Socialist Studies Socialist Studies

No.2 Unemployment and Depressions

The more than 2,400,000 million unemployed in April 2010, and the millions of other wage and salary earners who are afraid that they too may lose their jobs, ask questions that the political leaders and economists cannot answer. Everyone knows that there are huge numbers of people too poor to buy things they need. But instead of steadily increasing production, every few years many factories and farms close down or go on short-time and the number of those in need is increased by the unemployed having their incomes reduced to social security levels. The media give answers of a sort, answers that won’t stand examination.

Depressions are not new, they have been happening for a couple of centuries. There was one in 1829. It was described by William Huskisson, a former President of the board of trade, in a letter he wrote on December 30th of that year:

I consider the country to be in a most unsatisfactory state, that some great convulsion must soon take place…I hear distress of all the agricultural, the manifactural, the commercial, the West Indian and all trading interests…that no merchant has a legitimate business…I am also told that the whole of London shop-keepers are nearly ruined”.

There was another dealt with by Lord Randolph Churchill in a speech in 1884:

We are suffering from a depression of trade extending as far back as 1874, ten years of trade depression, and the most hopeful either among our capitalists or our artisans can discover no signs of revival…Turn your eyes where you will, survey any branch of British industry you like, you will find signs of mortal disease”.

Randolph Churchill was right to be pessimistic, for the depression, known in textbooks as the great Depression; “lasted for about twenty years” (see “INDUSTRIAL RELATIONS HANDBOOK” 1944, Page 4).

The deepest depression last century occurred in the 1930’s. Unemployment rose in 1932 to 235 of the work force, more than double what it is now (In the USA in the same year it was 25%).

These figures dispose of a batch of popular but mistaken beliefs about depressions.

One is that depressions get worse and worse with the passage of time. No depression since 1874-1884 has lasted as long and no depression since 1932 has been as deep.

Another is that depressions and heavy unemployment are evidence that the population is too big. If there were fewer people in the country, so the argument goes, it would be easier for the unemployed to get jobs.

The population now is 61.8 million. In 1932 it was about 46 million; in 1884, about 32 million; and in 1829 about 16 million. Depressions may take place at any level of population high or low.

A third theory is that continuous depression had become a permanent feature of British capitalism. Karl Marx’s colleague, Frederick Engels, was putting forward this untenable theory in 1886, during the Great Depression, three years after the death of Marx and two years after Randolph Churchill made his pessimistic speech (see Engels’ 1886 Preface to Marx’s CAPITAL). Recovery from that depression came in due course as recovery always does and Engels reverted to Marx’s view, about which more later. While production sometimes gets ahead of markets and sometimes falls behind, they both expand more or less together. The volume of British production now is some five times what it was in 1886.

A fourth erroneous theory, which is held by some trade unions and by some economists and by the Clapham-based Socialist Party, is that depressions are caused by the workers becoming worse off and consequently becoming less able to buy what is produced (see the socialist Party’s pamphlet “SOCIALISM AS A PRACTICAL ALTERNATIVE” page 6, with its slogan “The Rich get Richer and the poor, poorer” and the article on depression in their journal THE SOCIALIST STANDARD, December 1990). The truth is that, as compared with the situation in Marx’s day, the working class now gets an appreciably larger share of the national income and even in the face of continual inflation over the last sixty years or so the wages and salaries of the whole working class have generally risen more than the rise of prices during this period. This is largely due to effective trade union organisation. It is dealt with in our journal SOCIALIST STUDIES NO.4.

This “workers can’t buy back” theory was known to Karl Marx and was repudiated by him (see CAPITAL VOL. II, Chapter XX, section IV page 476 in the Kerr edition).

Marx wrote:

But if one were to attempt to clothe this tautology with the semblance of a profounder justification by saying that the working class receive too small a portion of their own product, and the evil would be remedied by giving them a larger share of it, or raising their wages, we should reply that crises are precisely always preceded by a period in which wages rise generally and the working class actually get a larger share of the annual product intended for consumption. From the point of view of the advocates of “simple” common sense, such a period should rather remove a crisis”.

It has continued to be true that each crisis has been preceded by this rise in the share going to the working class; due partly to the fact that in that pre-crisis stage more workers are in work, and partly due to the fact that in a “boom” period the real weekly wages of the workers rise.

The economist, J. M. Keynes, whose theories have dominated the scene for over half a century held the theory that depressions are caused by insufficient demand, and that this can be remedied if the government makes additional, new expenditure.

The Three parties, Tory, Labour and Liberal all adopted the Keynesian theory while they were in the war-time National Government. They committed themselves to a post-war policy of “full-employment”. The white paper “Employment Policy”, May 1944, said “The government are prepared to accept in future the responsibility for taking action at the earliest stage to arrest a threatened slump” (Page 16). For the quarter of a century 1945-1970 they believed that the continuous low unemployment proved Keynes to be correct

It was only when unemployment under the Labour Government 1974-79, rose from 615,000 in 1974 to 1,636,000 in 1977 that the government lost its faith in Keynes. Many people still believe Keynes was right.

What then, is the cause of the crisis and the depression that follows?

The crisis is the point at which the fast expansion of production during a boom suddenly stalls. Why does this happen?

Marx dealt with it in CAPITAL VOLUME I, Chapter III, Section 2. A French economist, J. B. Say, had argued that a serious depression could not happen because “every seller brings a buyer to the market”. By this he meant that any capitalist who sells commodities thereby obtains money in payment for them and is then in a position to go out at once and buy other commodities thus keeping industry busy. But as Marx pointed out, “…no one is forthwith bound to purchase because he has just sold”. He may choose not to do so, and if the interval between the sale and the purchase is too great, the result is a “crisis”.

So why should the capitalists, at some times, stop buying the materials they had been buying, and leave them unsold in the market? It has to be remembered that the capitalist as capitalist does not just buy for his own consumption. He buys materials, hires workers to turn the materials into finished products for the purpose of making a profit. If his particular market is swamped by overproduction, the prospect of profit vanishes and the capitalist curbs production, and stands off workers, thus building up the depression.

This “overproduction” in particular markets is inevitable from time to time, one reason being that “the capitalist mode of production has a tendency to develop the productive forces absolutely –regardless of value, and of the surplus value contained in it and regardless of the social conditions under which capitalist production takes place” (CAPITAL VoVOLUMElume III, Page 292).

Marx called this overproduction in particular markets “disproportion”, the "disproportion of production in various branches, and the disproportion of the consumption of the capitalists and the accumulation of their capitals“ CAPITAL, VOL. III Page 568).

Marx, after a long study of the development of industry in Britain made a valuable summary of the cycle of boom and depression: “The life of modern industry becomes a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation…Except in the periods of prosperity, there rages, between the capitalists the most furious conflict for the share of each in the market” (CAPITAL, VOLUME 1. Kerr Edition, Page 495).

It is important to notice what Marx said of the absence of furious competition for markets in booms. In periods of boom the capitalists, in the hope that the expansion of demand is unlimited and they can seize a larger share of it, still compete with each other to buy materials and components and to hire more skilled and unskilled workers, but the competition for markets slackens off.

One remedy proposed in the past by leaders of the Labour Party is that companies should hold down production in the boom and save some of it for the following depression. It overlooks international competition. If a British government urged the car manufactures to curtail their output in the boom the result would simply be that the car market would go to Japanese, French, American or other manufacturers.

The Labour Party’s present programme is that the Government should encourage the manufacturers to invest more capital.

They would be wasting their time and effort. Capitalists, with the prospect of profit to entice them, do not need the government to encourage them to invest. It is what they are in business for. But they do not want to invest and lose their capital.

In 1984 when unemployment was 3,200,000 the FINANCIAL TIMES (10th November 1984) reported that “many companies are brimful of cash they can hardly find use for”. They were not at that time going to invest more because they could see no prospect of profit. When the prospect of profit returned they invested and did not need the Government to urge them to do so.

When Marx summarised the phases of the trade cycle, from depression to boom and back again it seemed that it often took ten years but sometimes there have been special circumstances affecting one country or another. For example there was that twenty year “Great Depression” Why did it last so long?

In the mid-19th century Britain had been “the workshop of the world”, it manufacturers dominated world markets. Then America, Germany and other countries increasingly entered the market for manufacturers. In 1881-85 Britain’s share of the whole world export of manufacture was 385 and America was 4%. By 1911-13 Britain’s percentage was 27%and America’s 9%. This was an important factor in prolonging the depression Britain.

Then between 1945 and 1970 a reverse special factor in Britain. Annual average unemployment only once exceeded 3% (3.15 % in 1947).

In most years it was less than 2%, representing continuous “boom” conditions for a quarter of a century.

An important factor in this was the addition to the demand for replacement of factories etc. destroyed or damaged during the war, Japan and Germany were, for the time being, largely knocked out of the competition for world trade in manufacturing. Britain’s share of the world total of manufacturers temporarily regained ground, rising from 21% in 1937 to 295 in 1948. As the manufacturing capacity of Japan and Germany recovered so the low unemployment in Britain ended.

Unemployment and depressions occur irrespective of the political policies of government. In 1829 the government was Tory. In 1874-1894 the Tories were in office for thirteen years and the Liberals for seven. In the depression of 1930-35 unemployment reached a peak of 225 under the Labour government of 1929-31, and 23% under the National government that followed.

In the first half century 1929-1979 the Labour party has been in office for four periods. In each period unemployment has been higher when they left office than when they entered political power. The same occurred to the more recent Blair-Brown Labour administrations when they left government in 2010 with unemployment higher than it was when they were first elected in May 1997. The Tories had two fairly severe depressions first under Thatcher, then under Major, during their term in government between 1979 and 1997.

A word about how the capitalists view the recurring cycle of depressions and booms. They and their economists present us with their own distorted pictures of gloom and optimism; ranging from between fear that capitalism will collapse and the belief that each boom would last forever. Some like Gordon Brown, the former Labour Prime Minister believed to have abolished the trade cycle. Capitalism took no notice of him.

Though profits fall further and faster than wages in each down turn (and shoot up again faster in each recovery) the majority of companies continue to make profit in every depression. Some companies go bankrupt, but there are always new ones starting up, some of them to market the product of new industries. A rise of unemployment from say five per cent to ten per cent may influence the voters at an election but it means than ninety per cent of the workers are still in jobs, and that their employers go on expecting to make profits out of them.

Reference has been made earlier to the commitment of the war-time national Government, on behalf of the three parties, Tory, Labour and Liberal to maintain Keynesian “full employment” after the war.

It failed but it was not the only hope workers had for job security, another being the belief that the nationalisation of particular industries would have the same result. How mistaken was that belief can be seen in the coal industry. In 1921 there were more than a million miners in this country; now there are 66,000. Nationalisation is State capitalism and nationalised industries, like those in the hands of companies, are under the same necessity of being profitable if they are to survive.

Governments do in certain circumstances subsidise unprofitable industries, but it can only be a limited measure. British Coal has difficulty in selling the output of 66,000 miners. No government could take on the financial burden of keeping hundreds of thousands of miners on the payroll, producing coal for which no market could be found. The Nationalisation acts passed by the Labour Government immediately after the 1939 war required the nationalised industries to pay their way; not specifically in each year, but “taking one year with another”.

So the number of miners has steadily fallen, as much under Labour as under Tory governments. It was falling under the Attlee Labour government 1945-51 and fell further under the Tory government 1951-1964.

What happened under the Wilson government 1964-70 is of particular interest. That government, in 1965, adopted the so-called National Plan, designed to increase national production. One of its methods was to transfer workers out of shrinking industries into growth industries and it included the planned closing down of uneconomic pits and getting rid of some 70,000 miners.

The number of miners continued to fall and it became a hotly-contested issue under the Thatcher Tory government when the National Union of miners came out on strike in 1984-85, in the vain hope of preventing additional uneconomic pits from being closed down.

What had happened over the years was that British coal, once in world demand, had become less and less competitive in face, first of expanded coal production overseas and then of the new fuels, oil, gas and nuclear power. What the striking miners in 1984-85 were trying to do was to get the government to adopt a policy of inducing oil and gas fired power stations to go over to coal, closing down nuclear power and barring the import of coal from abroad.

The miners learned by that bitter experience that workers in nationalised bodies have no more job-security than their fellow workers in private industry.

So what solution is there? None of the parties supporting capitalism knows of any way out. What is needed is the establishment of socialism under which goods will be produced solely and directly for consumption, with no dependence on selling and making a profit. As Marx and Engels put it in THE COMMUNIST MANIFESTO: the abolition of buying and selling and of the wages system.

[This pamphlet has been reproduced with minor alterations, corrections and updating of some statistics from one of six pamphlets written by our late Comrade Hardy (E. Hardcastle) in 1993 who along with other comrades were expelled in May 1991 from the Clapham based Socialist Party for carrying out political propaganda in the full name of the Party as required by clause 8 of the Object and Declaration of Principles of The Socialist Party of Great Britain to which we adhere. Editorial Committee August 2010]

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