Is There Life after Capitalism?
By Richard Greeman
“If betting against the bankruptcy of Greece is the best use the bankers can find for their capital, then capitalism is in big trouble. The unforeseen and too-soon-forgotten Great Crash of 2008 has left in its wake a twilight spectacle of ghoulish speculative capital destroying whole economies so as to feast on their corpses.”
Remember the Great Crash of 2008? Or have soothing siren songs about ‘recovery’ lulled you to the point where you see it fading into history like the financial shocks of 2001 (the dot-com bubble), 1994 (the Mexican debt crisis), 1989 (the Savings & Loan crisis), 1987 (the Black Monday stock market crash), 1973-74 (the oil crisis and stock market crash) and the Crash of 1929 (ancient history, irrelevant)? Before recollection fades, let me refresh your memory… and remind you of a few remaining problems. According to the neo-liberal, free-market orthodoxy a crisis like the Crash of 2008 was theoretically impossible because capitalism had achieved equilibrium of un-ending growth. Small wonder no one – outside of a handful of old-fashioned classical Marxists like this author – saw the Crash of 2008 coming. Yet as my Slovenian friend the Groucho Marxist Slavoj Zizek quipped: ‘The only truly surprising thing about the 2008 financial meltdown is how easily the idea was accepted that its happening was unpredictable.’ Indeed, we anti-capitalist, anti-IMF globalization protesters have been denouncing the banks and warning of an impending crash for over a decade, only to be met by ridicule, tear-gas and mass arrests: ‘the police were used to literally stifle the truth,’ concludes Zizek. [1] The questions that remain are these: Does the Crash of 2008 validate the Marxist assumption that the underlying cause of capitalism’s crisis is structural, or rather systemic? And if so, can the much-vaunted ‘recovery’ of 2009 be expected to last? Or for that matter, capitalism itself?
Summary: 1. The Crash of 2008 – 2. Obama and the Jobless ‘Recovery’ of 2010 – 3. Blowing New Bubbles – 4. The Great Recession – 5. Can Capitalism Reform? – 6. So Marx Was Wrong? – 7. Overproduction and the Decline in the Rate of Profit – 8. Historical and Geographical Limits to Capitalist Growth – 9. Why Hasn’t Capitalism, with Its Alleged ‘Contradictions’ Already Collapsed? – 10. Military Keynesianism – 11. The Devil in the Zeros – 12. Advertising – 13. Death on the Installment Plan – 14. Capitalism’s ‘Final’ Crisis? – 15. What Next?
1. The Crash of 2008
It was just two years ago when global capitalism’s entire financial edifice appeared to be collapsing into a bottomless pit of self-destruction. The bursting of the housing bubble in 2007 had already exposed the financial markets as a vast pyramid scheme built on a foundation of leveraged debt and fictitious capital. Within months, credit evaporated and trillions of dollars in securities began melting as fast the Wicked Witch of Oz when the Scarecrow threw the bucket of water on her. By October 2008, prominent financiers, economists and statesmen in the U.S. and Europe were using expressions like ‘an economic Pearl Harbor’ (financier Warren Buffet), ‘the edge of the abyss’ (economist Paul Krugman), ‘an approaching tsunami’ (Jacques Attali, former President of the European Bank for Reconstruction and Development), and a ‘financial September 11′ (Laurence Parisot, head of the French business association). [2] That month Alan Greenspan, the revered neo-liberal guru who ran the Federal Reserve Bank for 18 years, was being hauled before Congress and forced to confess that he had been “mistaken” in his faith in self-regulating free markets and “wrong” to have encouraged the housing and financial bubbles by lowering the interest rates and lending billions of freshly-printed U.S. dollars to the big banks. [3] According to The New Yorker Wall Street traders were talking about “nuclear winter” in the credit markets: “nothing moves or grows.” [4]
Desperate, the Bush Administration, supported by both Presidential candidates, pushed through a seven hundred billion dollar bailout to save the high-rolling Wall Street bankers, financiers, traders and hedge-fund operators: the very speculators who in their greed and recklessness had piled up unsecured debt and gambled with other peoples’ money, provoking what will be known through history as the ‘Crash of 2008.’ Moreover, there were no regulatory strings attached to the bailout funds, inviting the big profiteers to go back to doing what they were doing before: speculating, buying up smaller banks, and paying themselves huge bonuses. Less noted at the time was Treasury Secretary Paulson’s announcement of what amounted to an open-ended drawing account to continue re-floating troubled banks with fresh-printed Treasury notes running, the former Goldman-Sachs CEO admitted, into the ‘trillions.’ And that was only the beginning, as one bailout followed another. Yet despite this humongous infusion of taxpayer cash, by March 2009 the DOW industrial average had declined to half its October 2007 value. [5] Standard and Poor’s Index, adjusted for inflation, was down about 50% for the 10-year period from Feb. 17, 1999 to Feb. 17, 2009 – matching the worst 10 years of the Depression – and the prestigious OECD (Organization for Economic Co-operation and Development) was referring to the economic crisis as ‘the worst in human memory.’ [6] Eventually, massive transfusions of cash revived the swooning financial sector. Securities began to rise again and ‘recovery’ was officially declared.
2. Obama and the Jobless ‘Recovery’ of 2010
Will bailing out the billionaires save the economy? In 2008, Wall Street’s representatives basically took over the White House and used the power of the government to re-inflate the financial balloon at taxpayer expense – without even patching up the holes caused by deregulation. As a result, Goldman-Sachs, Smith-Barney and the other investment banks were able to resume paying their traders million-dollar bonuses, and ‘recovery’ was declared. Jobless ‘recovery’ to be sure. Can this new bubble last? If the immediate cause of the 2008 financial melt-down was speculation based on excessive borrowing, it is hard to see how borrowing even more money could do more than compound the problem by pushing it into the future. Indeed, new balloons are already looming on the horizon, among them precious metals and a newly-created market for trading permits to keep pumping carbon into the atmosphere.
Concerning the billionaire banker bailouts (or BBBs), we are all aware that the trillions of dollars of future debt they represent are not going to be repaid by the speculators who caused the problem, but by the victims of their greed – working middle-class taxpayers and our descendants over the next decades! The BBBs quite simply represent a government-imposed redistribution of wealth upward from the struggling many to the plutocratic few. Moreover, since employee retirement savings and pensions plans have now shrunk to as little as half their pre-crash value, many of us will have to keep working – and paying taxes – long into our 60s and 70s to pay this debt off. (Didn’t Marx say that the only part of the nation the working people actually owned was the national debt?) Indeed, when the shit hit the fan in 2008, middle-aged working taxpayers were still paying off the Chrysler and Savings-and-Loan bailouts of the ’80s and ’90s!
The terms of the Bush-Obama BBBs were ‘heads I win/tails you lose’ as far as the Billionaires were concerned. John Q. Public got to bankroll Mr. Too-Big-To-Fail who, still unregulated, went right back to the casino and resumed gambling. What a deal! If bank profits go up, the brokers and speculators get to keep the profits. If not, John Q. gets to pay the tab. No wonder some bailout recipients reportedly went pheasant hunting the day after they got their first payments! According to economist John Kenneth Gailbraith, the true name of the ‘free enterprise system’ we have been living under is ‘socialism for the rich:’ privatized profit and socialized debt. So great was the shock of the Crash of 2008 that TV pundits openly began questioning the system, and Newsweek famously headlined ‘We Are All Socialists.’ Remember?
After his stunning victory in the 2008 elections, there were great expectations that Obama would pay his dues to the voters who elected him in an historic moment of unity among the working people of all so-called ‘races’ in our race-besotted nation. Liberal hopes were high that he would perhaps ‘do a Roosevelt,’ that is to say save capitalism from the capitalists by regulating their excesses and staving off mass revolt through populist reforms. But times have changed, and Obama was dependant on his Wall St. backers, whereas the Roosevelts were opulent scions of 17th century Dutch patrons who had their own money. Teddy Roosevelt was rich enough to snub the lobbies and play the ‘Trust Buster;’ FDR could afford to denounce the bankers of his day as ‘economic royalists’ and ‘malefactors of great wealth.’ Barack Obama was not Ross Perot. He couldn’t afford to turn on his backers and ‘bite the hand that feeds him.’ Quite the opposite: as President, Obama’s hope was to square the circle by convincing the public that Summers, Geithner and the other financial sharks he is swimming among are vegetarians – all the while throwing them huge chunks of red meat in the hope of appeasing them.
Of course the financial sharks, being sharks, turned on him, loudly complaining about a few paper ‘restrictions’ on their arcane speculative activities, insisting on maintaining tax cuts for the top brackets, and spending millions of the bailout dollars campaigning against him! This well-financed right-wing campaign has been so successful that according to polls, nearly half of American think Obama is a ‘socialist’! (Most of the rest of us know he isn’t and wish he were: according to another poll more than a third of Americans prefer ‘socialism’ to capitalism!) Never mind that Wall St. financed candidate Obama’ campaigns from the getgo: this nice-cop/mean-cop strategy keeps President Obama paralyzed while preserving his image as a progressive Democrat who would do more for the Common Man if he only could.
Despite candidate Obama’s popular appeal, his true loyalties were already clear during the final weeks of the 2008 Election campaign, when reports from Congressional offices indicated constituents’ calls running ‘roughly one hundred to one’ against Bush’s no-strings Billionaire Bailouts. [7] You might have thought that such an overwhelming demonstration of voter opinion less than three weeks before a crucial Presidential election would have galvanized the two campaigns – normally ultra-sensitive to the slightest ripple in the polls. But McCain steadfastly ignored the Crash, and Obama, the Great White Hope of the liberals and progressives, not only went along with Bush’s three hundred billion dollar boondoggle, he openly opposed throwing in a few goodies for the working people, “kneecap[ing] the efforts of progressives [in the Democratic Party] to force much-needed provisions like reform of bankruptcy law, publicly stating that this (minor) concession shouldn’t be in the law.” [8]
Remember that in November 2008, Obama’s coattails (combined with public revulsion against Bush and the Republicans) had swept a solid Democratic majority of Representatives and Senators into office. The financial crisis was it its height, and their constituents, who had just pulled off an astounding electoral victory, were feeling the hurt. The political capital for reform was there. Even cynical old Marxists like me expected a Democratic administration to appear ‘even-handed’ by giving some minimal relief to foreclosed homeowners on Main Street while continuing to bail out giant Wall Street speculators like Goldman Sachs and Smith-BarneyCity/Bank. However, Obama showed his hand immediately after his overwhelming popular victory at the polls by choosing to reassure his Wall Street backers rather than his electorate. The then President-elect declared there could be ‘only one president’ and wove what he called a ‘seamless’ transition during which he acquiesced to more BBBs and nominated staunch friends of Wall Street like Larry Summers and Tim Geithner to run the economy. ‘He who pays the piper calls the tune.’ You can’t say that Mr. Obama – whose primary campaign had received more Wall Street money than Hilary Clinton’s and whose election war chest far surpassed McCain’s – wasn’t loyal to his campaign contributors.
3. Blowing New Bubbles
Thus the banks and brokerage houses, still unregulated, were re-inflated with tax-payer money, and securities prices rose from the dead, like a latter-day Lazarus galvanized by an injection of capital liquidity. What have the banks done with all our hard-earned billions? One thing for certain: they haven’t reinvested it in the working economy. In order to stimulate investment, the Fed is lending money to the banks at record low rates around 1%, but try to get a small business loan! ‘Cheap Debt for Corporations Fails to Spur Economy’ was the lead in the Times Business Section on Oct. 9, 2010. Apparently, most of those freshly-printed billions the Fed turned over to the banks and brokerage houses have gone to speculation, much of it overseas. January 2010 saw the rise of new speculative ‘bubbles’ in Chinese real estate and commodities like pork and copper (whose price went from $2,800 a ton in Dec. 2008 to $7,500 on Jan. 21, 2010). [9]
You recognize the difference between ‘investment’ (think Savings Bonds) and ‘speculation’ if you’ve ever been sucked into joining a chain letter (‘send a dollar to each of the names on this list and you will receive $3000 in the next month) or been solicited for Amway. Chain letters and Amway, like financial bubbles, are essentially ‘pyramid schemes.’ As long as more and more people keep buying in at the bottom of the pyramid, those at the top keep getting richer (and the insiders at Goldman-Sachs are always at the top of the pyramid). Investment, on the other hand, can be defined as ‘using saved or borrowed money to buy raw materials, to hire workers, rent or buy machines and space in order to produce goods or services for sale on the market in the hope of recouping your expenses and making a profit’. Stocks (shares in corporations), bonds and other financial products can be bought for the purpose of either investment (to earn long term interest or dividends) or speculation. With regard to the latter, Mark Twain famously remarked that playing the stock market is easy: you buy a stock and sell it when it goes up. ‘What if it doesn’t go up?’ ‘Then you shouldn’t have bought it in the first place!’ Traditional investment counselors considered that the value of the total shares in a company should not exceed the value of its total working capital by a factor of more than five or six. Marxists, who distinguish between the ‘fictitious capital’ of financial products and ‘working capital’ invested in industrial plants, tended to agree. By 2007, stocks whose price represented twenty or thirty times the value of the companies of which they were shares were considered good buys!
How do bubbles happen? Put yourself in the well-polished shoes of a trader at Goldman-Sachs for a minute. Your job is to figure out something to do with all of this fresh money in order to maximize quarterly returns. (A quick hint: you’re not going to lend it to a shoe manufacturer in Kentucky for ten years in the hope that his factory will turn a profit.) So you buy ‘copper futures’ on a rumor that the price is going to go up. Other traders also hear this rumor or notice your buy, and now the price really is rising. So you buy more copper futures and so do the others and in a short while the price has tripled. By bidding up copper futures you’ve made a fortune for Goldman-Sachs (and a nice pile for yourself, not to mention guaranteed bonuses).
Weren’t you worried the copper bubble would burst? Not really. First of all, you had hedged your risk by quietly side-betting that copper prices will fall. In any case, you’re not buying tons of actual copper, for none of this money is going to be invested in actual copper mines. You’re just placing a bet on what the future price will be in the form of an option to buy or sell X thousand tons at a given future date. (This is more like placing $2.00 on the nose of a horse at ten-to-one than like buying a horse and racing it). In any case, you’re not playing with your own money, but with other peoples’ money: millions of dollars that individual depositors, pension funds (and now the government) have placed in the trust of Goldman-Sachs for you to ‘manage’ (for a nice percentage of the profits).
As you count your winnings, you once again thank Congress for repealing the Depression-era laws placing a firewall between regular business banks and speculative investment brokerage houses to prevent you from gambling with depositors’ cash. You remind yourself to have your secretary send contributions to both Democratic and Republican candidates. What’s that? You just heard copper futures crashed in Hong Kong over the weekend when you were out sailing? No matter! Remember, you put in that bet against copper futures before embarking on your yacht. In any case it wasn’t your money in the first place, and the FDIC will bail out the depositors in case of default. So what do you care?
Of course it is the nature of speculative bubbles to burst, like the 2007 housing bubble and the 2001 dot.com bubble before it. It all goes back to Amsterdam in 1637, when a speculative craze drove the price of tulip bulbs to fantastic heights before it collapsed, ruining thousands of investors. As Paul Krugman frankly admitted at the time of Bernie Madoff’s pyramid scandal, there is no essential difference between today’s financial markets and such a fraudulent Ponzi scheme: everyone keeps winning as long as new investors keep enlarging the base of the pyramid. [10]
A particularly sinister innovation in the re-inflated financial markets came in March 2010 with the news that the newest target of speculative capital was the outstanding debt of the weaker European economies, like Greece, Portugal and Spain. Apparently big investment banks like Goldman Sachs were betting against the price of the sovereign debt of these countries, thus undermining confidence in their ability to pay. Remember that if buying copper futures can actually create an upward trend, so attacking a foreign currency or sovereign debt can undermine that nation’s credit, accelerating a downward trend. The targets of these ghoulish speculators are the nations hit hardest by the recession, those who naturally have the highest debt to income ratio. [11] Mediterranean countries like Greece were already suffering poverty and high unemployment. Default provoked by speculative attacks would mean a social catastrophe: the bankrupting of all the social services that make life possible for poor and working class people. For naturally the poor bear the burden of the financial irresponsibility of the rich. The cream of the jest is that at in 2007 Goldman Sachs (among others) were selling great bundles of subprime-tainted mortgage-backed securities to these very countries (while secretly betting against their own mortgage-backs on the re-insurance market as a hedge!). [12]
4. The Great Recession
To return to the question “Will bailing out the billionaires save the economy?” my guess is that the chances are slim. The Great Recession continues to paralyze the economy, which keeps shedding jobs as bankers remain shy of lending to businesses that want to make productive investments. And so un-working capital piles up in the banks, inflating ever new bubbles which keep expanding until they inevitably pop. In any case, if betting against the bankruptcy of Greece – the cradle of Western Civilization – is the best use the bankers can find for their capital, then capitalism is in big trouble. The unforeseen and too-soon-forgotten Great Crash of 2008 has left in its wake a twilight spectacle of ghoulish speculative capital destroying whole economies so as to feast on their corpses.
Besides, if the financial crisis has been temporarily stabilized, the economic crisis has only just begun to bore its way into the real economy. Official unemployment remains at nearly 10% (closer to 17% if ‘discouraged’ workers and part-timers are counted) and every month tens of thousands more employees are laid off as businesses cut back. As a result, millions of Americans – including one child in five – have sunk into poverty, according to the latest (September 2010) U.S. Census report: ‘With the country in its worst economic crisis since the Great Depression, four million additional Americans found themselves in poverty in 2009, with the total reaching 44 million, or one in seven residents. Millions more were surviving only because of expanded unemployment insurance and other assistance.’ [13] Ten percent of white Americans are officially poor, while the percentage rises to 25% for Hispanics and African-Americans, who have been in Depression for a generation. One should also add another 2 or 3% to the unemployment rate to account for the nearly seven million mostly poor, mostly black and Hispanic Americans who are rotting in prison – many for the non-violent crime of trading small quantities of contraband substances like marijuana, opium and cocaine. [14]
Hunger such as the U.S. has not known since the ’30s is widespread. Charitable food pantries are overwhelmed, and one American in seven is dependant on food stamps. To qualify for food stamps your income must fall below the official ‘poverty threshold’ of about $11, 000 (or $210 a week) if you are single. A couple must fall below $14, 000 (or $270 a week – the government apparently figures ‘two can live as cheaply as one’) and a family of four must fall under $22, 000 ($423 a week) to qualify for food assistance. With rents skyrocketing and millions of homes foreclosed, there’s no way people at that level of income can pay for housing and food. (Indeed, the government’s method of calculating the official poverty threshold is now based on the price of food, having been ‘reformed’ to exclude housing.) Small wonder that millions, including full-time minimum wage workers, have experienced homelessness and that countless more are jammed in with relatives or living four to a room like the slum-dwellers of the 19th and early 20th Centuries. A whole blighted generation of young men and women (the hardest hit by today’s new poverty) now lack the privacy to experience normal sexual relationships, and their lives will be getting worse, not better, since historically poverty tends to linger even after employment revives (assuming it will).
5. Can Capitalism Reform?
As for putting regulatory patches on the re-inflated balloon, the Obama Administration, having turned over its finances to the gentlemen from Goldman Sachs, shows little interest in regulating bankers, traders and insurance companies (or for that matter energy, drug or arms companies). Nonetheless, re-regulation and a watered-down version of New Deal Keynesian deficit spending remain the remedies favored by serious economists like Stiglitz and Paul Krugman as well as by the unions and by most of the self-designated Marxists and socialists I know. [15] They all seem to believe in ‘state intervention’ as an effective remedy to capitalism’s current crisis. This reformist Left forgets, in its desire for a solution, that neo-Keynesian state-intervention, designed to save capitalism during the Depression of the 1930′s, arguably didn’t actually succeed, since it took war production (and for Japan and Germany, war itself) to actually end the Depression.
Certainly Green Jobs is something to fight for, [16] but such Keynesian remedies are not even on the radar, much less on the agenda of today’s neo-liberal governments, whether of the ‘left’ (Obama), ‘right’ (Sarkosy) or ‘center’ (Merkel). In any case, should the U.S. (or any other G20 government like Germany or Brazil) suddenly turn populist and actually attempt to regulate the out-of-control securities markets, that government would be subject to huge fines and penalties from the World Trade Organization. [17] Likewise, massive deficit spending to rebuild infrastructure, even if it were politically possible, would also violate international norms and be subject to IMF ‘discipline.’
The Left has not yet understood that under today’s globalized capitalism, the only permissible form of state intervention is when governments – or supra-governmental organizations like the International Monetary Fund (IMF), World Trade Organization (WTO) and the World Bank – use state power to ‘open closed markets’ and enforce ‘free trade.’ In practice state-sponsored ‘free trade’ means enforcing monopoly control over local economies by multinationals like Montsano; it means the appropriation by international capital of the last vestiges of the natural environment and the natural economies (peasants, forest peoples, artisans, small producers) as well as privatizing the remains of public services and social welfare structures.
Far from reverting to Rooseveltean remedies, the capitalist medicine of choice today is a policy of austerity so severe it makes the much-maligned Herbert Hoover’ look good. For example the bitter pill the bankers made the Greeks swallow (after selling them tainted bonds!). Moreover, short of being forced to create Green Jobs by a powerful mass movement (including global boycotts and workplace occupations), the bankers who dominate today’s politicians will continue to veto such New Dealish initiatives and keep us addicted to petroleum. This veto even includes desperately-needed infrastructures, like the proposed railroad tunnel between New York City (the financial capital of the world) and New Jersey (from which most Wall St. employees commute) which the Governor of New Jersey recently vetoed.
Today Keynesian state intervention, whether or not it worked in the ’30s, is ‘history’ (as they say). History tells us that during the first half of the 20th Century, private capitalism, faced with the first truly international economic crisis following WWI, used state intervention to transmute itself into various forms of bureaucratic state capitalism – extreme totalitarian forms in the case of Fascist Italy, Nazi Germany, Imperial Japan and Stalinist Russia, as well as mild democratic forms in Pop Front France and New Deal America. All these national governments disciplined their markets in order to impose the more general and long-term interests of their respective national capitals. Back then, the state was not afraid to take power over the economy and bend the bankers and industrialists to its will – albeit in their own interests. Today, in the first half of the 21st Century, it is the bankers who have taken power directly in the state, which they control more or less directly through representatives in high office, through the massive corruption of elected officials via legal and illegal contributions, and through near-monopoly control of the mass media.
In the early 20th Century state-capitalist governments subordinated the immediate interests of individual capitalists and groups (maximizing profits) to the long term interests of national capital. In the early 21st Century, the various corporate groups (petroleum, finance, military-industrial-security complex) manipulate the state to protect or promote their short-term interests (maximizing quarterly profits) at whatever cost to the national interest, indeed to the interests of the system itself. In this topsy-turvy brave new world, billionaire U.S. corporations now enjoy unlimited ‘freedom of speech’ to buy elections, while citizens who attempt to demonstrate in the public square are routinely arrested as potential ‘terrorists.’ To summarize: instead of subjecting the ‘anarchy of the market’ to the rationality of the state, today the market subjects the state to its anarchy, arming its very irrationality with the force of law. So much for ‘reform.’
6. So Marx Was Wrong?
Before the Crash of 2008 the consensus of business analysts and economists, both academic and governmental, was nearly unanimous: generalized economic crises were theoretically impossible because ‘free markets’ (meaning the monopolistic financial markets) have the capacity to automatically adjust themselves. The only danger to unending prosperity was well-intentioned but misconceived ‘government interference’ in the marketplace, for example the laws banning usury and the financial regulations put in place by the New Deal to prevent another 1929 by prohibiting banks from speculating with depositors’ money and forcing them to keep a minimum amount of capital on deposit in case of a panic. Once the last of these constraints on the freedom of capital were abolished under Clinton, the neo-liberal consensus was unanimous: capitalist markets had entered an age of equilibrium and un-ending growth. Of course economists, pundits and stock market analysts were saying precisely the same thing in early 1929, but nobody in 2007 seemed to remember. [18]
Indeed, in 2007 even the few surviving neo-Keynesians who still believed in the need for a minimum of government regulation (like Nobel Prize economist and N.Y. Times columnist Paul Krugman) agreed that the world economic system was ‘fundamentally sound.’ With rare exceptions even avowed Marxists and socialists were no longer expecting the return of the type of generalized capitalist crisis that Marx and Engels had analyzed in the 19th Century and that the 1929 Crash had seemed to confirm. [19] So how come Richard Wolff, [20] Immanuel Wallerstein, Richard Greeman and a few other die-hard classical Marxists saw the Crash of 2008 coming? How come we were right when almost everyone else was wrong?
Could it be that the underlying cause of capitalism’s crisis is structural, or rather systemic? We old fashioned Marxists do not claim to be smarter than all those professional economists working complicated mathematical models in brokerage houses, in the Fed, in the business media, in the universities and the think tanks who all agreed that the bubble could only get bigger. We’re funnier perhaps, more independent-minded certainly, but not really smarter. However, we do have the advantage of not being blinded by the self-interested optimism of the professional economists on Wall St., in government and in business-supported universities who need to convince themselves and everyone else to keep believing in the endless growth of that vast financial pyramid known as the securities market.
Marx wasn’t just being funny when he called the official economists of Victorian Britain ‘paid prize-fighters for the bourgeoisie’ (after they ‘proved,’ for the benefit of the Manchester factory owners, that the Bill to shorten the working day from 12 to 10 hours would destroy the economy, as all the profit came in ‘the 11th hour’). As we have seen, Bull Markets depend on continuing public confidence, and nay-sayers are not likely to get promoted. But the self-delusions of these pro-capitalist experts doesn’t necessarily imply that we Marxists are any less deluded in our own way, even if our theory is apparently more predictive of macro-economic behavior. After all, astrologers occasionally make correct predictions, and even a broken clock is ‘right’ twice a day. Indeed, as the old self-deprecating in-joke goes, ‘We Marxists have correctly predicted five of the last three recessions.’ [21]
On the other hand, maybe Marx’s theories actually work.
7. Overproduction and the Decline in the Rate of Profit
This is not the place to summarize the complexities of the three volumes of Marx’s Capital. [22] To simplify, let’s say that corporations make their money by paying us salaried and waged workers as little as possible, extracting from us the maximum in effort, and then selling us back the resultant products and services at a profit. In the short run it’s a great deal (for the capitalists), but obviously such a closed cycle can’t go on indefinitely. [23] On the one hand, the capitalists can’t make a profit if they pay us enough to actually ‘buy back’ what we produce as employees. Quite the contrary: employers are always speeding up production, automating, off-shoring, downsizing and laying off to keep down their labor costs. But with fewer and fewer workers getting paid less and less for making more and more products, the inevitable long-term results are overproduction (glutted markets) on the one hand and on the other under-consumption (masses of poor and unemployed workers). This leads to a vicious cycle. On Main Street small businesses close their doors as their downsized customers tighten their belts. On Wall Street paper profits pile up in the form of fictitious capital – pieces of paper called ‘options,’ ‘mortgage-backed securities,’ or ‘credit-default swaps’ with little or no actual wealth backing them up. Eventually these financial bubbles burst, and suddenly credit evaporates. According to this theory, the resulting depression becomes generalized and the whole economy lies fallow until a new investment cycle begins or a war revives it, as in the late ’30s.
With respect to unemployment, capitalism differs fundamentally from previous economic systems under which unemployment was unknown. For example, under the slave system masters normally provided at least minimum subsistence for their slaves or other domestic animals they exploited. A rational master would no sooner let his slave or serf starve or fall ill than he would his horse. For a corporation however, individual employees are like drops of water from a tap, to be turned on only when needed and only when it’s profitable to do so. Otherwise workers are free to live on air. Or go to jail for stealing. [24] The capitalist free market treats ‘labor’ abstractly as one element of production, the other being ‘materials’ (the Earth). The market is utterly indifferent to the fate of either (considered as ‘externals’ to be thrown away). Thus the actual laborers (you and me) being ‘free’ (unlike serfs or slaves) are effectively free to starve if we are unable to find a capitalist who can make a profit by employing us.
Indeed according to Marx, unemployment itself – the availability of a supply of idle, needy men, women and children obliged to sell their labor-power to survive from day to day – is a necessary pre-condition for capital to perform its profitable miracles. And globalized capitalism, by driving the peasantry of the Third World off the land and into mega-slums, creates millions of new unemployed every year. Marx called this ‘reserve army’ of the unemployed capitalism’s ‘iron law.’ And the more the supply of labor (unemployed workers) exceeds demand (jobs), the cheaper becomes the price of labor-power. For example, an Indonesian seamstress, interviewed by Naomi Klein, must sell ten hours of sweated labor for two dollars a day, during which she stitches dozens of anoraks that sell in stores for a hundred dollars. [25] The problem for capitalism is that as wages fall and joblessness rises and credit-cards max out, fewer and fewer people are able to pay for $100 anoraks even in the ‘rich’ countries. So why hire anyone to stitch them? Capital itself becomes a glut on the market. Hence the growth of speculative bubbles examined above. [26]
From this obvious contradiction in the profit system, Marx derived his famous theory of the tendency for the rate of profit to decline – a theory which academic economists laughed at when the economy was growing and the mass of profits was rising. To be sure, the professional economists were apparently ‘right’ and we Marxists were ‘wrong’ during the extraordinary post-WWII period of economic growth. During those Thirty Glorious Years, the tendency for the rate of profit to decline remained just that, a tendency, invisible in the market place where the mass of profits was accumulating at an accelerated rate. But since the 1970s, increasing capitalist global competition has led to lower and lower prices of manufactured goods, and the rate of profit, based on the amount of labor value added to each product, has been getting lower and lower. Moreover, according to Andrew Kliman, the academic economists who thought they had disproved empirically Marx’s theory of the ‘decline in the rate of profit’ made a fundamental methodological error in their calculations. They forgot to account for the slow decline in the value of a capitalist’s initial capital investment (factories, machines) through wear and obsolescence over a given production cycle, say a fiscal year. [27]
Of course, Marx’s ‘decline in the rate of profit’ was only theorized as a general abstract tendency. In practice, manufacturers historically compensated for this hidden decline through economies of scale and through an ever-increasing volume of sales. The mass of profits kept growing even though the profit margins kept getting smaller. Take for example the prices of today’s more and more powerful new computers which quickly become obsolete and are discounted in stores and on the Internet after only a year or so on the market. Today, with less and less money in consumers’ pockets and computer sales declining, the value of obsolete inventory is shrinking and outlets and manufacturers are shutting down or laying off salespeople in a diminishing cycle that keeps repeating itself as the economy slides deeper and deeper into depression.
So much for Marxist theory. But if the system was fundamentally contradictory from the start, how come it worked so well all these years? In other words, Mr. Smarty-pants Marxist, why didn’t capitalism collapse earlier?
8. Historical and Geographical Limits to Capitalist Growth
To begin with, the world economy actually did collapse following the crash of 1929, and most economists today are agreed that it was not Roosevelt’s New Deal but WWII arms production that got the U.S. out of the last Depression. Capitalism thrives on war, and WWII destroyed vast amounts of previously existing wealth. As the result of this ‘creative destruction,’ the endemic plagues of over-production and excess capital were not a problem during capital’s ‘glorious’ thirty-year post-War recovery. But by the late 1960s, the defeated Axis powers, Japan and Germany, having rebuilt their industries using the latest technology, were once again serious capitalist competitors for U.S. manufacturers, and the race to the bottom began again, leading to major recessions in 1973 and 1981. Capital’s response in the ’80s was to squeeze more value out of its employees in order to keep up the rate of profit. Thatcher and Reagan tore up the post-war social contract, declared class war on labor unions, shredded the social safety net, and privatized everything in sight. As a result, wages stagnated for the next 25 years, while corporate salaries and profits soared. Yet recession struck again in 1989-90 and 2001. Meanwhile, capitalist competition had become truly global with the arrival in the market place of the Asian Tigers and a 900-pound gorilla named China spewing out mass quantities of ever cheaper manufactured goods.
For this newly globalised capitalism to thrive, the aggregate mass of profits had to keep growing, whatever the human or ecological cost. One solution was to appropriate new values from outside the system. Through outright government intervention (under IMF and World Bank pressure) profit-hungry banks and multinational corporations were able to expropriate and or privatize much of the world’s wealth still held in common by indigenous communities in the Third World, by so-called socialist collectives in the ex-Communist Second World and by public institutions in the First. Through these ‘new enclosures’ everything held in common, from forests and oceans to ideas, transportation and healthcare, cultural practices and the genetic codes of life itself, was transformed into merchandise to be bought and sold for profit. Bourgeois civilization, once the bearer of enlightenment, regressed to barbarism. Africa was stripped of its gold, diamonds, oil and precious ores leaving its peoples in a chaos of famine, rape and civil war. Huge fortunes were made, yet markets still remained unstable with currency crashes, regional crises and major countries like Argentina going bankrupt.
Today, according to my old friend Immanuel Wallerstein, who studies the economic ‘long waves’ of history at the Braudel Institute, capitalism has finally reached its global limits after a life-cycle of 500 years. From the time of its birth in Europe – roughly since 1492 and the discovery of gold and silver in the Americas – capitalism has kept itself profitable over the centuries by expanding into the non-capitalist areas of the planet, enclosing what was previously held in common and searching out new markets and new sources of cheap labor. Yet since the globalization of the 90s, even these new world markets are becoming more and more saturated. Capital itself has become a glut, and there are no new continents to exploit or new forms of natural wealth to be profitably extracted from the half-ruined global environment. Capitalism has expanded to the earth’s limits and industrialized to the point where yesterday’s poorest and most backward country, China, is today the principal competitor of the U.S, the world’s richest and most modern. From now on there will be less wealth coming into the world capitalist market from outside the system; hence today’s feeding frenzy to gobble up the last surviving strands of rain forest, the last surviving schools of ocean fish, the last reserves of fossil fuels without regard to the obvious environmental consequences.
9. Why Hasn’t Capitalism, with Its Alleged ‘Contradictions’ Already Collapsed?
Let us recall that the 19th century, the period of capitalism’s greatest growth, was also a period of relative peace. But by the 1890s, competition among British, French and late-blooming German capitalism for new colonies and markets had become fierce, precipitating an imperialist World War of unprecedented duration (1914-1918) and savagery which signaled the end of capitalism’s progressive era. ‘We now know that civilizations are mortal,’ wrote French poet Paul Valéry. ‘Socialism or Barbarism,’ wrote the revolutionary Rosa Luxemburg. During 1917-1919 a wave revolutions spread from Russia across Germany and Hungary and threatened capitalism’s world hegemony, but the new industrial giants, America and Japan, saved the day for international capitalism and turned back the red tide, leaving economically backward Soviet Russia to degenerate in isolation. This impasse set the stage for the Great Depression, the rise of fascism and the outbreak of another imperialist World War – this one truly global and even more barbarous than the First. In turn, the destruction by massive aerial bombardment of huge amounts of productive capital during WWII paved the way for the postwar ‘economic miracle’ led by the defeated Axis powers Germany and Japan. Economically speaking, the losers were the winners.
As we have seen, growthmanship – the competition-driven race for increased economic growth – leads mathematically to global overproduction and eventually to global conflict, up to and including war. The perennial problem for capitalist corporations is how to stimulate what bourgeois economists call ‘effective demand.’ In other words, how to find people with money in their pockets to buy, and more importantly, to pay for all the unnecessary shit they manufacture with the single purpose of making a profit? In Marxist terms, the problem is defined as how to ‘realize’ (i.e. cash in on) the ‘surplus value’ (unpaid labor) embodied in the surplus products constantly thrown onto the world market.
The classic capitalist solution to this problem has been expansion into the non-capitalist world, but since the globalization of the ’90s this expansionism has reached it geographical limits with China and India transformed from prey into capitalist tigers, and no other place left for expansion and growth than outer space. So how to solve the problem of ‘effective demand’ in order to ‘realize’ the surplus value embodied in commodities and make it profitable? Post-war capitalism came up with three main ways to get us consumers and taxpayers to pay for all this stuff we don’t need and can’t afford: war production, advertising and credit.
10. Military Keynesianism
Let’s start with war production, also known as ‘military Keynesianism’ – an ironic reference to the progressive 1930s’ economist who advocated major government spending on public works like bridges and highways as a solution to recession. As early as 1960, outgoing Republican President and former WWII Allied Commander Dwight Eisenhower, no peacenik he, sounded a solemn warning that a ‘military-industrial complex’ was taking over the government and the economy. Under Obama, the official military budget – not including the un-counted pieces of it stashed among other agencies like Homeland Security, the CIA, the Energy Department, and the State Department – amounts to nearly a quarter of federal expenditures, more like a third if we include the interest on the debt produced by the ‘Three Trillion Dollar War’ in Iraq (also not included in the official military budget presented to Congress). [28]
From a capitalist viewpoint government-financed war production is a great business for the corporations like Grumman, Boeing, and Halliburton. Think ‘cost-plus contracts’ and ‘over-runs.’ In Marxist terms, the ‘means of destruction’ (tanks, guns planes, etc.) are ideal commodities for realizing surplus value. No matter how many bombs the weapons corporations manufacture, there is no problem of ‘overproduction’ because the market is virtually limitless. Surplus arms can also be exported and sold to U.S.-friendly kings and dictators who need them to repress their subjects or invade their neighbors. Once sold, weapons either go ‘bang’ or become obsolete; in either case, they have to be replaced. Even foreign competition (the arms race) is a boon, rather than a threat, because it justifies constant increases in peacetime military spending. In any case, the military contractors have a revolving-door relationship with the brass in the Pentagon, who allow them to overcharge shamelessly and further boost their rate of profit. To be sure, in 1989 the end of the forty-year Cold War arms race with the Soviet superpower did pose a small problem for the military lobby. (Remember the promised ‘peace dividend’ of increased spending on public goods?) But new ‘threats’ like drugs and terrorism were soon mobilized to replace the threat of Communism and justify endless profitable wars.
Bush II’s Iraqi War alone cost us tax-payers an estimated three trillion dollars. [29] How much of that mind-boggling sum ended up as profits for the stockholders of Halliburton, Blackwater, Brown & Root, MacDonnell-Douglas and the rest of the war-profiteering cost-overrun contractors? A trillion? No wonder there was no money left for body armor for the troops or veterans’ benefits for the wounded. So we elected Mr. Obama, who promised to withdraw our troops – many of them reservists serving their second, third or even fourth tour of duty – from the Iraqi quagmire. Who imagined he would send them into an even deeper quagmire in Afghanistan, while leaving as many as 50,000 behind to get shot at by angry Iraqis who want them out? Nor did our erstwhile peace candidate mention he would continue, indeed escalate, Bush’s mindless ‘war on terror.’ Or put Bush’s Defense Secretary Robert Gates back in charge of it. Forget that Afghanistan is famous for swallowing up foreign armies from the time of the ancient Persians and Greeks to the 19th Century British and the 20th Century Russians. Forget that massacring Pakistani civilians from the safety of predator drones is probably not the best way to win the hearts and minds of that nuclear-armed nation teetering on the brink of chaos. Let’s just stick with the cost – that is with the profits. The top brass expect us to remain in Afghanistan until 2025. How many more trillions will be paid to the military contractors over the next 15 years?
11. The Devil in the Zeros
I suspect one reason the public lets the military-industrial complex get away with this boondoggle is that most people’s eyes fog over when they see all those zeros. The sums involved are literally mind-boggling. Does three trillion dollars mean $3,000,000,000,000? Or merely $3,000,000,000? The devil is in all those zeros, boys and girls, and the difference between millions, billions and trillions can kill you. Here’s how to keep them straight. According to a math-for-dummies book entitled Innumeracy, a million seconds in time add up to about 12 days. A billion seconds, on the other hand, equal nearly 32 years or half a lifetime. As for a trillion seconds, that makes 32 thousand years, which would take us back to the early Stone Age (or to 27 thousand years before the Creation if you don’t believe in Evolution). If the three trillion dollars spent on the Iraqi war were seconds, they would stretch back in time to before the emergence of the first modern humans.
Now let’s review: A million=12 days; a billion=32 years; a trillion= Back to the Stone Age. Try and remember these differences of scale as the latest budget figures flicker over your TV screen. And while you are remembering, ask yourself who will pay the bill? The answer is: the average taxpayer; that is to say to the ‘working middle class’ of salaried people subject to involuntary payroll taxes.
A word about taxes. As most of us have long suspected, the once ‘graduated’ income tax has been stood on its head. Thanks to loopholes, massive tax cuts for the super-rich, off-shore tax-havens, and ‘corporate welfare’ in the form of government incentives and bailouts, many corporations and wealthy individuals pay zero net taxes. Moreover, IRS investigative and enforcement personnel have been drastically cut back, and the remaining inspectors are too busy to mount elaborate cases against the complicated tax-dodges of billion-dollar corporations. Trillions of corporate taxes go uncollected, while inspectors concentrate on individual taxpayers’ ‘do-able’ cases like tracking down waitresses’ unreported tips and teachers’ home office exemptions.
As a result, today’s ‘working middle class’ (which Marxists used to call ‘the proletariat’) with its small and shrinking share of the national wealth, pays an astounding 85% of the nation’s taxes. [30] Thus, in macro-economic terms, military spending is an indirect transfer of wealth from the poor (employees) to the rich (owners) via government intervention. Another miracle of our free enterprise system! Moreover, as we have seen the enormous portion of the total national capital invested in government financed military production is sheltered from the normal capitalist plague of overproduction and shrinking markets. Its rate of profit is correspondingly high, which helps raise the overall capitalist average. Moreover, military products are not only profitable, they are useful in defending corporate interests abroad and for putting down the rabble at home when they finally get wise to the corporate scam and start fighting back, as I imagine they will in the not-so-distant future. [31] Thus, for the last 60 years, military Keynesianism has helped stave off capitalist collapse by absorbing a huge share of the nation’s industrial production at taxpayer expense, in effect transferring wealth from the bottom of the economic pyramid to the top. And military spending is only the first of capitalism’s post-war tricks, which also include advertising, consumer glut and credit.
12. Advertising
Next let’s look at how advertising helps prolong capitalism’s continuing vampire after-life. Conceived by the most subtle psychologists and sociologists, designed and produced by the most talented and highest paid writers and artists, incessantly beamed at us through media that celebrate consumerism, modern advertising creates a culture in which people’s sense of status depends less on what they really are than on what they wear, eat, drink, or drive. More than competition between brands, all advertising is objectively ‘capitalist propaganda’ – that is to say propaganda in favor of consumer capitalism. Don’t laugh at my ‘crude Marxist caricature.’ ‘Propaganda’ was the precise word used by Edward Bernays, the genius of modern advertising, who considered it ‘necessary in a democratic society’ and invented a new name for it: ‘public relations.’ [32]
Old-style Russian Communist propaganda was easy enough to recognize (from the outside). It glorified the state, presented a heroic picture of happy workers, and blared its message out of tinny loudspeakers on nearly every corner. Capitalist propaganda is harder to recognize (from the inside). Yet every day the pervasive capitalist message – buy! – blares out at us through high-tech speakers of TVs and car radios. With product placement, the medium is the message. Standardized commercial entertainments are everywhere replacing participatory activities like dancing, bowling, music-making, amateur sport, story-telling, reading and conversation, leaving a cultural void to be filled through consumption.
Basically, advertising aims at making us feel insecure unless we buy more garbage than we can afford or even use. I use the term ‘garbage’ advisedly. More than 50% of U.S. consumer production ends up as garbage within one year of its purchase. Indeed, in our throwaway economy, waste products are the leading U.S. export – second only to armaments. [33] It turns out there is more surplus value embodied in the throwaway plastic container than there is in the sandwich inside, and that’s where the corporate profit comes from. Garbage glut is another of post-war capitalism’s ruses for avoiding the consequences of overproduction.
Postwar advertising and marketing were successful in creating new internal markets up through the ’70s. They got lots of people wanting to buy things they never knew they couldn’t do without. But with downsizing, union-busting, automation, rising prices and stagnating wages, people no longer had the cash. No problem: capitalism had an answer. ‘Can’t afford that new car? Don’t worry. You don’t have to pay for it… now. Step right over to our Credit Department. That smiley gentleman in the sharkskin suit is waiting to take care of you. What our brilliantly creative advertising department has cleverly seduced you into buying, Mr. Loanshark in our friendly credit department will cheerfully help you pay over time for a small monthly fee. No need to read all that teensy little fine print at the bottom where it says ‘interest annualizes at an average of 31.6%…’
13. Death on the Installment Plan
All through the roaring ’80s and beyond, financialized U.S. capital gorged on double-dip profits, making people work for less and loaning them money at interest to keep consuming. Thanks to our Mr. Loanshark it was another win/win situation for the capitalists, who convinced themselves that this debt-fueled economy could go on forever and that ‘overproduction’ was a Marxist myth. So let’s take another look at credit, or rather at its dark twin, debt. It’s a subject that makes everybody cringe, so let’s start with a simple definition: ‘debt’ means ‘bank profits’. The more they lend, the richer they get. And thanks to the ‘miracle of compound interest,’ bank profits pile up quickly and soon overtake ‘principle’ (the original amount you borrowed). If you have trouble paying, Mr. Loanshark will happily offer you new loans to ‘consolidate’ your previous obligations and spread them over time, thus multiplying your debt obligation. As long as the payments keep coming in, and ballooning, the loansharks don’t care if they ever get their principle back.
Moreover, since Congress recently ‘reformed’ personal bankruptcy, the finance companies can attach your salary indefinitely so that you actually end up working for them. This practice used to be known as ‘debt peonage,’ and was illegal in many states. On the global scale, many ‘developing’ nations have ended up in debt peonage, paying out more than half their annual GNP year after year in debt service to international banks. As for the national debt in the U.S. (remember, you own it) the first five and a half months of the taxes deducted from your paycheck go directly into paying it off. In other words, bank profits account for all your taxes from January to mid-June, after which you start paying for such ‘extras’ as the Army, the government and a few social services. So whenever you hear the word ‘debt,’ just keep reciting this mantra: ‘debt means bank profits, debt means bank profits, debt means bank profits…’
The Gilded Age which we (or rather the wealthy among us) have just lived through was based on credit; that is to say on debt (keep thinking ‘bank profits’). The little people down below were all working harder and harder (those who hadn’t already been downsized) to support the banking, insurance and finance industry (billionaire speculators and institutional loan sharks). These financial wizards kept the mass of profits artificially high by lending out the same money several times over, piling risk upon risk through derivatives. Their gamut of slick financial products ran from common credit card debt (stimulating consumption while piling up vastly profitable interest) from homeowner debt, bank debt, leveraged buyout debt, corporate debt and ‘sovereign’ (government) debt to opaque financial products like toxic mortgage-backed securities and credit-default swaps.
By 2007, the U.S. financial sector had grown to 1.8 times the size of the manufacturing sector. The economy was like an inverted pyramid of debt (keep thinking ‘bank profits’) precariously balanced on a narrowing tip of actual productive economic activity. Every leveraged buyout meant that a company’s employees had to produce not just a regular annual profit of 5% or 10% for the original stockholders, but another 5% or 10% on top of that to pay off the financial corporations who had become the new owners. Think of yourself as a tiny worker ant struggling to drag food back to the nest with a big fat drone of a banker-ant riding on your back, and you get the picture.
Eventually, the credit bubble popped, leaving millions of Americans high and dry with half-empty retirement funds, homes worth less than the outstanding mortgage, shuttered businesses and no jobs. As we have seen, the principal effect of the Great Bailout was to transform accumulated capitalist debt into taxpayer debt. Debts to be repaid – I don’t know how – by you and me and all those other little people who used to have productive jobs. And since the ‘reform’ of personal bankruptcy laws, debtors will have to keep paying installments indefinitely on their educations, cars and houses, even after they have been forced to sell at a loss. Apparently the Crash of 2008 was caused by their fecklessness. According to the Times: “A growing chorus in conservative circles is trying to shift the blame for the current crisis to the poor and advocates for the poor.” [34] In any case, having been reliquidified at public expense in order to get them lending again, the big banks have raised interest on consumer credit cards to new heights – up to 33% annualized. Even Barak ‘the Banker’s Friend’ has been obliged to sternly scold them (if not actually to regulate them).
14. Capitalism’s ‘Final’ Crisis?
As we have seen, capitalism, vigorous and progressive in the 19th Century, was already decadent by the early 20th. It was already financialized, monopolized, and dependant on colonial expansion, when its imperialist rivalries exploded into the first of two World Wars whose barbarism – applying capitalist mass production methods to the destruction of civilian facilities and populations – arguably surpassed that of Attila the Hun. Between the two global holocausts, capitalism engendered the first true world-wide depression, which hit Europe long before it affected the U.S. and engendered state-capitalist ‘solutions’ as varied as Roosevelt’s New Deal, Stalin’s Five Year Plan and Hitler’s Thousand-Year Reich.
Capitalism sprung back to life during the glorious thirty-year period of post-WWII reconstruction with its social contract with labor, but faltered again in the early ’70s with low growth, stagflation and oil shocks. Since the ’80s, neo-liberal capitalism has been successfully waging a one-sided class war against labor, tearing up the social contract, downsizing, and outsourcing to the Third World, producing a net up-flow of wealth in the form of increased inequality both between rich and poor nations and rich and poor within nations. If the official Left and most workers no longer talk about ‘class consciousness,’ the capitalists have no such qualms. When it comes to breaking strikes or eliminating social services they know which side they are on. ‘The unacknowledged Marxism of the enemies of Marxism,’ Victor Serge called it. Thus, for roughly the next thirty years, and despite increasingly frequent financial shocks, neo-liberal capitalism was able to overcome the underlying tendency for the rate of profit to decline by increasing the mass of profits thanks to continued automation, penetration of new markets (globalization), military spending, advertising-driven consumerism, credit, and speculation. But all such expedients have their limit. The shit hit the fan in 2008.
I get no sense of schadenfreude [35] out of having foreseen this awesome crisis, which will bring untold suffering to the poorest, the most exposed members of the human family. Obviously, there is no way for me to ‘prove’ that the Crash of 2008 has provoked capitalism’s fabled Final Crisis. That can only be known through hindsight, and in twenty or thirty years the question may be moot. Existentially and ecologically speaking, it’s now or never in terms of the survival of many species, including humans.
For a century and a half Marxists and socialists have closely followed capitalism’s boom and bust cycles while dreaming of capitalism’s ‘final’ collapse – a debacle which they supposed would usher in the New Society – a commonwealth organized for mutual aide and cooperation as opposed to competition and profit. From the 1860s on Marx’s friend and collaborator Friedrich Engels fondly imagined a revolution arising every time the London stock exchange went bust, and would get himself ready to man the barricades as he had during the Revolution of 1848. [36] But these were revolutionary pipe dreams. In his major work, Capital, Marx made it very clear that his theoretical model was meant to apply only to a ‘single,’ ‘closed’ capitalist society, abstracted from international trade. It followed that British and European capitalism were in no danger of internal collapse as long as they could keep expanding into Africa, Asia and the Americas and as long as they continued to reap imperialist super-profits through unequal treaties, dumping of excess production or outright plunder abroad.
Only when capitalism was fully developed on the world scale, that is to say only when globalized capitalism could be treated as a ‘single’ or ‘closed capitalist society,’ would Marx’s internal crisis theory apply. Heretofore, overproduction, mass unemployment and the resultant decline in the rate of profit had only been tendencies. They could be and were countered by another tendency: the constant increase in the mass of profits through colonial expansion and imperial plunder. With China, India and Brazil looming as major capitalist competitors that day has clearly arrived. For the first time in history, world capitalism’s ultimate collapse has become theoretically possible from a strict Marxist perspective.
Collapse is not inevitable of course, but neither bailouts nor re-regulation nor even nationalization of banks and industries in themselves can bring recovery since the problem is systemic. Neither Roosevelt’s New Deal nor France’s state-managed economy were able to overcome capitalism’s contradictions. Bureaucratic state capitalism was tried for 70 years in the U.S.S.R. under the name of ‘Communism’ and ultimately failed. Despite totalitarian political controls, the Russian command economy, destabilized by inefficiency and undermined by class conflicts, eventually collapsed. Nationalization is beside the point because the systemic cause of capitalism’s crisis is not lack of government regulations but, as we have seen, global economic inequality, and that keeps increasing. Today, hitherto unheard of wealth piles up in the world’s financial centers while the ‘industrial reserve army’ of unemployed (that Marx considered the hallmark of capitalism as opposed to earlier systems of exploitation) is now estimated at two billion around the planet living on a dollar or less. Billions vs. billionaires, what could be simpler?
To sum up, for the moment global capitalism, although teetering on the brink, continues to outlive itself thanks to the expedients that have kept it profitable since the 1950s: global expansion (now at a limit), war production, wasteful consumerism, speculation, and debt (say it one more time, kids: ‘bank profits’). The latest innovation in this field, as we have seen, is ghoulish speculation on the debt of whole national economies teetering on the brink of bankruptcy. There are even ‘Vulture Capitalists’ who buy up the already forgiven debt certificates of countries like Liberia for pennies and then successfully sue for payment in U.S. courts and end up with millions. [37] Capitalism, decadent and destructive since 1914, reeks today with the stench of death. How can such inner rot not lead to collapse? If the capitalists themselves are betting on their own destruction, it would ill-behoove a Marxist to bet on recovery.
Today’s capitalist society is definitely sick, indeed moribund. Capitalist imperialism is addicted to oil, addicted to gambling (dependence on speculative bubbles to keep up its rate of profit) and addicted to violence (domination by the military-industrial-prison complex). It is like a senile miser who is in denial of his own death and who piles up hordes of riches, marries ever-younger bimbos, and disinherits his children. Capitalism is ‘knowingly’ destroying the planet’s environment in a last orgy of plunder. If the system is not overthrown soon, the children of today’s Billionaires will inherit a climate holocaust.
The ruling class has no collective vision. Global capitalism’s leaders – the likes of Bush, Berlusconi, Sarkosy, Blair – are grotesque clowns compared to the statesmen of our youth like Roosevelt, Churchill, De Gaulle. As mentioned above, according to Immanuel Wallerstein, global capitalism has apparently reached the end of its 500-year historical cycle of birth (1492), growth and death. Having reached its limits as a global productive system, 21st Century capitalism is returning to its 1492 methods of ‘primitive accumulation:’ plunder, debt slavery, usury and other regressive forms of appropriating wealth. Today more than ever, the alternatives are socialism or barbarism – high-tech, market-driven barbarism; a mechanical monster without a heart that kills at a distance via drones and toxic mudslides. It will take a global mass movement of ‘billions against billionaires’ to overthrow it from within and replace it with a saner, more peaceful, cooperative, earth-friendly society.
15. What Next?
Can the present feverish ‘recovery’ last? Of course, despite the tendency of the rate of profit to decline, it is theoretically possible that the world capitalist economy will eventually recover as it did, with many false starts, after the 1929 Crash. Indeed, if the Crash of 2008 is not followed by more after-shocks, full-scale production might slowly resume after sufficient existing inventory of values has been liquidated through use and obsolescence. Or more rapidly through full-scale war, as in 1939-45. In either case, this process would take time. According to statistics, in the wake of the 1929 Crash the U.S. stock market took until 1953 (24 years) to recover its original value adjusted for inflation. So the best optimistic prediction would be for full recovery by 2032.
On the other hand, if we don’t replace this decadent system soon, I doubt many of us will be in a condition in 24 years to enjoy that hypothetical 2034 recovery given capitalism’s second major crisis: the environment. Global warming keeps accelerating, and we are probably very close to the tipping point, when it will be impossible to slow or stop catastrophic climate change. In 2008, scientists began reporting that the arctic glaciers and frozen tundra are rapidly melting, releasing mega-tons of methane – a greenhouse gas twenty times more dangerous than CO2. Worse still, all that brilliant white ice and snow that used to reflect the sun’s heat back into space is melting, exposing brown and green earth that absorbs solar heat – thus raising the earth’s temperature and causing more ice and snow to melt – a classic vicious cycle. Another accelerating vicious cycle is caused by an overheated atmosphere warming the very oceans that normally cool it. Obviously, these vicious cycles reinforce and accelerate each other in horrific synergy.
Yet capitalism’s solution to the climate crisis is to bail out the auto industry (rather than build mass transit), burn more alleged ‘clean’ coal (rather than going solar) and to institute pro-business ‘cap and trade’ credits which finance fiscal flummery (rather than effect controls). The failure of the December 2009 Copenhagen climate summit indicates that none of the major capitalist governments has the slightest intention of damaging its competitive economic advantage by enforcing even the mildest limits on CO2 emissions. Period. After 1914 the only choices left for humanity were ‘socialism’ or ‘barbarism.’ Today, after two world wars and countless massacres, the choices are ‘ecosocialism’ or ‘eco-suicide.’
Humanity is entering a phase of titanic social struggles – perhaps the ‘final conflict’ evoked in the chorus of the traditional workers anthem, the Internationale. [38] Food riots in Asia, Left governments and popular movements in Latin America, youth uprisings in Greece, a general strike in Guadaloupe and Martinique, organized resistance to plant closings and foreclosure evictions in the U.S., a new global Climate Justice movement in the wake of the Copenhagen fiasco – we can already hear the first rumblings. By demanding justice and equality, these class struggles carry within them the only true solution to capitalism’s endemic crisis of boom and bust, overproduction and unemployment, obscene wealth and desperate poverty.
Whatever the outcome, one thing is certain: to succeed, future struggles will have to be international. There is no other way to beat the globalized capitalist banks and multi-national corporations we are up against. We must act locally, but think globally. The multinationals are past masters at pitting one group of workers against another and delocalising to avoid paying a decent wage, at playing ‘race’ against ‘race’ and nationality against nationality. For the employee class, it’s either global unity or the race to the bottom. The worker socialist movement has a long tradition of international solidarity. It began in 1848 with the slogan ‘working people of all countries unite,’ but this unity was not possible to coordinate in practice. Today, with modern communications technology (Internet), working people can organize global strikes and boycotts against corporations like Monsanto in real time and bring capitalism to its knees. The century-and-a-half-old dream has become practical reality. Take that, Mr. Capitalist Shark!
Endnotes
1. Harpers, October 2009.
2. Quoted in Revue internationale No. 136, Paris, premier trimestre 2009.
3. New York Times, Oct. 23, 2008.
4. The New Yorker, Oct. 20, 2008.
5. DemocracyNow.Org, March 3, 2009.
6. Organization for Economic Cooperation and Development interim report March 2009.
7. As reported in The Nation, Oct. 20, 2008.
8. See Christopher Hays, ‘Democracy Inaction’, The Nation, Oct. 20, 2008.
9. Alan Faujas, ‘Les bulles spéculatives menacent à nouveau’.
10. Paul Krugman, ‘The Madoff Economy’, New York Times, Dec. 19, 2008.
11. Actually, the U.S. has the highest debt-to-income ratio as a result of military spending and the bailouts.
12. ‘Low Road to High Finance: McClatchy Expose Reveals How Goldman Sachs Sold Off Billions in Mortgage Securities After Anticipating Housing Collapse’.
www.democracynow.org/2009/11/4/sachs
13. ‘Recession Raises Poverty Rate to a 15-Year High’, New York Times, Sept. 16, 2010.
14. As the spy-novelist John Le Carré and others have long pointed out, the big banks routinely and knowlingly ‘launder’ with impunity huge amounts of drug money deposited by the big criminal syndicates.
15. This was the consensus of the academic Marxist economists presenting at the Historical Materialism Conference I attended in London in November 2009 in the wake of the Crash. Their main worry seemed to be that through state intervention the capitalist system would recover before the Left could make an issue of the recession and rally the workers to socialism.
16. My ecosocialist comrade, the historian and novelist Jonathan Neale, is heading up such a campaign in Britain, and we need one in the U.S.
17. According to Lori Wallach, the director of Public Citizen’s Global Trade Watch division, interviewed on DemocracyNow.org on Sept. 20, 2009. Such international sanctions are not just theoretical. For example, Canadian producers of dirty-burning gasoline won a suit against the State of California, whose anti-pollution laws prevented them from entering that market. California was forced by the WTO to ‘reimburse’ these Canadian companies for the potential profits they would have made selling their banned product.
18. A few savvy Wall Street analysts remained skeptical of the endless Bull Market, notably Peter Schiff, President of Euro-Pacific and author of Crash Proof, who saw it all coming and steered his clients into gold and unglamorous diversified non-dollar investments, for example in Australian or Swedish utilities.
19. Notable exceptions: Richard Wolff, editor of Rethinking Marxism, Paul Mattick Jr. (aka ‘the Last Marxist’), Bob Fitch (author of Solidarity for Sale) and my old friend the sociologist Immanuel Wallerstein, Director of the Ferdinand Braudel Institute, who since the ’70s has been plotting the historical curve of capitalism’s 500-year rise and decline.
20. See Wolff’s articles and video ‘Capitalism Hits the Fan’.
http://www.rdwolff.com/
21. For one such prediction, see the ‘Conclusion’ of my 1988 article ‘Twenty Years After: 1968 in Historical Perspective’, reprinted in Beware of Vegetarian Sharks (Praxis 2008). Online at:
www.lulu.com/content/923573
22. The best introduction remains Raya Dunayevskaya’s chapters on Capital in her 1958 Marxism and Freedom, which has gone through many editions.
23. In fact, much of capitalist production consists of ‘capital goods’ – means of production like factories, raw materials, machines that make machines – sold to other capitalists who produce consumer goods. This huge increase in productive capacity, typical of capitalism, eventually leads to unemployment and overproduction as we see below.
24. Thus U.S. capitalism ‘solves’ the problem of joblessness by locking up 7.3 million citizens, or about 3% of the population, at an annual cost to the taxpayers greater than the budgets for education, transportation and public assistance combined, according to the latest Pew study, New York Times, March 2, 2009.
25. Cf. Naomi Klein, No Logo (HarperCollins, 2000).
26. Cf. Paul Krugman, ‘Revenge of the Glut’, New York Times, March 2, 2009.
27. Andrew Kliman, Reclaiming Marx’s “Capital”: A Refutation of the Myth of Inconsistency (2009).
28. 2009 U.S. Federal Budget.
29. According to Nobel-prize economist Joseph Stiglitz’s Three Trillion Dollar War.
30. 2009 U.S. Federal Budget Receipts of which corporate taxes accounted for only 7% ($138B) as opposed to 85% ($1,806B). For more analysis, see Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill, by 2001 Pulitzer-prizing-wining former N.Y. Times senior reporter, David Cay Johnson.
31. Apparently the CIA imagines the same scenario. In its first report to the new President, the CIA placed the threat of ‘domestic unrest’ in a higher category than that of foreign terrorism.
32. See Propaganda, Bernays’ seminal 1928 book. During WWI, Bernays had brought the techniques of modern advertising to the manufacture of patriotic propaganda.
33. See Heather Roger’s splendid and readable book: Gone Tomorrow: The Hidden Life of Garbage (N.Y. and London: The New Press, 2005).
34. See ‘Poor Homeowners, Good Loans’, New York Times, Oct. 17, 2008.
35. Untranslatable German expression meaning “sick pleasure derived from others’ discomfiture”.
36. See the latest Engels biography: Tristram Hunt, Marx’s General (N.Y., 2009).
37. ‘From New York to Liberia, Investigative Journalist Greg Palast Tracks Vulture Funds Preying on African Debt’.
http://www.democracynow.org/2010/3/3/vultures
38. Written in 1871 by Eugène Pottier, a member of the revolutionary Paris Commune, the International has been sung (off key in 27 languages) by workers and socialists around the world.
Richard Greeman is a long time socialist and international activist best know for his studies and translations of Victor Serge, the Franco-Russian novelist and revolutionary. His recent book Beware of Vegetarian Sharks: Radical Rants and Internationalists Essays (Illustrated) is available online at www.lulu.com/content/923573 (free downloads). He can be contacted at: rgreeman@gmail.com
