Socialist Studies Socialist Studies

Socialist Party of Great Britain - Capitalism In Crisis - Post Thatcher Blues.

The day Baroness Thatcher was buried the unemployment figures increased by another 76,000 to 2.56 million. The following day the International Monetary Fund said that the British economy was in a parlous state and growth throughout the year would be slow, patchy and uneven. By Friday, Fitch credit ratings agency had downgraded the Government’s credit rating from AAA to AA+.

The tears streaming down the face of George Osborne, the Chancellor of the Exchequer was not for the memory of the decomposing corpse lying in the coffin in front of him at the altar of St Paul’s Cathedral, but for having to put up with the anarchy and unpredictability of capitalism. According to Osborne’s “Plan A”, unemployment should by now be falling fast with growth accelerating as the private sector of the economy employs a greater number of workers and becomes more productive.

To make matters worse for the Chancellor, the incoming Governor to the Bank of England admitted that central banks cannot provide sustainable growth and that “Britain is a crisis economy” (THE DAILY TELEGRAPH, 19th April 2013). Following the new Governor’s appointment to the bank of England as the saviour of the British economy this is not the kind of news Mr Osborne wanted to hear.

Ed Miliband has bemoaned the failure of the Chancellor to “kick-start” the economy. Like all leaders of the opposition he misleadingly blames the Party in power for the state of the economy. Ed Balls, the shadow Chancellor has urged Osborne to consider a Keynesian “plan B” forgetting that such plans have failed in the past. No one has ever seen the details of Labour’s plan “B” because they keep changing their mind; the luxury of being in the opposition.

The Failure of Political Parties

All the political parties in this country, with the exception of the Socialist Party of Great Britain, claims that it has a policy, which if applied by the Government applied, would reduce capitalism’s unemployment to a very low level and keep it there. Such was the belief of the late Hugh Gaitskell, leader of the labour Party, who wrote in 1959:

The great ideal of jobs for all first became a peacetime reality under the 1945 Labour government…the first objective of the Labour Government will be to restore full employment and preserve full employment

Five years later, in October 1964, the Labour Party formed a government and had the chance to implement its full employment policies. At first the Labour government had some luck with a small decline in unemployment by the end of 1965. Keynesianism was praised for “having saved capitalism” and for providing politicians with “fiscal” levers to “pump prime” the economy when the economic weather looked dark and foreboding.

All governments take credit for the fall in unemployment but never when it rises. A rise in unemployment is always blamed on the policies of the opposition when they were in power, or on outside factors like the problems of the European Union or the actions of “greedy and unproductive” workers. Once upon a time it was changes in the sun spots upsetting the rhythm of agriculture and wheat production.

The Wilson government was no different in wanting fulsome praise for a fall in unemployment. Lord Diamond, who was then Chief Secretary to the Treasury, explained to the House of Commons on 1st March 1966 how this fall in unemployment had been the result of government policy, and “that is how we propose doing it”. Then the government’s luck ran out. Instead of unemployment remaining at 371,000, as instructed by Diamond, it rose in 12 months to 613,000 and when the Labour government left office in June 1970 the Tories were able to show that unemployment was 200,000 higher when it took office.

The Tory government under the premiership of Ted heath which followed the Wilson administration was equally unlucky. They, too, were pledged to “full employment” but saw the total unemployment rise from 582,000 in June 1970 to nearly a million in 1971 and 1972. Then there was the James Callaghan Labour government of 1974-79, during which unemployment more than doubled, followed by the Thatcher government in 1979 under which the unemployment figure doubled again to over 3 million by 1984.

And so the problem of rising unemployment has kept afflicting government economic policy and undermining the attempt to create conditions of full employment. The John Major government saw unemployment rise to over 3 million by the end of 1992. And despite the pronouncement by Gordon Brown, when he was Chancellor of the Exchequer and subsequently Prime Minister, that there would be no more “boom and bust” in 2007 a Labour government was faced with unemployment rising to 1.79 million in one of the deepest depressions since the 1930’s.

The Labour government ended office with unemployment higher than it was in 1997 when they first came to power, a feat all previous Labour governments have accomplished right back to Ramsey MacDonald’s first Labour administration in the 1920’s.

What about the economists?

There is panic within the economic profession whose numbers give advice to politicians, businesses, trade unions and the finance industry. The track record of economists is not good. At their economic conferences they announce the end of the trade cycle only for an economic crisis to occur and unemployment to rise. As a result of the failure of academic economists the economic profession is littered with dead and decomposing theories. As Marx noted, after Adam Smith and David Ricardo, economists stopped becoming serious students of economics and became, instead, hired gunslingers and apologists.

As an amusing aside, the basis for John Osborne’s current austerity programme was a paper, GROWTH IN THE TIME OF DEBT, written by two professional economists, Professor Carmen Rienhart and Ken Rogoff former Chief economist of the IMF which passed a “peer review” and was uncritically applauded in January 2010 when the paper was read at an economic conference in the US.

Unfortunately the statistical premise of the economics underlying the economic arguments in the paper was flawed (they forgot to add in some key countries into the data) and the error was only spotted by a student diligently doing his economic homework. No wonder George Osborne wept (BBC NEWS April 20th 2013). Marx referred to these types of economists as “vulgar economists” because they only dealt with the appearances of things having no understanding of the laws and contradictions acting on commodity production and distribution.

The economic journalist, Alex Brummer, after seeing all the bad economic news in April, wrote:

Monetary experiments have been exhausted; fiscal imbalances tackled, and still confidence remains frayed. Gloom is only interrupted by the occasional asset bubble – whether in gold or shares, they come and go with little real relevance.

And in desperation Mr Brummer cried out:

We need a new J M Keynes who can see the threats clearly and take a grip on leadership (DAILY MAIL 20th April 2013)

There is no “new J M Keynes” waiting in the wings but Mr Brummer could start to read the works of Karl Marx someone who did understand capitalism. However he would not like what Marx wrote about capitalism and his revolutionary Socialist conclusion.

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. Capitalism was anarchic and unstable. Periodically some sectors of the economy overproduce and capitalists cannot then sell their commodities on the market. If the period of time is too great and profit cannot be realised from selling commodities, capitalists who cannot sell go bankrupt and workers who cannot be profitably employed are made unemployed.

Unlike the monetarists (the late Professor Milton Friedman, a leading Monetarist economist, once told Thatcher that Marx was “one of us”), Marx gave a deeper and more profound illustration of the relationship of money commodities, markets 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)


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).

Governments do not Control the Economy

Capitalism is inherently unstable and its periodic descent into economic depressions is inevitable. This fact is shown by the experience of different political parties when in government since the Second World War when they were erroneously told, first by economists like Keynes, and then Milton Keynes, that governments or the central banks could control the economy.

Governments do not control the economy. They are not responsible for the way commodity production and exchange for profit operates even if they wanted to. Governments do control the machinery of government, they, or rather the Bank of England, controls the currency supply and whether there is inflation, deflation or a stable currency, but what they do not control is the economy. Instead of governments controlling capitalism it is the other way round, capitalism forces governments to frame their political and economic policies to suit. Within the economy, Governments can no more cause unemployment than end it.

Capitalism goes its own way, in accordance with its own contradictions and its own economic laws; with its inevitable cycle of expansion and contraction. Capitalism expands investment and production when it is profitable to do so, and contracts both when it is not profitable. Neither Keynesian policies, free market policies nor monetarist policies alters the essential conditions under which capitalism operates.

Marx’s conclusion was for the working class to recognise the inherent anarchy of commodity production and exchange for profit and to take conscious and political action to replace capitalism with Socialism. Unlike capitalism, production and distribution in Socialism would be commonly owned and democratically planned to ensure the needs of all society are met. Until then capitalism will pass from one economic crisis to the next.

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