove the pestilential effects you must remove the capitalist cause, and introduce Socialism in the place of Capitalism. They said this, but did any of them understand what they were saying? Probably not. If by chance some of them did then by taking office in the Labour Government they were acting a deliberate lie for they were promising something it was not in their power to do. There can be no Socialism until there are a majority of convinced Socialists in the electorate and even the most deluded of Labour leaders would surely not claim that the 12 million Labour voters were Socialists. A government cannot impose Socialism on an unwilling electorate. This should be obvious, but it took the recent crisis to jolt the “Daily Herald” into even a partial recognition of the facts. The “Herald’s” admission, a veritable masterpiece of understatement, was framed as a warning to Ministers not to entertain the “treacherous delusion” that would “regard the whole electorate as enthusiastic converts to Socialism” (February 8th, 1947). The same Editorial goes on to claim that “a peaceful revolution is being wrought in this land which will bring solid benefits within our lifetime, and will confer blessings untold on posterity.” We can leave posterity to speak for itself and content ourselves with foretelling a time when the electorate will count it an immediate blessing to be rid of the Labour Government.

The reader is of course entitled to ask us why we are sure that Labourism cannot succeed. The answer is to be found in the opening paragraph of this article. Capitalism we know; Socialism the workers can have when they are ready to grasp it; and there is no other choice. The root fallacy of Labourism is the belief that a Labour Government can administer capitalism in a non-capitalist way. With all the good intentions in the world it cannot be done” Labour Ministers may make election promises with perfect sincerity, but in office they learn day by day what it really means to keep this exploiting, profit-making system .going, in competition with the rest of the capitalist Powers. It means resisting wage claims so that the capitalists can go on making profit. It means perpetuating the vast gulf between rich and poor. It means maintaining the armed forces and struggling with rival Powers for trade, raw materials and colonies.

It is hardly necessary to say that it also involves swallowing past declarations of what ought to be done, such, for example, as Sir Stafford Cripps’ complete reversal of his views on trade rivalry. Now he is chief director of the export drive. Five years ago he declared, “If, after the coming of peace, we were to start once again the vicious circle of international trade competition, we should be lost, and in a few years would be confronting another war” (interview with a Brazilian newspaper—”Sunday Express” November 8th, 1942).

The recent crisis, forerunner of others, took on the appearance of a problem of fuel and manpower, brought to an acute phase by an “Act of God,” the British weather. It was, however, not a crisis of coal or of cold, but of capitalism. Let us examine this and see how capitalism, which caused the problem, prevents the Labour Government from solving it. The second World War (itself a product of capitalism) destroyed vast amounts of wealth and left a legacy of shortages of housing, food, fuel, clothing, transport, etc. Not that want was a new experience for the working class, but the war aggravated the problem by the immensity of the destruction it wrought all over-Europe and Asia. What would a sanely organised human society have done about this, assuming that such a form of society had to tackle the problem? It would have stopped all waste of labour and materials, halted the production of armaments, and of luxuries for the rich, and would have concentrated on producing the necessities of life in the quantities urgently needed by the population of the world. How did the Labour Government (and all the governments in all the countries) tackle it? They spoke the right words, but proceeded to apply fiddling half-measures. The British Labour Government said they needed man-power in production, but they found that British capitalism had a still more pressing need to keep 1,500,000 men in the armed forces and other hundreds of thousands supplying the needs of the forces and preparing for future wars. They said they needed more workers producing coal, food, houses, etc., for the millions who lacked bare necessities, but they left intact the class structure of capitalism, with its hundreds of thousands. of wealthy idlers consuming without producing, and its hundreds of thousands of workers engaged in banking, financial and other operations that only arise because of capitalism. There are over 700,000 non-industrial civil servants, about 350,000 of whom are Post Office workers. The great bulk of the remaining 350,000 are doing work rendered necessary only by capitalism, as is also much of the work of the Post Office. We are told that many civil servants are employed on insurance and similar work which the Labour Government regards as socially useful; but it is only the mind habituated to capitalism that cannot see what this work really is. Staffs handling unemployed and health. insurance are not there to see that the needy (needy because of capitalism) receive enough to satisfy their needs, but to protect capitalism against the needy receiving more than the niggardly amount allotted to keep them quiet.

The same contradiction between proclaimed aims and practical activities can be found in every sphere. The luxury needs of the wealthy have not been sacrificed to speed up the provision of necessities. On the contrary, the Government has encouraged the planning of luxury liners, luxury air travel, and luxury goods for export. These schemes are defended with the plea that luxury exports make it possible to import necessities unobtainable in other ways. The curious thing is that the governments of other war-damaged countries (France, for example) are doing the same and on the same plea, so that some luxury goods are being imported by all the countries which declare their inability to supply enough necessities for their populations. What it shows is that, despite Labour Party talk about a “new world,” the British and other Labour Governments are basing their plans for the future on the continuance of the same old capitalism, with its extremes of wealth and poverty. They are all catering for the needs of the wealthy.

Here then is the simple problem and the simple solution. On a conservative estimate the production of useful goods could easily be doubled in short time if the armed forces and propertied idlers and the workers doing work necessitated only by capitalism, were brought into production. Why doesn’t the Labour Government even attempt to do it? They don’t do it because even if they wanted to they dare not. They were put into power by an electorate that does not understand or want Socialism and which therefore gave the Labour Government nothing more than a man¬ date to go on administering capitalism.

The recent crisis arose because the capitalist state needs to have millions of people taken from production for the armed forces and other non-productive activities and therefore cannot take simple straightforward measures to make good the destruction of war. It led to great suffering and to the increase of unemployed to about 2,500,000 at the peak. In due course another and more usual type of capitalist crisis will blow up. Goods will be produced in excess of what can be sold at a profit, then unemployment will soar again. Then the Labour Government will be looking for other excuses than the cold weather to explain the failure of its plans. The “New Statesman,” which shared all of the foolish Labour Party beliefs in the possibility of applying so-called Socialist policies to capitalism, has in anticipation already coined the appropriate face-saving formula for the next crisis: “… the Government is confronted with the certainty, now that the illusions about a liberalisation of America’s trade policy have finally been dispelled, that a Socialist experiment confined only to this country is bound to fail” (February 8th, 1947). So the “New Statesman,” shedding one illusion, grasps at another equally absurd. It proposes that Britain cut adrift from trade and financial ties with U.S.A. and collaborate instead “with other countries which are experimenting with planned economies.” If it is a fallacy, as it certainly is, that a Labour Government can apply Socialist plans to capitalism, common sense should make it clear that you do not escape from the dilemma by linking up with other countries in which similar governments are trying to perform the same impossible feat. Capitalist crises know no frontiers, and Labour Governments here and elsewhere will no more escape the next crisis than they did the “economic blizzard” that blew down the British Labour Government in 1931 and simultaneously toppled over the Labour Government in Australia.

For the world’s workers there is no escape from the problems and crises caused by capitalism except by introducing Socialism.

The Gold Standard and the crisis. (1931)

From the November 1931 issue of the Socialist Standard

Each of the periodic economic crises brings its own particular explanation. Publicists, orthodox economists, and politicians of every shade of opinion, are agreed that on this occasion the nigger in the wood-pile is the “gold standard,” or rather the failure of France and the U.K.A. to operate that standard “according to the rules of the game.” But despite their unanimity our scepticism is reasonable when it is recalled that there have been 16 crises during the past 150 years, and that a different explanation has been forthcoming each time. All of those crises, including the present one, have exhibited, in greater or less degree, the same features, viz., an accumulation of stocks of all commodities, a decline in production owing to the inability to sell the products of agriculture and industry at a profit, bankruptcies and banking difficulties as a consequence of the general fall of prices, falling money wages, growing unemployment, and for the mass of the population want in a time of superabundance.

This general similarity between one crisis and another points to there being a general explanation for all of them. Instead of which the explanations are always changing. This time we are told that the trouble has been caused by the attempt to operate the gold standard in a world split up by tariff walls and burdened by war debts. Can this explanation be accepted? To answer the question it is necessary to consider what the gold standard is and what its history has been.

First of ail it must be noticed that while the gold standard implies a monetary systen based on gold, it does not require that gold coins shall actually circulate. For all practical purposes there is no difference between a country whose monetary unit consists of a gold coin which circulates and is used as money in ordinary commercial transactions, and a country in which there is a paper currency convertible into gold. Both are on the gold standard. Before the war this country had, as its monetary unit, the sovereign, which passed freely from hand to hand in every-day transactions. Between 1925 and September of this year monetary settlements were effected in paper pounds which (above a minimum value of £1,700) were exchangeable into gold at a fixed rate. At both periods Great Britain was on the gold standard. What is necessary for a country to be on the gold standard is, then, not that there should actually be gold coins circulating, but that the unit of currency must, if it is a paper unit, be exchangeable on demand at some central institution, whether a bank, mint, or Government department, without charge to the holder, for a known and fixed amount of gold. Conversely any holder of gold must have the right to exchange it for currency, either coin or paper, at the same rate. Finally free importation and exportation of gold must be permitted so that a holder of currency who has to settle a debt abroad may do so by exporting gold obtained at the central institution in exchange for his currency at the fixed rate; while anyone having funds abroad must be able to convert them into the currency of his own country by importing gold and exchanging it for the currency of his own country at the central institution. In order to avoid complicating the question later it should be pointed our that free importation and exportation of gold is not necessary for this purpose provided that the central institution is compelled by law to buy and sell gold-backed foreign exchange, i.e., the currencies of other gold standard countries, at fixed rates corresponding to the amount of gold in the monetary units of the respective gold standard countries.

Given that these conditions are observed the country is on the gold standard, the significance of which is twofold. The first is that the value of the currency is the same as, and is dependent on, the value of gold. In other words, the amount of commodities that can be bought with £1 will be determined by the amount of commodities that will exchange for 113 grains weight of gold, that being the amount of gold for which £1 can by law be exchanged. Movements in the value of gold will be accompanied by corresponding changes in the purchasing power of the currency unit. As the value of currency reflects itself in the form of prices this is the same as saying that, under the gold standard, if the value of gold falls, prices will rise, and the amount of commodities which can be purchased with a £1 will diminish. Conversely if the value of gold rises, prices will fall. The second significant feature about the gold standard is that the general level of prices in two gold standard countries must be in equilibrium. This follows from the fact that, as has been pointed out, gold moves freely between the two countries. The price levels will not be exactly the same in the two countries for reasons which, however, are of no importance from the point of view of the present article and can therefore be ignored. The two price levels will tend to move up or down together, in accordance with changes in the value of gold.

So much for the value of a currency in terms of commodities, i.e., its internal value. Now let us consider the value of one currency in terms of another, usually referred to as its external value. Under the gold standard the value of one currency in terms of another, expressed in what is known as the foreign exchange rate, is fixed within narrow limits. For example, when this country was on the gold standard £1 was exchangeable by law for 113 grains of gold, and the American dollar was exchangeable by law for 23.22 grains. If 113 is divided by 23.22 the result is approximately 4.86. So that, apart from certain small variations that can be ignored here, the value of £1 was automatically fixed at 4.86 dollars. The exchange rate with francs, marks, etc., was similarly fixed.

To sum up the argument to this point we see the following consequences of an international gold standard :—

1. The value of the currencies of all gold standard countries is determined by, and fluctuates with, the value of gold.

2. Prices in all gold standard countries tend to move up or down together.

3. Exchange rates between gold standard countries remain stable.

After this brief survey of the principles of the gold standard now let us turn to its history.

As soon as division of labour resulted in individuals and social groups ceasing themselves to produce all the articles they consumed, a system for exchanging the products of various forms of human activity became necessary. In the first place recourse was had to simple barter. Cattle, for example, would be exchanged direct for corn or some other article. In the course of time direct barter became too cumbersome and a “universal equivalent” was evolved for the purpose of effecting exchanges. For a variety of reasons the universal equivalent that ultimately came to be generally adopted was a given weight of metal. In Western Europe this metal was silver. It soon came to be realised that it was more convenient to have coins of a known weight of metal instead of having to measure out quantities of the metal for each transaction. Gold coins were introduced in the 15th century, and finally this country led the world in making gold the basis of its currency, relegating silver coins to the position of “token” money, their value being fixed by law as a proportion of that of the gold coin. During the second half of the 19th century most of the leading countries of the world also abandoned the silver standard, and reorganised their currencies on a gold basis. When the war broke out in 1914 all the leading commercial countries were on the gold standard, and their currencies were gold coins winch actually circulated. At the same time there were in circulation bank notes which were redeemable into gold coin or bullion. The war saw the collapse of the old gold standard and the replacement of gold coins, as circulating media, by paper money. After the war, when the gold standard came to be restored, certain countries, including Great Britain, did not restore gold coins to circulation. Instead they retained their paper currencies, but made them convertible into gold, and permitted the export of gold. The notes, therefore, had the character of gold.

Another significant difference between the post-war and pre-war systems was that after the war certain countries did not revert to the simple gold standard, but to a developed standard known as the “gold exchange standard.” Under the pre-war system it had been the rule for each country to keep its own separate gold reserve for cashing notes. Under the gold exchange standard a country—Austria is an actual example— keeps part of its reserves not in the form of actual gold in the vaults of its own Central Bank, but in the form of balances with the Central Banks in other gold standard countries. As these balances could always be withdrawn in gold and taken back to the country of origin, it was thought that they were “as good as gold”; as indeed they were, so long as conditions remained normal. But the system had one important consequence. Gold deposited, say, by the Austrian National Bank with the Bank of England, was not only the basis of currency issued in Austria, but also provided the Bank of England with funds which it proceeded to utilise in this country. Under the pre-war system the withdrawal of gold from the Austrian National Bank would only have affected, directly, that bank. But under the new system the Bank of England would aiso be affected. In other words, under the “gold exchange system” events affecting the credit situation in one country would be likely to have immediate consequences in other countries, because the credit structure of more than one country had come to be based on the one lot of gold.

There remains another aspect of the post-war situation to be examined. The gold standard was never intended, as is so frequently alleged, to provide for the liquidation of an adverse balance of payments between two countries by the shipment of gold. Under the gold standard the function of gold shipments is to produce conditions in which an adverse balance of payments is eliminated. To reduce the matter to its simplest terms, the position can be explained as follows :—If people in country A are buying more goods and services from country B than B is buying from A, it must be because commodities are cheaper in B than in A. As the currencies of both countries are based on gold this is equivalent to saying that the purchasing power of gold is lower in A than in B. Consequently, gold will be sent from A to B. The gold for shipment will be obtained by changing notes into gold in A, and sending it to B. When it reaches B this gold will be converted into the currency of that country. The result will be to cause monetary stringency and a probable rise in the bank-rate in A, thereby lowering prices there. While in B the monetary situation will be eased and prices will rise. This will tend to discourage people in A from buying goods in B, and will encourage people in B to buy goods in A. This will continue to the point where A’s exports are increased and its imports diminished, sufficiently to eliminate the former adverse balance. From the foregoing it will be seen that under the gold standard the function of gold shipments is to cause adjustment of prices in the countries between which gold shipments take place, such that their international payments and receipts shall balance by the exchange of goods and services.

Owing to conditions arising out of the war gold shipments in recent years have been resorted to for the purpose of adjusting unfavourable balances of payments. What these conditions were can only be referred to here very briefly. Among the more important are the post-war system of tariffs, particularly in America, which prevented debtor countries from liquidating their indebtedness in goods, and compelled them to pay in gold; the flow of international payments in one direction, principally to U.S.A. and France, owing to Reparations, etc. ; and finally deliberate action by Central Banks to neutralise the effects that gold shipments would otherwise have had on the credit structure and the price levels. So that the adjustment of adverse trade balances by means of goods and services, in the manner discussed earlier, was impeded. In Great Britain, for example, the Bank of England consistently counterbalanced withdrawals of gold by what is known as its “open market” policy. In other words, when gold was withdrawn, and credit as a consequence became scarce, the Bank of England restored the position by buying securities, so that the funds that the money market lost as a result of the gold shipments were restored to it by the payments made by the Bank of England for the securities it bought. One of the main reasons why the Bank of England did this was probably that it was seeking to keep interest rates as low as possible in order that the Treasury should not have to pay more interest on its large floating debt. Whatever the reason may have been, the important fact is that Central Bank action frequently operated to make gold shipments of no avail, so far as concerns the adjustment of international balance of payments, by means of alterations in the relative amount of commodity imports and exports. This means that the gold standard in recent years was called upon to achieve purposes it was never designed to fulfil and which it was incapable of achieving; gold was used to liquidate adverse balances instead of operating to promote conditions in which adverse balances would disappear. Finally the inevitable happened. The gold standard broke down.

What will happen in the future to the gold standard need not be discussed here. For us the problem is, “Was the crisis caused by the failure of the gold standard ? Can it be overcome and economic welfare assured to all by a re-establishment of the gold standard, as we have known it or in some revised form, or by its supersession by some other currency system?” The answer to both questions is an emphatic “No.” The reasons for this answer must be reserved for a later article. Here it will suffice to point out that the recent acute world depression started, and has been most pronounced, in U.S.A. If gold is the cause of all the trouble this is rather strange seeing that U.S.A. was crammed with gold. Secondly, it is hard to see how the world in general,, and the working-class in particular, would have benefited if, before the crisis, there had been another £100 million, or even £1,000 million, of gold available in the world. What could have been done with it that would have overcome the fact that world stocks of all kinds, and especially of raw materials, were so high tthat they could not be disposed of at prices which would yield a profit ? The plain truth is that capitalism had again run up against its permanent and insoluble problem of being unable to distribute all the goods produced, because capitalist production is for sale at a profit and not for use. Therein is the cause of this, as of every other economic crisis of the past 150 years.

B. S.

Covid and capitalism’s unnecessary dilemma (2020)

From the December 2020 issue of the Socialist Standard

The crisis provoked by the coronavirus pandemic has brought out clearly the nature of capitalism as a system where most people depend on the income they get as wages from employment. They are in this position because they are excluded from ownership and control of the places where they work and where wealth is produced. These are in the hands of a minority, generally through joint-stock companies, who use them, in fact only allow them to be used, to produce goods and services for sale with a view to profit.

To obtain the money to buy what they need, the excluded majority has to go out on to the labour market and successfully sell their ability to work in return for a money wage (sometimes called a salary). Some, who have a long-term job and so a regular income, are able to convince a bank or a building society to grant them a long-term loan to buy a house or flat, which will be theirs if they keep up repayments and interest for 25 years or so. Others work in precarious, low-paid jobs and have to rely between jobs on state hand-outs or the informal economy to survive. Those who are unemployable, through long-term sickness or disability, have to rely entirely on meagre hand-outs from the state.

When wages stop

One of the measures taken by the government to try to slow down and limit the spread of the virus has been to close down all but ‘essential’ businesses, defined mainly as those engaged in producing, transporting or selling food and other everyday household essentials. Over ten million workers – some 35 percent of the employed workforce – have been affected. If the government had not stepped in, all these would have been without resources within a few months, if not before. Such is the precarity in the end of all those dependent on working for a wage. They can’t stop working for much more than a month or so without having to beg for a handout from the state to survive.

A fall in living standards affecting so many people was something that the government could not let happen, if only to maintain public order and avoid widespread civil unrest. The scheme it came up with to avoid this was ‘furlough’ – enabling employers to keep workers on their books without them working but with the government paying 80 percent of their previous earnings. On 8 May, 8.9 million workers were furloughed. Some 1.6 million more were not so lucky. They lost their job and had to rely on means-tested Universal Credit, the number claiming this surging from 2.6 million in February to 4.2 million in May. Since Universal Credit only brings your income up to the official poverty line these suffered a drop in income of considerably more than 20 percent.

The government was prepared to fork out the money – obtained by borrowing it – but only on a temporary basis on the assumption that the business closures would only need to last a few months. Since a government has no resources of its own, it can get money to spend only by borrowing it from capitalists or from taxes that will ultimately fall on capitalists. No government can go on compensating workers for any lengthy period for being deprived of their usual source of income – the wages paid by their employers for the use of their working skills to produce some good or provide some service for profit. It’s just not sustainable.

The government has to aim to get the economy – production for profit – going again as soon as possible, with workers producing sufficient amounts of new value to provide a profit for their employer and to cover their own consumption. The government did try to do this after a few months but this proved to be too soon and the virus began to spread again, threatening once more to overwhelm the health service, though epidemiologists had been warning that this was likely to happen anyway.

Hence the government’s dilemma – which to give priority to: profit-making or public health? Hence, too, a particular problem for the present Tory government under pressure to prioritise the economy from the small businesses, which mainly cater for workers’ consumption and many of which risk going under, whose owners are an important support base for that party. In the end, as long as no effective vaccine is widely available and if the virus continues to spread, that is what the government will have to do.

They won’t have a choice. Despite the inevitable public outcry and political consequences, the government would be forced to sacrifice the health of the old who, in any event from a capitalist point of view, are a burden as they no longer work to produce the profits that capitalism is all about. It might not come to this –vaccination might become widespread or else the virus might peter out – but if neither of these happen within a year or so this is what would have to happen.

As it might be

In a socialist society a pandemic like the present one could be dealt with rationally without the complications that occur under capitalism due to its production for profit and working for wages. Where the means of wealth production are the common property of society these will be used to produce solely and directly to satisfy people’s needs and not for sale with a view to profit.

Even in such a society a pandemic of the kind we are currently experiencing could occur and the measures to be taken to contain it – basically, social distancing while a vaccine is developed – would be the same. However, these measures would be being implemented within a quite different framework. Everybody would already have access to what they need simply by virtue of being a member of society, without having to pay for it out of money wages obtained by working for an employer. Those able to contribute in terms of work would cooperate to produce what was needed, while everyone would have free access to what they required to meet their needs. In short, the principle of ‘from each according to their ability, to each according to their needs’ would apply.

This would be a much better framework within which to deal with any pandemic. To reduce contact between people, some production units and distribution centres might have to be closed and most people expected to stay at home except to collect food and other essentials as now. However, this would not be accompanied by the problems that result from doing this under capitalism. No production unit would ‘go out of business’ and not re-open; productive units would simply be temporarily closed. No-one would suffer a reduction in what they needed; free access for all, whether at work or not, to food and everyday essentials would continue. It would be inconceivable, indeed incomprehensible, that some children would have to go without a meal outside of term time.

If there was a longish delay in finding an effective vaccine or if the virus continued to spread for a couple of years or more, this would amount to a ‘natural disaster’ situation and some temporary rationing of non-essentials might have to be introduced. Once again, this would be done rationally, without the complications of maintaining production for profit and workers’ incomes, as the context would be a world of common ownership and production directly to satisfy everybody’s needs.

Adam Buick

What about the law of value? (1995)

Book Reviews from the February 1995 issue of the Socialist Standard

‘Marx’s Theory of Crisis’. By Simon Clarke. Macmillan 1994, £14.99.

‘What About The Workers? Workers and the Transition to Capitalism in Russia’. By Simon Clarke. Macmillan 1994, £12.95.

Clarke argues that Marx gave a number of different explanations for the economic crises of capitalism. First, disproportionality between different branches of production so that one industry over-accumulates relative to the others and then faces a crisis of profitability which spreads to other industries. Second, underconsumption as workers cannot buy back what has been produced and a general crisis of profitability ensues as a result. Third, a tendency for the rate of profit to fall as a consequence of new technology and its greater cost relative to human labour power. Clarke’s view is that at one time or another Marx accepted and then rejected all three theories, and this ambiguity and inconsistency has been inherited by many of those in the Marxist tradition.

He argues that the three theories may describe contingent events in crises, but crises can actually occur for all manner of reasons. What all economic crises have in common is profitability – or rather, the lack of it. Crises are necessary and inevitable: they are a way of “purging” the economy of unprofitable businesses and raising the general rate of profit (largely at the expense of the working class, in terms of more work and less job security). This is perfectly normal for capitalism and does not mean that something has “gone wrong” with the economy. Indeed, capitalism will continue to lurch from crisis to crisis until the working class consciously organise for socialism.

Clarke is quite clear that the alleged failure of Marxism following the collapse of the Russian Empire is a myth, and that what has really failed is Leninism. This accurate insight is made all the more puzzling with the recent publication of another of his books.

As the subtitle of Clarke’s second book indicates, he labours under the illusion that Russia was something other than capitalist before the fall. His contention rests on the claim that Marx’s law of value did not apply in Russia before but does now. That the workers’ lot in Russia, as Clarke convincingly demonstrates, has gone from bad to worse in recent years does not show that bad is preferable to worse. In fact the collapse of the Russian Empire is a striking confirmation of the law of value, and it brings out a peculiar feature of his book on crises in that it ignores Marx’s theory of value. This time it is Clarke who is inconsistent.

Under the old system, the law of value (basically, the social compulsion to accumulate capital out of monetary profits) operated but was modified by state action. In Marxist terminology, the state redistributed surplus value from the profitable sector of the economy to non-profitable ends (the military in particular). But by the 1980s the “purging” effect on unprofitable businesses induced by the law of value, and delayed by state action, meant that most of the economy had become inefficient in terms of profitability and was, literally, in a state of crisis. This, together with popular opposition, is the main reason for the collapse of Russian state capitalism.

Lew Higgins

The Greek Tragedy: A Tourist-Eye View (2012)

From the June 2012 issue of the Socialist Standard

Re-visiting Athens after twenty-odd years and in the middle of a severe economic crisis I wasn’t sure exactly what to expect or how visible signs of the crisis would be. The drive from the airport gave few clues and once within the city there seemed to be plenty of large stores full of expensive clothes and all the latest electronic technology for those who could afford them.

Approaching the city centre though it became clear that numerous large shops and businesses were permanently closed and shuttered up. There was a heavy police presence on the streets too and the police motorcycles roaring about, usually two up and with blue lights flashing were a constant sign that all was not well. Angry looking graffiti and political posters began to appear, almost covering entire buildings from one end of the streets to the other. A sure sign of widespread anger and discontent.

Even a non-Greek speaker like myself could tell that this was not the kind of stuff we have decorating railway bridges and derelict buildings at home. The anarchist logo and the hammer and sickle were daubed up everywhere, and non-Greek speakers were well catered for. “Wake up-Rise up”, “Fuck the politicians”, “Fuck the Police” were scrawled intermittently between Greek slogans. The message of one anarchist poster pasted up every few yards, although written in Greek was perfectly clear. It’s artwork showed an angry looking muscular man, standing on a high ledge overlooking the city, hurling a ballot box far away into the distance.

My hotel, behind Omonia Square in the city centre turned out to be very close to the main office of KKE. The Greek Communist Party. And it was quite an eye-opener to see the constant activity and stream of people, young, old, male and female purposefully filing in and out at all hours of the day, seven days a week.

Obviously with drastic cuts in wages and massive unemployment, the main concerns of most people on the streets was going to be how to feed themselves and keep a roof over their heads – if indeed, they still had one. Discussions with KKE members though, I hoped, would give some idea of their view of what communism was, and how it was to be achieved. Unsurprisingly perhaps, I was told that KKE would first establish communism in Greece. This would happen when workers, through their unions, took control of their workplaces and the state. The process would then be repeated throughout Europe.

One of their slogans in both Greek and English, “Down with the Dictatorship of the Monopolies European Union” had been reproduced on a massive banner hanging from the acropolis and was intended, apparently, to pave the way for this.

Syriza too, who’s supporters I spoke to, described themselves as “Marxist Leninist” and, who assured me that their aim was the establishment of socialism, held a massive rally in Omonia Square. Their “anti bailout” message was certainly popular and seemed to have attracted vast numbers of converts. These converts however, have only been attracted by Syriza’s hopes to reform, or to scramble out of, Greece’s current economic mess. Most probably have no knowledge of what socialism is, or any hopes or ideas for its establishment.

My main reason though for going to Athens though was not to see Greece wrestling with its economic crisis. I was here for the history. And to visit the Agora, the market place and centre of activity in classical Athens. And the Pnika (or the Pnyx as the guide books have it). This is the place where the people who came up with the idea of democracy in the first place met to address their fellow citizens, to listen to each others arguments, and to discuss and vote on them.

It’s a long, hot, uphill climb to the Pnika (it took half an hour just to descend to the ancient market place again) And it was quite sobering to reflect on what the Athenian citizens who regularly made that trip to engage in direct democracy would have thought of our idea of democracy, where we are just offered the chance to elect a new leader every 4 or 5 years. And what would they have made of that poster in today’s Athens showing the angry and frustrated anarchist hurling the ballot box away?

NW

Cooking the Books: Overproduction (2012)

The Cooking the Books column from the August 2012 issue of the Socialist Standard

According to Stuart Jeffries in the Guardian (5 July), “Marxism is on the rise again”. One of the reasons he gives for this is “its analysis of economic crises”. But what is this analysis?

The problem with trying to describe Marx’s own theory is that he never published a final, worked-out version. In Volume 1 of Capital there are some passing references to capitalist production going in cycles “of average activity, production at high pressure, crisis and stagnation”. Apart from that, all we have are drafts and notes on the subject which Engels, Kautsky and Moscow later published as Volumes 2 and 3 of Capital, Theories of Surplus Value and the Grundrisse, but these drafts are not always entirely consistent with each other.

This has led to a number of different Marxist theories. The explanation we have favoured is that crises are caused during the phase of “production at high pressure” by one key industry (it could be any).  This industry, in its anarchic pursuit of profits, comes to overproduce in the market for its products, and this partial overproduction then has a knock-on effect on the rest of the economy.   

Others interpret “overproduction”in a different sense, to mean that capitalism has a tendency for total capitalist production to outstrip total market demand. An example can be found in the January-February issue of Lalkar (a publication of the Communist Party of Great Britain (Marxist-Leninist), but it’s a theory put forward by others who don’t share this party’s policy). The present crisis, it claims:

  “is at heart a classic crisis of overproduction, this being the design fault that is built into the capitalist system. As the masses of workers –who make up the bulk of consumers –are, in the interests of profit, paid as little as possible, they are increasingly unable to buy all the increasing mass of commodities that the capitalist enterprises bring to market. This in turn bankrupts the least ‘efficient’ of the capitalist enterprises, causing further job losses and downward pressure on wages caused by an excess of the supply of labour power over the demand for the same. Bankruptcies start to escalate, while economic activity stagnates.”

This is a theory of “underconsumption” rather than of “overproduction”. It ignores the fact that the total capitalist market is not made up just of what workers can afford to buy, not even if capitalist spending on consumer luxuries is added; it also includes what capitalist enterprises re-invest in production, i.e. spend on producer goods.

Lalkar offers the following explanation as to why the present crisis didn’t break out earlier:

  “However, this process can be, and is, retarded by the simple expedient of the capitalists, who would otherwise find it difficult in the circumstances to invest profitably, lending money to workers to enable them to continue as consumers despite their relative poverty.”

This doesn’t make sense. The capitalist class lend the working class money to buy their goods, but how would they make a profit out of doing this? They would only get their money back.

Working-class borrowing did increase in the period up to the present crisis but this wasn’t done deliberately to prevent production spiralling downwards. It was the other way round: because production was expanding, banks and other lenders made loans to workers on the assumption that production would continue to expand and so workers would be able to repay out of their future wages both what they had borrowed and the added interest.

A crisis is not caused by working-class consumption going down but by capitalists cutting back their investment in production.  It is investment, not consumption, that drives the capitalist economy.  This is the essence of Marx’s theory of capitalism, whatever might have been his considered theory of crises had he got round to formulating it.

Neutered tigers (1998)

Editorial from the May 1998 issue of the Socialist Standard

The Asian “Crisis” goes from bad to worse. The entire region is economically paralysed and Japan—the local Superpower—is itself on the “brink of collapse”, according to the chairman of the Sony Corporation. It only remains to be seen how badly the world economy will be affected.

The real context of this crisis is what we have previously called the “casino” economy. Much of the Asian “tiger” success has been due to vast amounts of speculative capital being invested into property and equities creating rising asset prices which do not correspond to the real productive economy. Subsequently when the “paper bubble” bursts we see the “miracle” for what it really is—a false dawn!

This has not previously been the view of most economic commentators. Initially, when the crisis broke out in Thailand it was put down to a “liquidity crisis” (investors withdrawing their money) as the crisis deepened and Japan started to rock with its banking system about to implode, we were told that the cause of the problem was “corruption” combined with the fact that Japan’s financial sector needed to be “deregulated” and “restructured”. The most popular solution to the region’s problems (aside from the IMF bail-outs) has been for Japan to re-slate its economy by cutting taxes and increasing public spending—thereby creating a motorforce for the region. The extent of a possible world recession therefore depends upon the domestic economic management of the Japanese government. That this view is superficial in the extreme only demonstrates the poverty of bourgeois economics when faced with a crisis of capitalism.

Already we have seen one tiger after another come off the dollar “peg”, setting in motion a round of competitive devaluations. This will probably boost exports relative to imports and in Japan’s case (with a week yen and strong dollar) increase their trade surplus with America.

And this is where the problems may start. Imperialist tensions could well sharpen and a potential trade war complete with protective blocs and further attacks on the working class may be the portent of things to come. Yet again the instability inherent to capitalism hits those least able to protect themselves.

Cooking the Books: Crises and Consciousness (2017)

The Cooking the Books column from the September 2017 issue of the Socialist Standard

Socialists have often speculated on what might spark off the emergence of the majority desire for socialism that is an essential prerequisite for its establishment. One school of thought has been that it will be a final, catastrophic economic crisis. There have been various theories as to what might provoke this – the rate of profit falling too low, external markets becoming exhausted, the banking system collapsing. In other words, that the capitalist economic system will break down mechanically forcing people to realise that socialism is the only way out.

Although these theories of final collapse are flawed and don't stand up to economic analysis, capitalism is a system characterised by regular economic downturns, some large, some small. So we can get some idea of how people react in a big economic slump, as in the 1930s and after the Great Crash of 2008.

'From Hitler to Trump: populist leaders profit from fear' read a headline in the Times (13 June) reporting on a study in the American scientific journal, Proceedings of the National Academy of Sciences:

'From the rise of Hitler to the election of Narendra Modi in India, the link is often made between populist nationalism and recession. Now this study seems to have found strong evidence for it . . .  Drawing on a survey of people across 69 countries they found that when unemployment rose, people were more likely to say they preferred “a strong leader who does not have to bother with parliament and elections”.'

The study is not that impressive. It doesn't seem to be much more than a glorified opinion poll in which people were in effect asked 'in a time of economic crisis would you like your leader to be dominant or prestigious?' And it dabbles in 'evolutionary psychology' and in likening human behaviour to that of monkeys and apes (we'll take that seriously when they discover a band of gorillas led by a female equivalent of Mrs Thatcher).

So, the study doesn't add anything to what we already know – that in an economic downturn an increased number of people turn towards nationalism, often of a populist type led by a 'strong leader'. The point is that they don't necessarily turn to a movement to replace capitalism by socialism. A slump is not especially conducive to the emergence of socialist consciousness.

One reason why a turn to nationalism seems a way out in an economic downturn would be that people can imagine a national solution. They are wrong but that doesn't seem completely unrealistic. And, as we are talking about a cyclical not a final crisis, the economy does eventually recover and unemployment drops.

This is not to say that no crisis of any sort could not be conducive to the emergence of a mass socialist consciousness. But it would have to be a global crisis which, unlike a cyclical economic crisis, would not eventually rectify itself.

In his 2006 novel The Last Conflict socialist Pieter Lawrence imagined the global crisis which sparks off the change to socialism as being the world having to face the problem of a comet hurtling in the direction of Earth. A more immediate candidate for such a crisis would be rapidly increasing global warming. We are not there yet (fortunately) and it may never get that bad (hopefully), but, if it did, people would be faced with a choice of the end of the world or the end of capitalism. A no-brainer, surely.

Recovery—phantom of the economy (1992)

From the May 1992 issue of the Socialist Standard

During the recent general election much time and argument in the media revolved around the current economic recession. The Conservative Party claimed that recovery was under way as a result of government economic policy. The Labour Party claimed that the Tory government had caused the slump due to high interest rates. Kinnock failed to explain, however, why the economic downturn is developing throughout the whole of the industrialised world.

Much of the government-inspired rhetoric put over by the orthodox economists claimed that a consumer-led recovery was imminent. Norman Lamont actually claimed that the recovery had begun last June. The Bank of England in its Quarterly Bulletin claimed last November that “a modest recovery may now have begun" (Daily Telegraph, 15 November). A fall in inflation has been given as a sign that recovery is on the way despite the fact that inflation fell to almost insignificant levels during the slump of the 1930s and that downward pressures on prices are a feature of all recessions.

For many months the public have been subjected to a whole new terminology with the object of convincing them that the recovery is under way. We are now bombarded with terms such as "kick-starting" the economy. The commencement of the present economic downturn was denied and described as a "slowdown in growth". When the facts emerged to indicate otherwise the term "soft landing" replaced the term "recession". As the economy continued to deteriorate, as instanced by increasing numbers of personal and business bankruptcies and housing repossessions, it was conceded that there was a recession but it was argued that it would be a "shallow" one of short duration. Every time the economic indicators fail to indicate recovery the likely date for it is extended by six months.

A consumer-led recovery is a myth. There has never yet been one in economic history. Consumer upturns come last in the economic recovery cycle. The indicators of recovery that one would expect to see are: a rise in commodity metal prices such as copper, lead and aluminium; an increase in machine tool production; an expansion of the construction industry (factories, plant, etc). In the money market long-term interest rates on borrowed money would become higher than short-term rates—at present the reverse is the case, indicating a lack of confidence amongst capitalist investors in the longer-term economic prospects.

Cartoon by Peter Rigg.

A fall in the number of net bankruptcies would be another indication that the slump is ending, but this statistic was removed from the Central Statistical Offices indicators under Mrs Thatcher and replaced by CBI economic forecasts; in other words, the employers’ view of the economy. An increase in job vacancies accompanied by a fall in unemployment are also signs of an economic upturn. Increase in housing starts usually occur some months ahead of a recovery.

It hardly needs emphasising that none of these indicators are at present positive. Unemployment is approaching 3 million. Business and personal bankruptcies have reached record levels according to Dunn & Bradstreet. and around 1200 businesses have failed each week during the first quarter of this year. Despite the budget car sales have failed to increase. Housing repossessions increased to over 70,000 last year compared to 44,000 in 1990 and 12,000 in the mid-80s.

Slumps are inherent in the capitalist mode of production based on the ownership of the means of production by a minority and where the motive for production is profit. The present economic crisis is occurring against a background of a fall in world trade throughout the advanced industrial economies. It is the longest crisis since the Great Depression of the 1930s. In terms of the housing market crisis, in the UK it is even worse than then. People have been conditioned to believe that rising prices are a permanent way of life, forgetting that this has only gone on since 1939 and that prices can come down.

At the same time we are witnessing a massive world-wide credit crunch commensurate with the colossal banking debt overhanging the world economy. This debt has been estimated at over $25 trillion weakening the banks in a way that has also not been seen since the 1930s.

Against this background the arguments of the politicians are irrelevant. It is significant that this potential banking crisis was not touched on in the election debate; neither was the cause of economic crises. Not understanding how capitalism works the politicians are reduced to frantically seeking signs of a visible recovery in place of the phantom one they insist is here but which defies identification.

Terry Lawlor

Running Commentary: Ice-cold death (1985)

The Running Commentary column from the March 1985 issue of the Socialist Standard

Ice-cold death

Each winter, in this land of microchips and nuclear power stations, people die a primitive death through the cold. Sometimes this is caused by hypothermia, the reduction of the body's heat below a critical level. Others die of pneumonia or suffer strokes and heart attacks as the blood pressure is forced rapidly upwards by the cold.

According to the Sunday Times of 27 January, during three weeks in this year's cold spell, over a thousand people had to be treated in hospital for hypothermia. A consultant who has made a special study of the problem tells a grim story: about nine thousand deaths a year from straightforward hypothermia and several times that figure for deaths from diseases induced by the cold.

Of course this could all be avoided if only people like pensioners heated their homes properly, except that they, of all people, know how the expense of this would be an added stress in their everyday struggle to make ends meet.

There is, to be sure, an extra state allowance which can be paid to them when there is "exceptionally severe weather". This condition is officially defined according to temperature readings taken in different points and the level required to activate the extra allowance varies from point to point.

For example, when the bureaucrats in control of benefits for East Anglia, Essex and some parts of Bedfordshire were satisfied that the thermometer was reading -2.8°C at Honnington they allowed the payments. The rest of Bedfordshire was not so lucky: although they were just as cold they were covered by a different measuring point.

People who are forced to survive on a pension or some other state allowance are those who once depended on a wage. All their working life they have suffered the indignity of hawking their working abilities to an employer. When they are deemed no longer employable they face the even deeper degradation of scraping by — or not. as the case so often is — on niggardly state handouts. Provided, of course, they are able to navigate their way through the labyrinth of bureaucratic controls and checkpoints.

This is not a problem of age or of climate but of social class. Rich people are never rushed into intensive care through hypothermia. Cold weather need not be a problem; it is capitalism's social relationships which turn it into a killer. It should be abolished. Not the weather: capitalism.

Sailors’ tales

As if they don't already have enough to worry about, the unemployed now have to contend with the pound's falling exchange rate against the dollar and the rise in interest rates.

The dollar exchange rate was one of the earliest crises for British trade after the war. If only, we were told, we could get back to the good old days when the pound was worth about four dollars all would be well. The rate was then fixed by the Treasury; devaluation, when it came, was seen as the failure of the Labour government's wild political theories.

Since then many other alleged causes of he crises have held the stage for a while. We have heard about the Balance of Payments, the Gnomes of Zurich selling sterling short, inflation . . .  Each time, the workers have been told that they could cure the problem by tightening their belts, working harder, keeping wage rises small.

Whoever is Chancellor has assured us that he has been in charge, sensitively manoeuvring the financial controls to bring the situation into balance. Now we have Nigel Lawson, who described the interest rates panic of January as a storm which blew up largely through events outside his control and which would eventually blow itself out. "Meanwhile", he said, "we have battened down the hatches and the ship remains on course."

There is a familiar ring to these confident words. Nautical and meteorological metaphors have always been very popular with devious politicians. Harold Wilson described one of his government's crises as being "blown off course". Jim Callaghan greeted a brief respite with the advice "Steady as she goes". The message is that the troubles are temporary; if we put our trust in the captain and the crew the ship will soon arrive safely in port.

Both Labour and Tory governments have wrestled unsuccessfully with the same problems. Both have used the same empty excuses, the same comforting turns of phrase, to hide their impotence. Clearly, the matter goes beyond which particular capitalist party is in power and the workers have to think about taking over the ship for themselves.

Modern times

"I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labour, and that the necessity of debating their price with the capitalist is inherent in their condition of having to sell themselves as commodities . . . The general tendency of capitalist production is not to raise, but to sink the average standard of wages."

This quotation from the very end of Marx's pamphlet Value, Price and Profit, given initially as an address to the General Council of the International Working Men's Association in 1865, has a very modern ring. The women cleaners who work for Exclusive Cleaning Services on the army base at Deepcut in Surrey had their hourly rate cut from £1.71 to £1.60 in November last year. Then, in December, they found that their wages for the month embodied a further cut of 5 per cent to £1.52 without warning.

It is presumably on the grounds of this contractual issue of warning that they have sought the help of a solicitor. This is probably what has also caused the resignation of the firm's director for that region and the restoration of the hourly rate to £1.60. Only four of the fifty cleaners are reported to be in a trade union; but even if they all were, as long as Exclusive act within the letter of capitalist law, they cannot offer much resistance to wage cuts in the present economic climate.

The Relevance of Marxian Economics Today (2014)

From the April 2014 issue of the Socialist Standard

Interview with Andrew Kliman, author of a number of books on Marx’s ideas.

How did you come to be interested in Marxian economics and socialism?

I was 12 years old in 1968, a moment of tremendous radical ferment, and I immediately identified with all of the forces struggling for freedom. I don’t remember whether I immediately identified with socialism, too – in the environment of the time, immediately linking the two would have been rather natural – or whether that took a bit of reading and thinking.

I used to argue with people about capitalism, and I’d be told, ‘you don’t understand supply and demand.’ I realized that was true, and a main reason why I decided to major in economics in college was to see if my views would survive confrontation with ‘the law of supply and demand.’ Eventually, I decided to go to graduate school in economics and focus on radical economics. My knowledge of Marx’s writings, on economics and in general, was still rather limited. I had tried to read Capital, but my eyes kept glazing over and I kept dozing off. But in my first year of graduate school, I took a year-long course that consisted of a close reading of the three volumes of Capital. It was quite a struggle, but slowly I began to understand and to be convinced. The irrationality and corrupt nature of the resistance to Marx’s ideas, even among ‘Marxist economists,’ and the sterile and non-revolutionary alternatives they offer, have strengthened my conviction. So have the Great Recession and its ‘new normal’ aftermath.

I don’t think of myself as a ‘Marxist economist.’ The people who trash Marx or cannibalize his work to further their own ideas and careers have appropriated the term for themselves, and they can have it, as far as I’m concerned.

In ‘The Failure of Capitalist Production’ you claim that the underlying cause of the last global economic downturn was a persistent fall in the average rate of profit which had never fully recovered since the late 1970s. Do you think the falling rate of profit is always the deciding factor in regard to economic crisis or can it be explained by other features of capitalism such as the disproportionate growth between different sectors of the economy?

I say that the fall in the rate of profit was a, not the, key underlying cause. That’s not the same thing as a ‘deciding factor.’ I think a variety of conditions need to be present in order to produce an economic downturn and financial crisis, especially ones as severe as those we’ve experienced. That was Marx’s view as well. In particular, as I stress in the book,

‘Marx’s theory holds precisely that a fall in the rate of profit leads to crises only indirectly and in a delayed manner. The fall leads first to increased speculation and the build-up of debt that cannot be repaid, and these are the immediate causes of crises. Thus, the timing of the current crisis and the sequence of events leading to it do not contradict the theory, but are fully consonant with it and lend support to it.’

Clearly, the main immediate causes of the Great Recession were the bursting of the bubble in the US housing sector and the financial crisis that resulted. But pointing to these events isn’t adequate. If they were the only problems, the economy would have rebounded smartly once the US government quelled the panic; but that was five years ago, and the malaise persists. The recession, and to some extent the financial crisis, were also the product of several other, underlying conditions. A persistent fall in the rate of profit led to sluggish investment in production, which in turn led to a rising burden of debt; and the US government responded to these conditions by throwing even more debt at them. The government policies delayed the day of reckoning, but also made the crisis worse when it finally did erupt. These underlying conditions still persist for the most part, and the future of the Euro area and Chinese economies is quite uncertain, so the malaise persists as well.

During the housing-sector bubble, home prices and financial activity grew faster than the rest of the economy. One can, if one wishes, call this ‘disproportionate growth between different sectors of the economy.’ In this specific sense, the financial crisis and recession can be characterized as a ‘disproportionality crisis’ (but only with regard to immediate causes, not longer-term, underlying ones). But since ‘disproportionality’ generally refers to something different – an imbalance between production of means of production and production of consumer goods and services– use of the term is liable to cause confusion.

What is your attitude towards those that claim government spending and/or increasing working class consumption is a way out of the crisis?

Of course, the government could borrow more, and thus provide more of a temporary boost, but there’s a definite limit to the amount by which governments, even the US government, can run up their debt before the credit market gets spooked and lenders demand so much interest in compensation that running up the debt becomes counterproductive. Even more importantly, running up the debt provides only a temporary fix. It doesn’t set off a perpetual-motion machine of economic growth. Once the stimulus money ends, the stimulus it provides ends as well – and let me emphasize that this is what standard Keynesian theory itself says.

Although underconsumptionists claim that redistribution of income from wages to profits was an underlying cause of the Great Recession, that isn’t true, at least not in the US case. Between 1970 and 2007, employees’ share of net output was stable in the corporate and total-business sectors. So was the share of output that the working class could buy with its income, ie. without going deeper into debt. (Please see my pamphlet ‘Can Income Redistribution Rescue Capitalism?’ which you reviewed in January Socialist Standard, for data and sources).  Since upward redistribution didn’t cause the crisis, it’s not plausible that downward redistribution would solve it. Moreover, any serious downward redistribution would reduce profit and thereby tend to destabilize capitalism even further. After all, profit is the fuel on which the system runs. The underconsumptionist theory of crisis denies this, it tells us that the problem is too much profit, but I think there are fatal logical flaws in that theory. I can’t go into them here, but I do so in the pamphlet and in my book.

Similarly, what is your attitude towards those that claim that banking/monetary reform can improve conditions for the working class as well as preventing future crisis?

Financial regulation, like regulation in general, has a very weak track record. Businesses and investors are always able to find ways around the regulations, and the new regulations that are drawn up are always designed to ‘fight the last war.’ Also, regulation itself can be a cause of financial crisis. One of the biggest financial crises to date, the collapse of the savings and loan (building society) industry in the 1970s and 1980s, was caused by very strict regulations on the interest that the savings and loans could pay and charge, together with the inability of ‘Keynesian’ policies to stem the spiraling inflation problem of the time.

It’s possible to set up a government-handout agency that one calls a bank, funnel borrowed  money through it, and improve conditions for the working-class in that way – temporarily and within strict limits, of course. But if we’re talking about genuine banking functions – attracting funds and lending them out –it’s not possible to turn banks into institutions that operate for the benefit of working people or that pursue public-policy objectives. The capitalist system has its own laws, economic laws that are independent of the intentions of the people who happen to be running it. State-regulated banks, and even state-run and worker-run banks, are still banks. They have to try to maximize profits, just like every other capitalist firm. If they don’t, they won’t be able to provide investors and lenders with a decent return, so the investors and lenders will go elsewhere, and the banks won’t get the funds they need to operate. They’ll fail or, at best, remain tiny, insignificant islands in the sea of profit-maximizing finance.

You have made criticisms of the view expressed by Richard D Wolff (and others) that workers co-operatives are the way to socialism (or even are socialism). Could you briefly outline your position on this issue?

This issue here is really the same one I just discussed. It doesn’t matter whether we’re talking about banking or some other industry. Indeed, Wolff has applied his general view to the case of banking, calling for worker-run banks which, he claims, would operate for the benefit of working people. Why? Merely because workers have different interests than regular bankers, so they would supposedly make different decisions.

    

But the road to bankruptcy is paved with good intentions. Worker-run banks, and cooperatives within capitalism generally, would fail or remain tiny islands if they decided to sacrifice profit in order to enhance the well-being of their members or the majority of the population. Wolff just fails to deal with this problem. The only co-operatives that can survive are the ones that operate in accordance with the laws that govern capitalism. The result, as Marx put it, is that the workers in these cooperatives become ‘their own capitalist’; they end up exploiting themselves. In order to keep the prices of their products low and remain competitive, they have to keep their pay low, speed-up production, ignore workplace safety and health issues, and so on, just like every other capitalist.

Let me emphasize that the above comments are just about co-operatives within capitalism and as a ‘way to socialism.’ I’m not objecting to co-operatives as a form or even the dominant form of organization of production within socialism.

The assumptions of neo-classical economics have increasingly come under a lot of criticism since the financial crash of 2008. This criticism seems to have made significant inroads into the main stream yet the bulk of it comes from a behavioural economics or Keynesian /post-Keynesian viewpoint. Do you think this development can be harnessed by those seeking to promote a Marxian perspective and if so in what ways?

I’ve devoted a lot of effort to fighting the suppression of Marx’s body of ideas, including the suppression of them by the Marxist and radical economists. But fighting to allow Marx’s ideas to be heard is one thing; promoting a Marxian perspective in the academic-careerist turf-battle sense is another. I’m not interested in that. I’m interested in understanding and transforming reality, and for this, openness to dialogue and to new findings and ideas – from wherever they come – is essential.

I think Hyman Minsky, a post-Keynesian, had some insightful things to say about speculative and Ponzi finance. Irving Fisher’s debt-deflation theory of business cycles is also interesting. He was a neo-classicist, but some post-Keynesians have returned to his theory. And Vernon Smith and his colleagues have done what I regard as tremendously important work in behavioral economics, on the causes of asset-price bubbles. They’ve demonstrated conclusively that misinformation and lack of information isn’t the problem.

I agree with you that mainstream economists are engaged in some genuine rethinking. I also agree that Marx’s ideas don’t play any real role in that rethinking. This lack of interest in Marx isn’t due to dogmatism, but to the fact that these economists are agents of capitalism. Their job is to try to figure out how to solve the economic crisis and how to prevent future crises or at least make them less severe. So I can’t think of a thing that Marx has to offer them. His theory of capitalist crisis isn’t about the defects of any particular set of institutions or any particular form of capitalism. It’s about defects that are inherent in every form of capitalism and are inextricable from it. So I don’t think it offers anything to people trying to alter the system while keeping it intact.

Many groups that have shared the Socialist Party’s definition of socialism as a classless, stateless and non-market society have insisted that the working class should abstain from parliamentary activity. The Socialist Party has always maintained that as the state only exists to preserve the position of the property owning minority and that as socialism can only come about through majority understanding and participation, the democratic process should be used in order to win control of parliament for the purposes of preventing the state machine from being used against the socialist majority and to ensure the transition from capitalism to socialism can proceed in as ordered a manner as possible. In what ways would you agree or disagree with this position?

I wouldn’t insist that the working class abstain from parliamentary activity. As a Marxist-Humanist, I support (sometimes critically) all genuine freedom struggles, whatever the form they happen to take at a particular moment. But in the US, where I live, they’ve taken an electoral form only rarely, for instance in the Mississippi Freedom Democratic Party 50 years ago. I think that’s largely true elsewhere, too. The institutionalized labor and left electoral parties, even in the best cases, have rarely been vehicles of mass self-activity; and that’s one thing I do insist on, as did the First International: ‘the emancipation of the working classes must be conquered by the working classes themselves.’   

‘Property owning minority’ is too narrow – the top bureaucrats in the USSR, China, etc. haven’t been owners in the usual sense. I do agree that the state exists to preserve the capitalist system and that socialism can only come about through majority understanding and participation. However, I simply don’t see how the rest of the sentence follows from that.

Questions of logic aside, I don’t think anything can prevent the state machine from being used against the socialist majority. Governments can and will suspend our rights and ignore laws passed by parliament when push comes to shove, and they often have constitutional authority to do so. I think that what would offer the most protection against this, and the best chance for a revolution without mass bloodshed, is, first, a large majority in favor of socialism. Second, clarity about who its allies and who its enemies are – this is something that has been lacking far too often. Third, serious work to bring draftees and enlisted members of the armed forces over to the side of the people. If they decide to point their weapons in the opposite direction, that will do far more to enforce the will of the majority than parliamentary decrees can.

But getting rid of the old order is only one aspect of social transformation; the other is the creation of new social relations, rooted in a new mode of production that’s not subject to the economic laws that govern capitalism. No amount of political will, whether expressed by parliamentary or extra-parliamentary means, can bring this about. It’s not a matter of issuing directives, passing laws, or whatever. Unless and until a new mode of production is established that uproots the economic laws that govern capitalism, these laws will continue to nullify parliamentary laws, decisions of workers’ councils, and what have you.

Is there a crash coming? (1988)

From the September 1988 issue of the Socialist Standard

Capitalism is an inherently unstable system of society. Changes are continuously taking place, most of them unforeseen by workers and capitalists alike. Workers suddenly find that their supposedly safe jobs have disappeared; capitalists' markets and profits fade out. Something like 100,000 British companies have been wound up in the past ten years.

Every day something goes wrong for some group or other, and out of this uncertainty many observers over the past 200 years have concluded that capitalism will, or may, fall into chaos from which it cannot recover. Some have been capitalist spokesmen who feared what was apparently taking place. In 1829 William Huskisson, former President of the Board of Trade, wrote: "I consider the country to be in a most unsatisfactory state, that some great convulsion must soon take place". In 1884 Lord Randolph Churchill, describing the difficulties in which most industries found themselves because of the current depression, said: "Turn your eyes where you will, survey any branch of British industry you like, you will find signs of mortal disease". And in 1876 a Board of Trade official, Sidney Bourne, issued a warning about the dire consequences that would follow if the nation failed to tackle a problem that all the economists and politicians were talking about in June of this year — the adverse balance of trade, the excess of imports over exports.

While those people feared the "great convulsion", there were other observers who welcomed the possibility of a "collapse of capitalism" because they supposed that it would force the workers to introduce socialism. So in every depression there were forecasts of that kind. Typical of them is the statement by H.M. Hyndman of the Social Democratic Federation in 1884: "It is quite possible that during this very crisis ... an attempt will be made to substitute collective for capitalist control". In 1919 Herman Cahn published his The Collapse of Capitalism in which he said that it could not be postponed any longer and was "imminent". In 1922 W. Paul, a prominent member of the Communist Party, wrote: "There is the greatest possibility that the social revolution may take place in the immediate future:, and in 1931 James Maxton of the Independent Labour Party said that it was only a matter of months: "collapse is sure and certain".

There have been several different theories about the way the supposed collapse would be brought about. Herman Cahn's bogey was the 1914-1918 wartime inflation and consequent depreciation of the currencies of many countries in terms of gold. It was no more difficult to restore stable currencies after that war than it had been after the Napoleonic Wars and the American Civil War. Lots of banks did go broke and depositors and shareholders lost money, but "bad debts" are a normal feature of capitalism. In recent years some prophets of collapse have concentrated on the huge debts owed to American and European banks by Mexico, Argentina, Brazil and other borrowers who now want to default on repayment. It has all happened before, repeatedly in the nineteenth century and between the wars. A century ago, when British capitalists were the big world lenders, a large proportion of loans were never repaid.

Then there is the "adverse balance of trade". It is possible for a country to have its imports and exports tidily balanced, but actually there are always some countries with an adverse balance, that is, imports greater than exports and other countries with exports greater than imports. (For the world as a whole, of course, total imports and exports are identical, one country's exports being another country's imports.) The country with a favourable balance is one whose products are cheapest and which therefore predominate in world markets. For some time it has been Japan; earlier it had been Britain (in the nineteenth century), Germany and America. In due course it will be some other country or countries underselling Japan. It is a situation which largely repeats itself. If Japanese exporters capture markets the importers have to pay in Japanese yen, which they acquire by selling their pounds, dollars and so forth. This has the effect of putting up the exchange rate of the yen and depressing the exchange rates of pounds and dollars . . . which in turn takes away the relative cheapness of Japanese goods and makes the American or British goods more competitive. Fifty years ago Professor Edwin Cannan, when asked what governments should do about the "problem", told them to stop publishing import/export figures and just forget all about it.

Like Herman Cahn, many later politicians and economists have seen in inflation the great threat to the continuance of capitalism, Mrs Thatcher among them. She says that inflation causes unemployment and trade depressions, and has proposed to end it and get a stable price level. The Tory Election Programme 1987 had this:

Our success in the battle against inflation has been the key to Britain's economic revival. We will not be content until we have stable prices, with inflation eradicated altogether.

The Labour Party, on the other hand, has always been favourably disposed to inflation. The 1974-79 Labour government more than doubled the cost of living in five years, and during the depression between the wars their leading economist, Pethick Lawrence proclaimed the very opposite of the Thatcher theory. He wrote: "I regard it as indisputable that unemployment, as it has existed in the world in recent years, is due to falling prices". The Labour Party's remedy at that time was to get prices up again.

If the Tories and the Labour Party looked at the history of capitalism they would find that unemployment and depression exist whether prices are falling, rising or stationary.

Probably the most widely accepted "collapse" theory centres around the belief that unemployment is bound to get larger and larger. Karl Marx's colleague Frederick Engels put it forward in 1886, three years after Marx's death. He wrote:

Meanwhile, each succeeding winter brings up afresh the great question "what to do with the unemployed"; but while the numbers of unemployed keep swelling from year to year, there is nobody to answer that question; and we can almost calculate the moment when the unemployed, losing patience, will take their own fate into their own hands.

The same theory was advanced again in the depression which began in 1979 and it has met the same fate. Within a short time Engels saw unemployment falling and he abandoned the theory. And unemployment in the 1930s, which reached 23 per cent in Britain and 25 per cent in the United States was nearly double the unemployment rates'of recent years. British unemployment is now slowly falling again; and American unemployment is at an all-time low.

When Engels put forward the theory he recognised that it was not a view held by Marx. It was Marx who put the whole question in perspective, showing that it is a continuous cycle, the recovery from the depression being as inevitable as the depression itself:

Capitalist production. . . moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis and stagnation.

Britain is now in the phase of "growing animation" with production, real wages, profits and employment all rising in the past few years.

Events since Marx wrote have fully confirmed the accuracy of his description, and all of the attempts by governments to promote permanent boom and full employment have failed. But we have something further to say about it. It needs more than capitalism's crises to produce socialism. It needs a predominantly socialist working class. As it was phrased in our pamphlet Why capitalism will not collapse, published in 1932:

So long as the workers are prepared to resign themselves to the evils of capitalism, and so long as they are prepared to place in control of Parliament parties that will use their power for the purpose of maintaining capitalism, there is no escape from the effects of capitalism.

Edgar Hardcastle