Economic crisis and the science of Marxism
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Economic crisis and the science of Marxism
The «Systemic Risk»
Monetary and Financial Crises and Crisis of Production
Rate of Profit, That Bugbear
The Molecular Preparation of Revolution

Economic crisis and the science of Marxism
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In the course of a recent appearance before the American congress, the financier George Soros gave a cry of alarm: the capitalistic system is headed toward «disintegration» (1). A month later, first Henry Kissinger echoed this view, and then that other «intellectual» of domestic Italian finances, Giacomo De Benedetti, followed suit with a long article in which he prognosticated «the arrival of a very grave global crisis». (2)

Despite the virulent persistence of the economic crisis and the seesawing of the rates of exchange and stock indices on all the markets, bourgeois experts and theoreticians plod along in stunning naked impotence, mouthing ever more evanescent explanations - illusions destined to fade one after the other.

Gone is the dream that came to the fore after 1989 of a «New World Order» based on peaceful economic competition, the IMF, the World Bank, and the WTO, all under the watchful eye of the imperial American eagle. After the frenzied earlier wave of «financial deregulation», the screw has turned and, on a world-wide scale, the faith in deregulation has fallen in complete disrepute - in the US, Japan, and elsewhere -in the face of a need for massive, new state intervention, if the world financial order is to be saved from the crisis that has overtaken banks and institutions of the highest degree: the American Long Term Capital Management, the Japanese Long Term Credit Bank, and China's Guandong International Trust and Investment Corporation.

Hence, the Federal Reserve had to descend into the market place to organise a consortium of banks to put together $3.5 billion to salvage the American hedge fund listed above, whose collapse threatened a chain-effect of toppling domino's that could have devastated the world financial markets. To save its banking system, Japan has foreseen the need for an appropriation of some $500 billion, equal to more than twice the amount used to cover the US Savings and Loan fiasco of the late 1980s-early 1990s. China has begun to prepare for the possibility of the maelstrom, the collapse of 60-70 percent of the obligations to the Itic, the financial organs involved in medium and long-term loans. This domestic crisis places her currency under ever greater pressure.

The communiqué issued by the ministers of the G7 last October 30th, 1998, is explicit in this regard: to cover new financial emergencies, an addition $90 billion will be extended to the IMP, and the outline of a reformed international financial system was sketched out - as described in the new rhetoric of choice: «the new architecture». All measures these to bring to the emergent crisis that quantum of stability and solidity that only political backing may offer. (3)

In the effort to exorcise the crisis and its consequences, one moves from one illusion to the next. When placed against the speculative monstrosity that bourgeois accumulation, estimated to run from $1.3 to $1.5 trillion daily, has created in its search for satisfactory profits, the many-times invoked «transparency» and «the opening of the international financial system», the «politics and procedures to guarantee the stability and better oversight of the international financial system», the «strengthening of the rules of regulations», are no more than a restating of good-intention mantras found in children's fairy tales.

The «Systemic Risk»
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Today, capital seeks «to devise new measures to control or reduce the risk to the system that accompanies the ever greater activity of derivatives», (4) that is, that system of backing and betting on stock shares and rates, which until recently was so esteemed. This is occurring when «it has been demonstrated that the advanced models of valuation of risk, adopted after 1994, do not work». That year witnessed in the market place the first large crisis of derivatives.

The bourgeoisie, a class that stands historically condemned because it represents an outdated mode of production, is incapable of understanding the significance of the crisis to which it ever more falls prey. Parasitism, the characteristic of capitalism in its imperialistic phase, is endemic to the prevalence of financial capital over industrial capitalism, and to their inter penetration According to the estimates of those «knowledgeable in these matters» only some 5-8 percent of this capital overhang represents the «real working base» on which the remaining world wealth rests.

Thus the bourgeoisie turns to the «political» to ask for help, forgetting that politics is the «concentrate» of the economic. They depict the crisis as a casual, episodic event of a natural and eternal system of social relations, and therefore dependent on the will or ability - or inability - of this or that head of state or this or that individual capitalist.

Marxism, on the contrary, sees in the systemic crises of capitalism the necessary consequences of a specific and transitory mode of production, ruled by impersonal laws that deterministically impose themselves on the subjective wills of individuals.

The very facts, the hard reality with which every theory must materialistically confront itself, have demonstrated the veracity and the absolute thoroughness of the analyses and conclusions enunciated by Marx going back a century and a-half.

The huge expansion of the international financial markets and the clear prevalence of this growth over real production, an indication of the necessary domination of financial capital, is the bard rock on which rise the frequent alternating phases of euphoria, marketwise and others, followed by even greater and deeper falls. (5)

The reason for the greater «volatility» of capital is found in the growing size of the financial markets and in their attempt to free themselves ever more from the happenings in production. But since their development is tightly tied to capitalistic production, their performance, in the end, must reflect that production, whose tendency is indicated by falling rates of growth.

The development of financial markets and of «innovative» instruments of finance represent a means to valorise capital that does not find profitable investment in the present stagnating phase of productivity. This development is in a direct relationship to the need to expand credit and to the granting of new forms of credit to production, which are less onerous for production and provide some form of guarantee to financial capital.

However, these developments contain within themselves the germs of an ever larger and growing instability, as was demonstrated by the fall of stock markets in the summer and fall of 1997 (similar to that of 1987). It became clear that the fall of stock values was in direct proportion to their prior speculative rise: the nature of those stocks is in fact dependent on fictitious capital, and a valorization outside of production is purely illusory.

Monetary and Financial Crises and Crisis of Production
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With regard to the tie between monetary and financial crises and the crisis of production, the bourgeoisie inverts as usual the causal connection, and it falls into an optical illusion typical of vulgar economics. On their behalf, the line up represented by the opportunistic and reformats parties (like so-called Left Democrats in Italy, formerly PDS) immediately embrace this view and propagate amongst workers the need for national solidarity and a common defence of the economy against speculation and misdoing, spreading the fairy tale of a democratic and progressive capital with which one must stand and fight in opposition to malignant and non-productive capital.

Marx studied the crisis on the basis of the method indicated in his 1857 «Introduction» to For a Contribution to the Critique of Political Economy: an approach that, beginning from the abstract, grasps fully the actual phenomenon in the richness of its various aspects, positing, that is, as Marx himself will indicate in Capital, that the laws of capitalistic production develop without interference, knowing well that reality constitutes only their approximation, and all the more so, the greater the degree of development of the capitalistic system.

Then, he demonstrates that such a crisis is inherent to the mode of production founded on capital and makes clear that «the real crisis can only be explained by the real movement of capitalistic production, of competition, and of credit».

Utilising this method, the only truly scientific, Marx establishes that the keystone to understanding the crises of capitalism lies in the organic composition of capital; that is to say, the growth of the productive force of social labour that is the result of the continuous relative increase of constant capital at the expense of variable capital - i.e., capital tied up in plant, machines and raw materials as compared to that employed in the labour force, with the latter alone having the ability to materialise the return anticipated and to create profit.

A corollary of this productive growth, and therefore part and parcel of the very same development of capital as a mode of production, is the law that highlights the tendency for the medium rate of profit to fall; that is, the unavoidable governance inherent to all capitalism. That law is the obverse of the process of accumulation, and through it one demonstrates the failure of capitalistic production and the need for it to be replaced by a superior mode of production. The violent destruction of capital, the result of circumstances internal to its development, becomes ever more a condition of its own survival: the moment when «the entire development of the productive forces brought about by capital itself in its historic development proceeds to destroy the self-valorization of capital, rather than creating it». (6)

Since capital is the unity of both production and circulation, the crisis that is inherent to it and rises in production is manifested on the market as an overproduction of goods and capital, which are the same thing. Restated another way: overproduction - not in reference to absolute need - relative to the means of production and the goods of subsistence, of capitalistic goods that function as capital. Here lies the peculiar and singular character of the capitalist crisis, something unknown in previous eras, although under consumption existed aplenty. At the heart of this crisis, as Lenin himself underlined, there always lies the contrast between the social character of production and the private means of appropriation. In these general and world crises, all the contradictions of the capitalist mode of production come together and explode, beginning with what are at that moment the weakest links in the system.

In vol. III of Capital, Marx explains clearly how each monetary or financial crisis is nothing else than the effect - on the value of money, on the exchanges, and on the on-goings of stock markets - of overproduction and of the saturation of the goods' markets under capitalism:

«The stagnation and the disorganisation [of production] paralyse the Junction of money as a means of payment - a function that came into being along with the very development of capital and depends on the existence of a pre-established price –, break into a hundred pieces the chain of payments due at fixed rates and are further aggravated by the inevitable collapse of the system of credit developed contemporaneously with capital, and lead to stormy and grave crises, to unplanned and violent depreciation's, to perturbations in the productive process and, in consequence, to a real contraction of reproduction». (7)

In other words, capitalism cannot rationally mediate the relationship between production and social need, except through the «rupture» constituting the various crises, and with their temporary resolution, the preparation of even more virulent crises.

Marx then so continues:

«The extension or reduction of production does not occur on the basis of the connection between production and social needs, the needs of a socially developed humanity, but on the basis of the appropriation of unpaid labour and on the basis of this unpaid labour and objectivized labour in general or, to use the capitalists' own expression, on the basis of profit, and on the rapport between this profit and the invested capital, which is to say on the basis of the rate of profit» (8).

Rate of Profit, That Bugbear
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As a result of the growth in the rapport between constant capital employed in machines, raw materials, etc. and variable capital employed in salaries and wages - what is called the organic composition of capital –, the rate of profit had been found historically to fall. Precisely that tendency toward reduction has led capital to seek its fortune in areas and sectors where the level of extractable profit is superior to the existing social median.

«When the rate of profit diminishes, on the one hand capital redoubles its efforts, and every single capitalist, introducing into use better methods, etc., seeks to reduce the individual value of his merchandise below the social median value, realising a super profit at that price; on the other hand there is a general reprise of speculation and a general encouragement to the same that finds an outlet in a passionate search for new methods of production, for new investments of capital, new adventures to the end of assuring by whatever means extraordinary profit, independent of the general median profit and superior to it». (9)

Over speculation is no more than an outlet of overproduction, which last is in turn the basis and general cause of the first. In fact, every phenomenon of speculation, in order to engender itself; bases itself on the disparity of exchanges, rates, prices, and has need of the prior presence of such non equilibrium. It is the unprecedented growth of credit, after having acted as a fulcrum for a «drugged» accumulation, that puts into place the conditions for the sharpening of the crisis and a deflagration of equal intensity.

Never more than in the last few months has the spectre of 1929 been recalled so vividly to memory - the crash characterised by the correlation between bank failure and deflation, leading to the Great American Depression of 1930-39. The depths were reached through three successive waves: November-December 1930; June 1931, after the temporary stabilisation begun in the spring of the previous year; and October 1932-March 1933, when bottom was reached and industrial production was thirty-eight percent of September 1929.

At the time, the bourgeoisie was able to maintain its domination thanks to a resort to «Keynesian» economics, eventually based on the turn to rearmament and the recruiting of the various proletariats into the opposing camps of an imperialistic war. Now, it is true that a new crisis never repeats the old patterns: in intensity and in form, the development of capitalism was quite different, prior to 1929, from that of today. It remains, nevertheless, a fact that we find ourselves now at a key turning point in the dynamic of capitalist accumulation and, therefore, in the rapport's amongst the imperialistic powers. The contentiousness in repartitioning the costs and losses consequent to the present crisis is still at the beginning, not to speak of the price demanded of the working class and of the proletariat in general.

The Molecular Preparation of Revolution
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The real spectre that terrorises the bourgeoisie is the fear of the reappearance of a proletariat that picks up the class struggle. It is the spectre of what Trotsky described as «the molecular preparation of revolution», dialectically related to the political and military prolongation of the crisis. We stress: a dialectic tie, that is neither automatic nor mechanical. It is capitalism itself; in point of fact, that brings on the economic struggles. To connect the latter with the revolutionary political struggle needed for the violent overthrow of capitalism requires the guiding ability of the Party and the reawakening of the class struggle. The fundamental precondition for the proletariat to act as a class for itself is the encounter of the class with the Party.

It is in fact only with the return to the terrain of an intransigent struggle for its material living and working conditions that the proletariat will be able to disencumber itself of the illusions that have tied it to its own national bourgeoisie and to the politics of imperialism, that it will be able to divest itself of the ideology of peaceful class-coexistence, and see through the siren's calls recruiting it to the ranks for a new imperialist war, there to fight for interests not its own.

Marxism has always denied that the development of capitalism would be linear and harmonious, without antagonisms or catastrophes, given that competition amongst capitalism's, as amongst states, is of the very nature of capitalism itself. From the initial development of capital, which is an unequal development world-wise and which unfolds in parallel with the concentration of capital on the same scale, inevitably derives an acute sharpening of competition, of conflicts amongst capitals that are ever larger, till we arrive at contests amongst imperialistic states for the needs of each national capital and for the maintenance or expansion of spheres of influence in the world market.

In the wake of the Asian crisis, the US have had to accept, reluctantly at first, the expenditure by Japan, although itself in the depths of the worst industrial crisis of the post-war, of $30 billion of direct aid to the stricken Asian economies, aid that allowed it to consolidate its weighty presence in the region. Moreover, the US have begun to accept the sale by Japan of substantial US bond holdings, a move by Japan to meet its own need for liquidity. In conjunction with the annual US trade imbalance of $230 billion, the sale of those bonds has pressed heavily on the value of the dollar. In the same period, US trade rivals have registered substantial trade surpluses: $104.7 billion for Japan, $76.1 for Germany (the total figure for 1998 may reach $90 billion), and $30 billion for China.

Until now US imperialism has not been able to dump its losses on these rivals, a matter of no small significance. Meanwhile, German capital continues to expand abroad - $52 billion in the first six months of 1998, compared to $20 billion for all of 1997 - raising fears and uncertainty in an old Europe that eludes itself with the hope that the fragile shield of the Euro will limit the damages with respect to the dollar and the yen.

Thus the relations behind the «good neighbour policy» continue to deteriorate, notwithstanding IMF declarations, pointing to a sharpening of contradictions and antagonism inherent in the very nature of capitalism. The same shows up in the growth of military expenditures. (10)

Let him rest in peace who declares Marxism dead!

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  1. Cf: «The Risk of Global Crash», in the Italian daily La Repubblica, Section Affari e Finanza, 9/21/'98. [back]
  2. Cf «Unstable Markets, the Risk of Global Crisis», in the Italian daily Il Sole 24 Ore, l0/23/'98. [back]
  3. Cf Il Sole 24 Ore, 10/31/'98. [back]
  4. Cf. Il Sole 24 Ore, 9/16/'98. The derivatives, so named because they refer to stock shares or other valued denominations, and through whose fluctuations a profit and/or an advantage is to be derived, represent fictitious capital to the nth degree. Going by various identifications - options, futures, swap, etc. - they have reached figures estimated to run from $60-8O trillion. [back]
  5. Cf «Crisis of Capital, Not Only of the Exchanges», in our Italian monthly Il Programma Comunista, n. 7, 1998. [back]
  6. K.Marx, Grundrisse, VII, 2. [back]
  7. K. Marx, Capital, III, Chapter XV. [back]
  8. K. Marx, Ibid. [back]
  9. Ibid. [back]
  10. From the Institute of Strategic Studies in London: continuing a long-term trend military expenditure in the last year l998 rose 12% [back]

Source: «Internationalist Papers» number 8, Spring/Summer 1999

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