Socialist Studies Socialist Studies

Socialist Party of Great Britain - Capitalism In Crisis - Is an economic crisis and depression all in the mind?

There is a belief held by some politicians that a crisis and a depression can be averted by “talking the economy up”. Government Ministers are forever saying in bursts of optimism that “the green shoots of recovery” are appearing through the winter of economic inactivity. Conversely, the media are blamed for taking a pessimistic view of the economy by constantly crying out in a crisis “we are all doomed”. Such negative reaction to the current economic crisis are criticised by politicians for “talking the economy down”.

A recent example of this childish game was the comments made by the Business Secretary, Peter Mandelson to industrialists and others in Northwest England. He acknowledged Britain's economy faced a tough year, but expressed anger at those he called "doomsters" who said its economy was heading for collapse. He said:

"There has been a lot of talking Britain down lately, and not only from coffee shop owners. But as of today, I'm going to take on the doomsters and only talk Britain up."
(HERALD TRIBUNE 20.02.09)

His mention of “coffee shop owners” was a reference to Starbuck owner Howard Schultz, who had said Britain was in a worrying economic downward spiral. The comments infuriated Lord Mandelson, who told Schultz to go forth and multiply but not in so many words.

Mandelson’s holds the spurious belief that you can talk-up British capitalism from an economic depression to a position of good trade about where the economy was two years ago. This type of idiotic belief was once held by one of the Young Hegelians, Edgar Bauer who convinced himself that a prison, bars and cells did not exist because he had thought them away. Of course Mandelson’s idealism was bound to receive academic support. Just as he finished giving Mr Schultz a political kick-in an article appeared in the ECONOMIC JOURNAL which tried to put some scientific gloss on Mandelson’s home-spun psychology.

The article in the ECONOMIC JOURNAL claimed that crises and depressions were largely caused by widespread pessimism among capitalists rather than “being the result of any inherent systemic problems
(INDEPENDENT ON SUNDAY 7.03.03).

The authors of the report, Professors Ananish Chaudhuri, Andrew Schotter and Barry Sopher stated:

…in combating crises, we really need to think of innovative actions or social processes that generate optimistic beliefs

There are no “innovative actions” to generate optimistic beliefs and “think” an economy out of a depression. Capitalism has “inherent systemic problems”. And they were first analysed over one hundred ago by Karl Marx.

Marx did not consider crises and depressions to be caused by psychological states of the mind. Nor did he believe, contra Mandelson that capitalism would collapse. He said that there were no permanent crises. Crises and depressions were part of the trade cycle and came out of the contradictions inherent in commodity production and exchange for profit. He said:

…capitalist production moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crises and stagnation” (WAGES, PRICE AND PROFIT SW1, p. 4440).

Crises were wholly objective corresponding to capitalism’s laws described in Marx’s three volumes, CAPITAL and THEORIES OF SURPLUS VALUE.

Marx wrote:

The fact that bourgeois production is compelled by its own immanent laws, on the one hand, to develop the productive forces as if production did not take place on a narrow restricted foundation, while on the other hand, it can develop these forces within these narrow limits, is the deepest and most hidden cause of crises, of the crying contradictions within which bourgeois production is carried on and which, even at a cursory glance, reveal it as only a transitional, historical form” (THEORIES OF SURPLUS VALUE, Part III p. 84).

And these contradictions between “exchange-value and use value, and furthermore, of money and commodity…” (THEORIES OF SURPLUS VALUE, Ch. XVII, p. 509).

The failure of some products of industry to find buyers, which produces a crisis, is caused by the inability of capitalists to exercise their power to purchase commodities at a crucial time.

Marx dealt with it in his answer to the economist J. B. Say

J. B. Say argued that a serious depression should not take place because “every seller brings a buyer to market”: by which he meant that every producer of commodities who sells his products then has the cash with which he can at once buy other products and so keep industry busy.

Marx critique of Say’s Law is in CAPITAL VOL. 1, Chapter III, section 2. He accepted Say’s argument with, however, one qualification. He agreed that the sellers have the cash with which they can go at once out and buy some other commodity, but he pointed out that “no one is forthwith to purchase because he has just sold”.

He may choose not to do so and if the interval of time between the sale and the purchase is too great, the result is “a crisis” (CAPITAL VOLUME 1, Ch. III, p. 114).

The question to be answered then is why this failure to buy commodities takes place. Say has disregarded the fact that part of capitalist expenditure which is investment (as distinct from the capitalists’ purchase of necessities and luxuries for personal consumption) has as its sole purpose making a profit, and if there is no prospect that a profit can be made the capitalist refrains from buying although he has the means to buy.

Using their surplus cash to provide jobs for the unemployed is not what the capitalists are in business to do. When the economic conditions improve and there is a prospect of making a profit, companies will be only too willing to invest.

The belief of the searchers for remedies of economic crises and depressions like Mandelson or the academics writing in the ECONOMIC JOURNAL is based on a misconception. They believe that trade depression and heavy unemployment prove that something has gone wrong.

They are mistaken. Nothing whatever has “gone wrong” with capitalism; it is just the way the system operates in accordance with its economic laws, with alternate expansion and contraction, much like the tides at the seaside. During the late afternoon you see the sea almost up to the road level, and then in the morning you see that it has dropped twenty feet, but you don’t shout: “something has gone wrong. What shall we do about it?

Where the analogy with the tides fails is in respect of regularity and the length of the trade depressions. It is not possible to count on all depressions lasting for some specified time. Some are quite short, others very long, like the Great Depression at the turn of the nineteenth century which lasted for about 25 years. And there has not been a depression, before or afterwards as deep as the one in the 1930’s.

We can stay with the tidal analogy to show how the power of thought cannot alter the trade cycle. A person can sit on the shore with the tide coming in and tell it to go back. He will nevertheless still get wet. Later as the tide goes out he can demand the tide to come back in again but he will remain dry. Irrespective of what he believes and how he thinks the man on the shore can no more alter the direction of the tide than a politician or a capitalist alter the trade cycle. Booms turn into crises and depressions with bankruptcies and high unemployment as crises and depressions turn into improved trading conditions and a subsequent boom.

A little should be said of the capitalist embedded within capitalist production.

Marx explained the function of the capitalist in relation to capital accumulation. The capitalist is a prisoner of the system which enriches him. He has to accumulate capital or die.

Accumulate, accumulate that is Moses and the Law…Accumulate for accumulation’s sake, production for productions’ sake…
(CAPITAL VOL 1, Ch. XXIV, p. 595).

Within capitalism the capitalist has no independent role and is subject to definite laws independent of his will. The capitalist is subject to the laws of the market and competition. Crises and depressions are not “all in the mind” and cannot be tempered by “a little more confidence

As Marx put it:

Free competition brings out the inherent laws of capitalist production in the shape of external coercive laws having power over every individual capitalist
(CAPITAL VOLUME 1, Ch. 24 p. 255).

These objective laws:

are brought home to the mind and consciousness of the individual capitalist as directing motives of his operations
(loc cit., p. 305).

Marx stated that the capitalist was the “personification of capital”. What the capitalist has to do to remain a capitalist is to expand capital.

Without the existence of wage workers, there is no production of surplus value; without production of surplus value, there is no capitalist production and thus no capital and no capitalist
(THEORIES OF SURPLUS VALUE Part 1 p. 105)

And of course periodically the capitalist cannot expand capital. The capitalist wants to make a profit but the conditions of the market are such that no profit is realisable. Not because of some subjective reason but because of the contradictions within commodity production and exchange for profit, or as Marx put it “the real barrier of capitalist production is capital itself”.
(CAPITAL VOLUME III, ch. 15 p. 251).

The consequence for capital accumulation is periodic bankruptcy for the capitalist, unemployment, social pain and discomfort for the working class. Crises and depressions are not an aberration any more than they are a result of a “loss of nerve” on behalf of some or all of the capitalist class. Crises and depressions is only capitalism behaving normally in conjunction with its economic laws.

Where there is scope to replace the trade cycle and in fact capitalism itself, lies squarely with the working class. And that is conscious and political action to replace the profit system with Socialism.

Back to top

Socialist Studies

email: enquiries@socialiststudies.org.uk | www.socialiststudies.org.uk