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Socialist Party of Great Britain - Capitalism In Crisis - Capitalism in Crisis: August 2011.

Capitalism in Crisis: August 2011.

August 2011 was a month when economists and economic journalists thought capitalism was in meltdown. Panic was in the air with retail stores going into administration and the Co-op saying that they were experiencing the worst trading conditions for forty years. Shares were plummeting, the US lost its AAA rating for preferential interest rates on its debt, the US and British economy also slowed down with subsequent higher unemployment, the Euro was in trouble and the problem of debt repayment stalked most Western economies. Economic confidence was at an all-time low with 60,000 job losses announced in the banking sector alone.

In an economic depression when there is little or no prospect of making profit production is scaled back. There is now an estimated £60bn held by businesses in Britain. Yet, the capital is not being invested. The equivalent of 4.5% of British capitalism’s entire economic output is sitting idle because capitalists are unsure of making a profit (INDEPENDENT 20th August 2011).

Even the INDEPENDENT editorial admitted that governments cannot force capitalists to invest just as banks cannot be forced to lend. Nevertheless the editorial urges the government to cut taxes for capital investment to “kick-start” the economy. This policy is mistaken. In an uncertain market why would capitalists want to buy more plant or IT systems if there is no profitable outcome? In such circumstances, all that would happen, if taxes on capital goods are reduced, is the creation of a larger hoard of capital.

Governments believe the fiction told to them by economists that they can “sail” the economy through choppy economic waters. They can do no such thing. Take the case of unemployment. For three successive months unemployment fell. George Osborne, the Chancellor of the Exchequer seized upon the statistics as evidence that his policies were working.

Then in August of this year the unemployment figures went up by 38,000 and the rise in the unemployment rate was blamed on events outside the control of the government. Politicians cannot have it both ways. The truth is that if Mr Osborne went on holiday to a Tuscany Villa for five years the movement of the economy would be exactly the same as if he had remained at no 11 Downing Street for the same period of time.

The Failure of Government Economic Policy

Ben Bernanke, Chairman of the Federal Reserve and former Princeton Professor of economics claims to understand current economic events by his own research into the depression of the 1930’s. He does not understand the cause of the economic depression of eighty years ago any more than he understands the cause of the depression now.

Like many economists of his generation he was influenced by the writings of the economist Milton Friedman, As a result, Bernanke’s theory of economic crises derives from a superficial monetarist analysis of the economy. Monetary problems generated by the Banks or governments are seen by monetarists as the villains of the piece while the introduction by governments of the right monetary policy, including quantative easing, is the solution.

That all these monetarist policies were tried by the Japanese government during its “lost decade” in the 1990’s, including Keynesian policies of fiscal stimulation, only goes to show that academic economics can tell us little or nothing of the trade cycle let alone providing governments with usable and effective economic policies. Rather than Japanese government economic policy creating the conditions for an improvement in the Japanese economy it was the belief by some capitalists that they would make a profit and were prepared to invest their capital in commodity production again.

And not all areas of the economy are affected by a depression. If the current unemployment rate in Japan stands 5.1% it means that a majority of workers are still in paid employment producing surplus value. So it is no surprise to learn that the Japanese heavy machinery makers Komatsu and Hitachi Construction Machinery recently reported big net profit increases.

Not that economic theory and government policy should take any credit when a serious up-turn in the Japanese economy takes place. The failed economic policies of the Japanese government have left it with one of the worst debts in the world, the interest of which will have to be paid for by the Japanese capitalist class.

The inability of economists and politicians to say anything of substance about current economic events led the DAILY MAIL to run a headline “So many experts, so few answers” (24th August 2011). The newspaper reported, with incredulity, that at an economic summit on Lindau, an island in Germany’s Lake Constance, 17 of the 38 living Nobel Laureates in economics, including Joseph Stiglitz and Sir James Mirrlees, met with 300 young economists to debate what they believed were the two real salient issues of economics; European football and prostitution.

A discussion on the cause of economic crises and the fact that 24 million workers in Europe are currently unemployed were not even on the agenda.

Marx and Economic Crises

It was Marx who showed how and why economic crises occur. He demonstrated that crises periodically take place because of the fundamental contradictions found in commodity production and exchange for profit. Unlike the monetarists, Marx gave a deeper and more profound illustration of the relationship of money and economic crises. He wrote:

Money is not only “the medium by which the exchange is effected” but at the same time the medium by which the exchange of product with product is divided into two acts, which are independent of each other, and separate in time and space (THEORY OF SURPLUS VALUE, Part II, p 502 Moscow 1975)

And:

Crisis arises from the impossibility to sell. The difficulty of transforming the commodity – the particular product of individual labour – into its opposite, money, i.e. abstract general social labour, lies in the fact that money is not the particular product of individual labour, and the person who has affected the sale, who therefore has commodities in the form of money, is not compelled to buy again at once, to transform the money again into a particular product of individual labour (ibid., 504)

Marx went on to show that economic crises were inevitable while capitalism lasts, bringing in its wake for the working class a period of higher unemployment, fear and anxiety for their current job prospects and unpredictability for future employment.

The problems of economic depressions for the working class were known to Marx as early as 1847 in a small fragment he wrote on wages:

In all crises the following circular movement relates to the workers: The employer cannot employ the workers because he cannot sell his product. He cannot sell his product because he has no buyers. He has no buyers because the workers have nothing to offer in exchange but their labour (power) and precisely for that reason they cannot exchange their labour” (WAGES, 1847, in Collected Works Volume 6, pp. 424-5, London, 1975).

And Marx never said capitalism would collapse under the weight of its contradictions. What he did say was that:

…capitalist production moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis and stagnation” (WAGES, PRICE AND PROFIT in Selected Works Vol. 1, p. 440 London 1975).

There is no such thing as a permanent economic crises and depressions

In every depression some economists and politicians declare that there is no prospect of recovery: the depression will be permanent, (Engels for a time, held that view during the Great Depression 1875-1895).

One argument supporting that view is the supposed enormous increase of productivity. Others argue that the excess productive capacity in certain industries shown by the crisis will continue to prevent new investment and increased output because it prevents a profit being made. But, as Marx pointed out, every depression results in the destruction of much of the production plant of bankrupt companies as well as some of the unsold commodities which have deteriorated and have become unsalable.

The output of industry is sharply reduced when the crisis occurs and existing stocks of commodities, where viable are gradually sold off, often at discounted prices. The unemployed are no longer producing but continue to be consumers though at a lower level. In due course profitable investment prospects open up again, some of them in new industries producing new products.

Falling stock markets, bankruptcies and indebted countries do not signal the end of capitalism nor a permanent crisis and depression. After studying the trade cycle in some detail, Marx summed it up with the words "There are no permanent crises" (THEORIES OF SURPLUS VALUE Vo II Part 2 p 269).

What should be remembered about capitalism it that it is a social system based on commodity production and the exploitation of labour power not in producing for social need by free voluntary labour.

The real question about the un-invested 4.5% of Britain’s entire economic output is why it can sit idly by when there is real social need in the world. However, to begin to answer this question moves the focus away from the myth that economists and politicians can deliver a crisis-free capitalism to a Socialist critique of capitalism which has the common ownership and democratic control of the means of production and distribution by all of society as the only answer.

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