Socialist Party of Great Britain - Capitalism In Crisis - Do Governments Cause Economic Crises?.

Do Governments Cause Economic Crises?

Desperate for support, many shallow critics of capitalism give to employers and politicians extraordinary powers they do not possess. Whilst it is always prudent not to underestimate your class enemy it is equally important not to overestimate them.

In his recent book “A COMPANION TO MARX'S CAPITAL” (Verso 2010) the academic, David Harvey, cites Professor Alan Budd who was, until recently, the short lived chairman of the Office for Budget Responsibility to the Chancellor of the Exchequer, Peter Osborne. He has been an advisor to several Tory governments as well as the Bank of England; a convinced Monetarist and supporter of free trade and free market capitalism.

During the trade depression of the early 1980’s Alan Budd was chief economic adviser to Margaret Thatcher’s administration. According to Professor Harvey, Alan Budd later confessed to THE OBSERVER in 1992 as to how ashamed he felt around his neighbours by the high levels of unemployment and social alienation caused by the Thatcher administration.

This is what Professor Budd said:

…the 1980’s policies of attacking inflation by squeezing the economy and public spending were a cover to bash the workers. Raising unemployment was a very desirable way of reducing the strength of the working class. What was engineered –in Marxist terms-was a crisis of capitalism which re-created a reserve army of labour, and has allowed the capitalists to make high profits ever since” (pp 284-285).

Professor Budd believed, with no evidence, that Thatcher and her government deliberately engineered a trade depression as part of the class struggle against the working class. He conveniently forgot that prior to Thatcher becoming Prime minister there was already a sizable industrial reserve army of unemployed in Britain with unemployment running over one million. And if he had studied Marx he would have known that economic crises are not engineered by governments.

Although governments do side with employers against workers in the class struggle the theory of governments causing economic crises and depressions is utterly remote from reality. It is sheer stupidity to believe governments and employers deliberately plan to create depressions. It is like saying that they want their profits to be lower and love to see employers going bankrupt. If you like, a sort of economic masochism.

The idea behind the theory is that heavy unemployment brings wages down and therefore leaves a larger profit for the capitalists.

Of course this allows the Labour Party and the capitalist Left to paint the Tories as politically evil, callous and unpleasant and their own reform policies as virtuous and commanding of workers’ attention. The Labour government has just spent the last 13 years attacking the interests of workers and it left office destroyed by an economic crisis it claimed would not occur again. If the government was all powerful why did capitalism ignore Gordon Brown’s fatuous claims of taming the trade cycle so that there would be no more “boom and bust”?

Socialists have shown that a Labour government always leaves office with unemployment higher than when they first came into power. This is not to show Labour governments to be any more economically incompetent than the Tories. What it does show is that the Labour governments have been unable to do anything to prevent economic crisis and trade depression anymore than the Tories had had the power to engineer them.

Already the Labour Party is spuriously claiming that the Tory-Liberal Democrat Coalition is going to create “a double-dip recession” through government cuts in the same way that Budd believed the Thatcher government did by “squeezing the economy and public spending” during the early 1980’s.

In the real world the time when profits are highest is during booms, when unemployment is lowest. In periods of expanding production total profits and total wages go up. In depression both go down but the fall in wages is almost negligible compared to the fall in profits. If the capitalists, or the government who act of their behalf, controlled the ups and downs of the market –which of course they don’t –they would plan to make the boom and full employment permanent. The last thing they want is the cost of keeping millions of workers idle, workers they would like to see busily at work producing profits.

What happens in the real world can be seen from the depression of 1979-1985. The table below compares the movement of total wages and salaries of the workers in employment (“Income from employment”) with the total amount of the gross trading profit of companies.

Both totals are adjusted to take out the effect of rising prices, and the indexes show how they fell below the pre-depression level of 1979 (National Statistics Office 2010).

It will be seen that while “income from employment” fell by only 4 ½% (the 1982 figure) company profits fell by 30% (the 1981 figures). So you could draw the view-erroneous as it is –that Thatcher pursued a vindictive class war against the employers!!!


Total Income From Employment

Total Gross Trading Profits of companies






















The table below shows the number of company insolvencies from 1979 to 1985.

















Of course we could look at Professor Budd’s belief that governments can determine trade depressions from another perspective. If governments have so much power why cannot they engineer conditions of good trade which they are desperately trying to achieve at the present? Governments can no more create periods of good trade than they can create periods of bad trade.

Governments and capitalists do not control capitalism. It is the other way around. Capitalism has its own laws which periodically result in economic crisis, trade depressions, bankruptcy and high levels of unemployment. It is not good enough for organisations like the SWP crying out that there is something wrong with capitalism and blaming the bankers and calling for the government to pursue evaded taxation by the rich.

There is nothing wrong with capitalism when high unemployment exists alongside desperate social need. A trade crisis is capitalism behaving in accordance with its own inherent economic laws. As Marx showed in his exhaustive writings, economic crises are one of the destructive contradictions of the profit system. Capitalism cannot behave in any other way.

As Marx noted:

…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 SW1, p. 440).

If politicians and their economists cannot predict economic crises –and professor Budd was an economic advisor to the then Chancellor of the Exchequer, Norman Lamont just prior to the debacle of the Exchange Rate Mechanism in 1992 – it does not mean that the working class has to continue to endure the economic and social consequences of unemployment anymore than other social problems like war, poverty and exploitation.

Workers only remain entrapped within capitalism because they continually vote capitalist politicians into power. Instead, workers could take conscious and political action to resolve the problems created by capitalism by replacing the wages system with Socialism.

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Object and Declaration of Principles


The establishment of a system of society based upon the common ownership and democratic control of the means and instruments for producing and distributing wealth by and in the interest of the whole community.

Declaration of Principles


1. That society as at present constituted is based upon the ownership of the means of living (ie land, factories, railways, etc.) by the capitalist or master class, and the consequent enslavement of the working class, by whose labour alone wealth is produced.

2. That in society, therefore, there is an antagonism of interests, manifesting itself as a class struggle, between those who possess but do not produce and those who produce but do not possess.

3.That this antagonism can be abolished only by the emancipation of the working class from the domination of the master class, by the conversion into common property of society of the means of production and distribution, and their democratic control by the whole people.

4. That as in the order of social evolution the working class is the last class to achieve its freedom, the emancipation of the working class will involve the emancipation of all mankind without distinction of race or sex.

5. That this emancipation must be the work of the working class itself.

6. That as the machinery of government, including the armed forces of the nation, exists only to conserve the monopoly by the capitalist class of the wealth taken from the workers, the working class must organise consciously and politically for the conquest of the powers of government, national and local, in order that this machinery, including these forces, may be converted from an instrument of oppression into the agent of emancipation and the overthrow of privilege, aristocratic and plutocratic.

7. That as all political parties are but the expression of class interests, and as the interest of the working class is diametrically opposed to the interests of all sections of the master class, the party seeking working class emancipation must be hostile to every other party.

8. The Socialist Party of Great Britain, therefore, enters the field of political action determined to wage war against all other political parties, whether alleged labour or avowedly capitalist, and calls upon the members of the working class of this country to muster under its banner to the end that a speedy termination may be wrought to the system which deprives them of the fruits of their labour, and that poverty may give place to comfort, privilege to equality, and slavery to freedom.