The Stock Market Crisis1 1988

The Stock Market Crisis1 1988
International Communist Party
On Marxist Economics
The Stock Market Crisis
Prodrome of a Great Historical Crisis That Will Sweep Away All the Monstrous Capitalist Production Machines of the East and West at Once
(
Comunismo
, No. 25, 1988)
The end of illusions
–
The three phases of the cyclical process
–
Credit and speculation
–
From euphoria to the crash
–
The price of economic recovery
1983-84
–
American imports
pull the world economy along –
World market shrinks
–
Galloping debt
–
Soul and body in speculation
–
A new far worse 1929
–
Well dug, old mole
: The 1975 crisis –
Oil on fire
–
1847, prototype of every crisis
–
Productive forces
rebel against relations of production –
Crisis, War, Revolution
.
The end of illusions
The course of Wall Street stocks, after five years and two months of
almost continuous growth, from 13 August 1982, when it reached its
lowest point with the Dow Jones index at 776.82, to its peak in October
1987 at 2670, an increase of 243%, suffered an overwhelming collapse
that far exceeded the famous Black Friday Crash of 1929, triggering
general panic on all stock markets around the world. The similarity of
events is striking. At that time, too, share prices had risen almost
continuously for five years and three months, from 1924 to 1929, with
the New York Times index rising from 106 to 469, a 342% increase. Then,
as now, the immediate cause of the crash was the rise in interest rates,
and in particular the Bank of England’s decision to raise its discount
rate from 4.5% to 6.5%. Even recently, the Bundesbank raised its rate,
pushing up that of the Central Bank of the United States, as it did
then.
History does not repeat itself, say the bourgeoisie, to reassure
themselves; we Marxists draw the conclusion, once again, that nothing
has changed under capitalism since Marx undertook the analysis of its
economic laws using the English example of the Victorian era. The
repetition of the two events, 58 years later, marking ‘the end of
illusions’ as the bourgeois newspapers headline, fully confirms those
laws. Marx alone suffices for us, in particular the fifth section of the
third volume of
Capital
, to describe and understand the
significance of the current stock market crash.
The three phases of the cyclical process
The speculative frenzy from Wall Street spread to all financial
centres like a worldwide Maelstrom, in contrast to the stagnation of
production. But the contradiction is only apparent: to enable capitalist
production, which peaked in 1979-80, to emerge from the recession of
1980-82, the credit system was developed on a hitherto unprecedented
scale, enabling the reproduction process to be kept going beyond its
historical possibilities. This, although stock market speculation is but
a ‘house of cards’, and built on quicksand, is part of an already
general speculation.
Marx distinguishes three stages in the production process that
precede the general crisis of overproduction (Volume Three, Chapter 30,
I).
1. ‘After the reproduction process has again reached that state of
prosperity which precedes that of over-exertion, commercial credit
becomes very much extended; this forms, indeed, the “sound” basis again
for a ready flow of returns and extended production’.
Here we are talking about the moment in the cycle, which follows a
severe economic crisis, after there has been not only a sharp fall in
industrial production, but also, through deflation, a strong revaluation
of commodity capital, as, for example, during the crisis of 1847-1848,
or, closer to us, of 1930-1932. This moment corresponds to the years of
economic recovery, which in this post-war period coincides with the
period of reconstruction and precedes the second moment, when industrial
production has already far exceeded the maximum reached before the
crisis.
2. ‘On the other hand, those cavaliers who work without any reserve
capital or without any capital at all and who thus operate completely on
a money credit basis begin to appear for the first time in considerable
numbers. To this is now added the great expansion of fixed capital in
all forms, and the opening of new enterprises on a vast and far-reaching
scale. The interest now rises to its average level’.
Finally, the moment immediately preceding the crisis and the
crisis itself.
3. ‘[The interest rate] reaches its maximum again as soon as the new
crisis sets in. Credit suddenly stops then, payments are suspended, the
reproduction process is paralysed, and with the previously mentioned
exceptions, a superabundance of idle industrial capital appears side by
side with an almost absolute absence of loan capital’.
Credit and speculation
Credit, Marx explains, is the basis of the whole ‘complex process of
reproduction’. Without it, production would be asphyxiated if not
paralysed. The merchant who buys goods from the industrialist cannot pay
him before he has sold them, as he does not possess the necessary
capital, and not even when he has sold all his previous stock, because
the volume of production is constantly increasing and thus also the
value of capital. But the industrial capitalist, or rather the
enterprise, cannot stop production and wait for the realisation of the
commodity capital value to start a new production cycle. So he advances
the capital to the wholesaler in exchange for a bond, i.e. a bill of
exchange or receipt payable on maturity. This same wholesaler advances
the same goods to other merchants in exchange for bank receipts. All
this time, the industrialist, in order to acquire the raw materials
necessary for the production process, will offer in payment the bills he
has received in exchange for his goods, i.e. he will turn to the bank
which will exchange them at a certain discount rate; the discount rate
is the percentage the bank asks for turning the bills into money or new
credit. With these the industrialist will be able to pay wages and buy
raw materials. It will then be to the bank that the merchant will pay
the bill of exchange, once negotiations have taken place. If the bank
needed cash in the meantime, it will have resold it, at a certain
discount rate, to another bank. And so a whole mass of bills of exchange
circulates on the market, in place of money, as a means of payment, the
volume of which increases as production increases.
Alongside this
commercial credit
, which forms the basis of
the entire credit system, other forms are added, of which the three main
ones are: Bonds, long or medium-term loans with fixed interest rates,
issued in the form of securities by large companies or by states (in the
latter case we speak of Treasury bonds); Shares, which are ownership
titles that entitle the holder to a share of the profit in proportion to
their value; finally, direct credit from a bank. Credit, particularly
commercial credit, offers the possibility of accelerating the process of
capital reproduction, while the intermediation of banks makes available
to industry and commerce the entire mass of social capital, i.e. capital
that belongs to others, but which banks and industries use as their own.
This mechanism makes it possible, on the basis of bourgeois society, to
go beyond the limits imposed by individual property relations, until
production, forced to the maximum, blows up these same relations causing
their general rupture, the crisis.
Hand in hand with the increase in production and the corresponding
swelling of credit, speculation grows, particularly when new branches of
industry are created, which boast high growth rates and fat profits,
thus attracting money capital from all countries. Marx gives the example
of the railways in this regard, Engels of large public works, such as
the construction of the Panama Canal at the turn of the century, the
failure of which swallowed up the savings of a large section of the
petty bourgeoisie (which happens regularly).
Speculation is not limited to production, it develops in even more
gigantic proportions in trade.
‘The capital itself, which a man really owns or is supposed to own in
the opinion of the public, becomes purely a basis for the superstructure
of credit. This is particularly true of wholesale commerce, through
which the greatest portion of the social product passes. All standards
of measurement, all excuses more or less still justified under
capitalist production, disappear here. What the speculating wholesale
merchant risks is social property, not his own’.
And Marx cites, among others, the case of merchants who export to
these distant countries, taking advantage of the time required by long
journeys to discount at banks goods whose value remains to be realised,
goods which, by the way, do not belong to them having received them from
manufacturers in exchange for bank receipts. The money obtained in this
way is reinvested in the purchase of other goods, from the sale of which
it is hoped to make a good profit, or it can be used for other
speculative purposes; for instance on the stock exchange. Let the goods
fail to be sold due to a market glut, a major delay occurs and it is
bankruptcy!
The other great avenue of speculation is that which is done on
drafts, bonds, shares, etc. The inordinate hypertrophy of credit as a
result of the needs of production leads to the accumulation of a
gigantic mass of securities of all kinds (drafts, bonds, shares, etc.)
that are nothing more than a mountain of paper whose value is purely
fictitious. In the crisis their value deflates like a balloon, which
everyone tries to get rid of in exchange for cash. But at that moment, cash
is scarce, i.e. expensive.
How does this state of affairs come about? On the one hand, the
increase in production creates a constant influx of money capital, on
the other hand, the rise in the interest rate makes it increasingly
difficult to valorise the immense mass of capital constantly thrown onto
the market, eventually leading to the paralysis of trade and industry.
Speculation itself, moreover, powerfully contributes to the growth of
the interest rate: the cavaliers of credit who throw themselves headlong
into speculation can pay high interest rates, since they do so by
picking other people’s pockets, as Marx points out.
This whole process, which results in a gigantic accumulation of
securities, some of which are speculative and whose mass far exceeds the
amount of money in circulation or held in reserve in the vaults of the
central banks (those authorised to mint money), is merely the expression
of an industrial growth conducted increasingly on the basis of the
credit system. If credit makes it possible to push beyond the limits
offered by bourgeois society to production, it cannot suppress them and
there comes a time when the bill must be settled. It is the moment when
the interest rate rises and general overproduction becomes evident.
‘In a system of production, where the entire continuity of the
reproduction process rests upon credit, a crisis must obviously occur –
a tremendous rush for means of payment – when credit suddenly ceases and
only cash payments have validity. At first glance, therefore, the whole
crisis seems to be merely a credit and money crisis. And in fact it is
only a question of the convertibility of bills of exchange into money.
But the majority of these bills represent actual sales and purchases,
whose extension far beyond the needs of society is, after all, the basis
of the whole crisis. At the same time, an enormous quantity of these
bills of exchange represents plain swindle, which now reaches the light
of day and collapses; furthermore, unsuccessful speculation with the
capital of other people; finally, commodity-capital which has
depreciated or is completely unsaleable, or returns that can never more
be realised again. The entire artificial system of forced expansion of
the reproduction process cannot, of course, be remedied by having some
bank, like the Bank of England, give to all the swindlers the deficient
capital by means of its paper and having it buy up all the depreciated
commodities at their old nominal values’ (Ch. 30, V).
From euphoria to the crash: the rise of the interest rate in 1974 and 1980‑81
For a few months before the crisis, interest rates rise, to peak
during the crisis, money becomes scarce and expensive, and the commodity
capital that clutters the markets depreciates en masse, as do the bills
of exchange that represent it, shares, etc.
If we go back to the statistics provided by the UN’s International
Financial Statistics, we actually see this rise in the interest rate in
every crisis.
Three interest rates are significant to follow: the central banks’
discount rate, which corresponds to the price they charge to lend money
to other banks; the market rate for bonds, which corresponds to
long-term loans and which in the US is now entirely taken up by the
public Treasury; and the rate for short- and medium-term loans that
banks make to businesses. For reasons of space, we report only the first
table here.
To our statistics of the six western countries that we regularly
follow, we add here Belgium, a country of long-standing
industrialisation and which has a pivotal position in northern Europe,
between France, Germany and England. Belgium was separated from France
by the Holy Alliance at the beginning of the last century, precisely
because of its geographical position, in order to act as a
counter-revolutionary barrier.
OFFICIAL DISCOUNT RATE
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
Belgium
6.5
5.5
5.0
7.7
8.7
6.0
9.0
6.0
10.5
12.0
15.0
11.5
10.0
11.0
9.7
8.0
8.0
F.R.G.
6.0
4.0
4.5
7.0
6.0
3.5
3.5
3.0
3.0
6.0
7.5
7.5
5.0
4.0
4.5
4.0
3.5
France
7.0
6.5
7.5
11.0
13.0
8.0
10.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
Italy
5.5
4.5
4.5
6.5
8.0
6.0
15.0
11.5
10.5
15.0
16.5
19.0
18.0
17.0
16.5
15.0
12.0
G.Britain
7.0
5.0
9.0
13.0
11.5
11.2
14.2
7.0
12.5
17.0
14.0
U.S.A.
5.5
4.5
4.5
7.5
7.7
6.0
5.2
6.0
9.5
12.0
13.0
12.0
8.5
8.5
8.0
7.5
5.5
Japan
6.0
4.7
4.2
9.0
9.0
6.5
6.5
4.2
3.5
6.2
7.2
5.5
5.5
5.0
5.0
5.0
3.0
It is verified that the interest rate peaked in 1974 (in 1973-74 for
discount rates) and in 1980-81; lower in the period between two crises,
it rises again just before the next one.
From 1982-83 there is a slow but steady decline in interest rates, a
decline that accompanies the euphoric economic recovery in the United
States and Japan from 1983 onwards. However, this fall in interest rates
is not as strong as it seems and in real terms even reverses from 1985
onwards due to the fall in inflation that followed the industrial
recovery. It will reach record levels in the most recent years,
heralding a new recession, this time of historic dimensions!
The price of economic recovery 1983-84
Starting in 1983 there was a sharp industrial recovery in America.
But this recovery was short-lived, with production increasing in 1984 by
10% in one year, slowing down in 1985 to only +2.6% per year and
becoming negative in 1986 with a modest -0.8%. Japan’s industrial curve
is exactly parallel to that of the United States. In Europe, economic
recovery will be later than in 1984 and of lesser magnitude: most
European countries will not reach or exceed their previous highs until
1985 and at the end of 1986 for Italy. 1986, however will be a year of
general stagnation.
INDUSTRIAL PRODUCTION INDEX
base 1980=100 - from UN Yearbook
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
WORLD
74
76
81
88
88
81
87
91
95
100
100
100
96
99
106
110
111
U.S.A.
72
73
80
87
86
78
85
92
98
102
100
102
95
101
112
115
114
Japan
67
69
74
85
81
72
80
84
89
96
100
101
101
105
117
122
122
F.R.G.
84
85
88
93
91
85
91
93
95
100
100
98
95
95
98
103
105
G.Britain
90
90
91
100
98
92
95
100
103
107
100
97
98
102
103
108
110
France
74
79
83
89
91
85
92
93
96
99
100
98
98
99
100
101
102
Italy
71
71
74
81
84
77
86
85
89
95
100
98
95
92
95
97
99
Belgium
80
82
88
93
96
87
95
95
97
101
100
97
98
99
102
104
105
INCREASES IN INDUSTRIAL PRODUCTION
in percent, calculated from the table above
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
WORLD
1.3
2.7
6.5
8.6
0.0
-7.9
7.4
4.5
4.3
5.2
0.0
0.0
-4.0
3.1
7.0
3.8
0.9
U.S.A.
4.0
1.3
9.6
8.7
-1.1
-9.3
8.9
8.2
6.5
4.0
-1.9
2.0
-6.8
6.3
10.8
2.6
-0.8
Japan
13.5
2.9
7.2
14.8
-4.7
-11.1
11.1
5.0
5.9
7.8
4.1
1.0
0.0
3.9
11.4
4.2
0.0
F.R.G.
6.3
1.1
3.5
5.6
-2.1
-6.5
7.0
2.1
2.1
5.2
0.0
-2.0
-3.0
0.0
3.1
5.1
1.9
G.Britain
0.0
0.0
1.1
9.8
-2.0
-6.1
3.2
5.2
3.0
3.8
-6.5
-3.0
1.0
4.0
0.9
4.8
1.8
France
5.7
6.7
5.0
7.2
2.2
-6.5
8.2
1.0
3.2
3.1
1.0
-2.0
0.0
1.0
1.0
1.0
0.9
Italy
7.5
0.0
4.2
9.4
3.7
-8.3
11.6
-1.1
4.7
6.7
5.2
-2.0
-3.0
-3.1
3.2
2.1
2.0
Belgium
2.6
2.5
7.3
5.6
3.2
-9.3
9.1
0.0
2.1
4.1
-0.9
-3.0
1.0
1.0
3.0
1.9
0.9
On the whole, the economic recovery was not a great thing, it came at
the cost of fantastic indebtedness and was accompanied by speculation on
a scale unheard of in the post-war period. Moreover, had it not been for
the massive American imports of industrial products, the world would
still be in recession today. To be convinced of this, one only has to
look at the UN statistics of the trend of these imports: 1983 +11%, 1984
+25%, 1985 +12%, 1986 +15%.
American imports pull the world economy along
No other industrial country has imported as much. On the contrary,
with Japan and Germany in the lead, they all try to export more than
they import. At the same time, while the United States saw its export
index rise slightly from 1983 onwards, it was still 14% below its 1980
peak in 1986.
The result has been a record trade deficit, which in turn implied a
growing debt of the United States to the outside world. The balance of
payments, positive until 1981, turned into a deficit: -$107 billion in
1984 and -$117.7 billion in 1985. After that things got even worse: the
United States lives on the credit of other imperialisms.
The American foreign debt is growing at the rate of $12 billion every
month. From 220 billion in 1986 it exceeded 300 billion by the end of
1987, and it is expected to equal the national product of countries the
size of Italy or France by 1990. It is clear that this situation will
not last. The consequences are the rise in interest rates and the
devaluation of the dollar, which has done nothing but fall since 1985.
This means that we are already in a situation of general
overproduction.
World market shrinks
The same conditions prevailed prior to the 1975 and 1980-82 crises:
devaluation of the dollar to save the US economy and a rise in interest
rates. But in a general situation that has clearly worsened for
capitalism: on the one hand the American market is tending to close
itself off to European and Japanese exports, on the other hand the
markets that had opened up after the 1975 crisis are now contracting
sharply.
Due to their growing indebtedness ($126 billion for the Eastern
countries and $200 billion for the others in 1987), the Eastern
countries and the ‘developing’ countries tend to import as little as
possible and export as much as possible; they also tend to increase
their mutual trade by reducing their trade with the industrialised
countries. The time when these countries imported capital and goods in
large quantities to industrialise has passed. Today, in order to be able
to pay their debts, not only have the poor countries greatly reduced
their imports, but their factories, which are young and competitive, are
competing fiercely with those of the old capitalist countries. From 1984
to 1986, the share of young industrialisms in the import of industrial
products fell by 5%, representing a loss of revenue of $43 billion for
the ‘old’ ones. Here is what
Le Monde
writes about the economic
and social situation of these countries and the consequences of closing
their markets:
‘In fifteen years, the evolution has been such, with an astonishing
diversification of their competitive productions, that it should strike
all those who doubted the industrial take-off of the Third World (...)
Certainly, the greatly increased burdens due to the increase in interest
rates and the rise of the dollar have contributed to the elimination of
some inconvenient competitors. In Latin America, we are talking about
thousands of factory closures, construction site stoppages, millions of
men deprived of their jobs, a fall in income per inhabitant of 10% in
three years, with long suffering and economic regression (...) In the
immediate future, the required payments can only be ensured by a
desperate commercial offensive on the part of the indebted countries,
and the closure of their markets, with all the consequences and
contradictions for the industrialised economies’.
As we can see, these countries are heavily exploited and pressed by
international finance capital, but this will not prevent capitalism in
developed countries from recession and deflation, as we wish upon
them.
The situation in the new capitalist countries was further aggravated
by the fall in the price of raw materials due to their overproduction,
which was all the greater because of the general slowdown in world
industry in 1986. At the same time, the collapse in oil prices devalued
the imports of the OPEC countries (-24% in 1986 and -22% in 1987) and
Europe, whose trade is highly dependent on the countries of the area,
suffered the most.
According to the same bourgeois economists, world trade would never
have exceeded the 1981 level without the contribution of American
imports. Moreover, in 1986 the increase in profits and incomes resulting
from the fall in oil and raw material prices, and thus the resulting
expansion of the domestic market for industrialised countries, did not
compensate for the contraction of the world market.
In this regard,
Le Monde
reports interesting figures on
industrial growth and exports in the post-war period. It would be more
useful to have the same figures for imports, which express market
expansion, exports reflecting instead, as Marx teaches us, industrial
growth. In a later work we will try to get those figures in order to
compare, as we have done in the past, the growth of the world market
with the growth of industry, in order to identify the moment when the
two curves meet, indicating that this is the hour of the crisis.
In short, international merchandise exports would have increased by
9% between 1963 and 1973; by 4% between 1973 and 1979; and by 2% between
1979 and 1984, compared to 6%, 3%, 1.5% for industrial production,
respectively. These two sets of figures are noticeably parallel, as
expected, and confirm the theory of the tendential fall in the profit
rate, in confirmation of which we have recently updated one of our
extensive economic frameworks.
Galloping debt
To sum up. The economic recovery that followed the 1980-82 recession
was not remarkable and shows the first signs of its end. The recovery
came at the cost of hyperbolic indebtedness, both of states and of
companies and individuals.
We do not have all the statistical data, but some figures we do have
for the United States are eloquent enough. In 1986, the total debt
(public and private) exceeded 7 trillion dollars, an increase in one
year of about 1 trillion, truly colossal! One can better appreciate the
enormity of this by comparing its value to that of the Gross National
Product, resulting in a ratio of 177%! which is the highest ratio since
the 1930s. The national debt accounts for about a quarter in this
fantastic sum, i.e. 2,000 billion dollars in 1986, compared to 1,000
billion in 1981: twice as much, and starting from an already high
figure. According to the newspapers, the public deficit absorbs two
thirds of national savings.
But the American state is not alone in getting into debt in this way.
As we have shown in our studies, other countries are sliding down the
same slope. For example, in France they admit that the public debt could
rise from 22.6% of the national product in 1984 to 31% in 1990.
The United States can only afford the luxury of such indebtedness
because it lives on the credit of the entire world, yet the time will
come when the burden of foreign debt will become intolerable, a time all
the closer the more exponentially it grows. Then even the American state
will be forced to declare itself bankrupt, as was the case for the
British state in the great crisis of 1848.
For the time being, the result of such indebtedness is to push up the
interest rate. In fact, the debt becomes so gigantic and the demand for
money so great that foreign investors, particularly the Japanese, are
increasingly turning a deaf ear to buying US Treasury bonds; the fall in
the dollar itself will make the situation even worse, further devaluing
the bonds already bought. Because of this, investors will only buy
Treasury bonds under conditions that increase the risk premium, i.e. the
interest rate.
The American debt, and more generally the growing indebtedness of all
states, was one of the most important factors that contributed to the
rise in interest rates that led to the most thunderous stock market
crash since 1929.
Soul and body in speculation
Today’s economic situation is a repetition of the one that preceded
the Great Depression of 1930-31; but more serious. At that time, US
industrial production had increased by 11% from January 1928 to August
1929 (thus exacerbating overproduction), the federal government budget
was in balance and the trade balance in surplus.
Just like today, the years 1928-29 had seen a speculative orgy. This
had been preceded by a fall in the Federal Bank of New York’s interest
rate from 4 to 3.5%. Here again the similarity of events is astonishing.
In 1986, in a desperate effort to dope the economy, the Americans
lowered the discount rate four times.
Same causes, same effects. In the general context of overproduction,
these successive reductions, instead of stimulating industrial growth,
stimulated speculation on Wall Street. Adolph Miller, of the American
Federal Bank, and whose proposals are quoted by Galbraith in his book on
the crisis of 1929, calls the effects of the discount rate cut in 1927:
‘one of the most costly mistakes made by that or any other banking
system in the last 75 years’. Galbraith adds:
‘The funds that the Federal Reserve made available were either
invested in the purchase of shares on the stock exchange, or (and much
more so) became available to help finance the purchase of shares by
others. Thus provided with funds, people rushed to the market’. Another
bourgeois quoted by Galbraith concludes: ‘From this moment on, according
to all evidence, the situation is completely out of control’.
The same events repeated themselves in 1986-87. The Dow Jones index
had risen from 1,200 at the beginning of 1985 to 1,500-1,800 in early
1986, where it stopped for some time while waiting for a reform. Then,
from the beginning of January 1987 it took off, with more than a 30%
increase from 1,900 to 2,722, an all-time record reached on 22 August
1987. We find a description of the same scenes, but for 1928,
republished by
Le Monde
:
‘From the beginning of 1928 a veritable speculative orgy mounted,
encouraged by the practice of “carry-over sales” (i.e. margin trading
Ed.): buyers instead of paying for all their purchases paid only 10% in
cash and deposited securities as collateral for the remaining 90%, which
was advanced by stockbrokers at rates much higher than those of the
banking market. Brokers’ loans rose from $1.5 billion in the early
1920s, to $2.5 billion in 1926 and to $7 billion by the end of 1928,
reflecting the extent speculation had taken’.
And it is certain that the modern
yuppies
, i.e. the
financial institutions that hire them, have done no better than their
1929 grandfathers.
When capital reaches the end of the cycle, speculation is
inevitable
. It simply expresses the fact that: ‘industrial
expansion is conducted more and more on the basis of the credit system’
and in order to preserve itself it increasingly demands the ease of
payment. Credit, in allowing production to overcome the limits imposed
by property relations, also allows, as we have seen, speculation. The
more society lives on credit, the more speculation develops. Industrial
and commercial speculation at first, not to mention real estate
speculation on land and buildings; then, when production has swollen out
of all proportion, so that overproduction and crisis are already being
felt, speculation on the stock exchange. No bourgeois, under these
conditions, can resist the prospect of easy and immediate profit. This
temptation is also reinforced by the general slowdown in production.
A remarkable phenomenon, occurring for the first time in the post-war
period, is that the decline in productivity growth is now accompanied by
an easing of inflation, whereas hitherto it rose sharply with
productivity growth and persisted even during economic crises. According
to statistics for the OECD area, it remained at the rate of 1% to 2% per
annum on average between 1952 and 1965, then rose to 5% per annum on
average between 1965 and 1972, accelerated and peaked in 1980 with rates
exceeding 10% in most countries. Then the process reversed: 4.5% in
1985, 2.7% in 1986. We do not yet have the figures for 1987, but it is
known that inflation is slightly higher than in 1986 due to some
acceleration of production in the United States, Japan and some European
countries, including England, which only reached and exceeded its 1979
peak in 1985. Germany, on the other hand, saw its industrial growth
continue to slow down due to the stagnation of its exports, and also
their regression in volume. However, inflation has started to fall again
in recent months, even setting some record lows.
This ‘disinflation’, as the bourgeois press calls it, merely
expresses the state of flooding in which the markets find themselves,
and thus the exasperated competition that capitalists engage in among
themselves, who do not hesitate, in order to maintain their market
share, to decrease profit margins until they are forced to sell at a
loss.
Under these conditions it is clearly more profitable to speculate
than to invest. We quote here the very eloquent statements of a French
industrialist reported by
Le Monde
:
‘All the strong profits we made last year came from our investments
in the financial market, the president of the Argentine subsidiary of a
major French group told me recently’. And the journalist comments: ‘In
fact, producers of real goods (industrial and agricultural products, raw
materials, services) compete desperately with each other, which weighs
on prices, helping to keep the inflation rate relatively low. The result
is that it has become more profitable to buy securities than to make
tangible investments (equipment, factories, etc.)’.
Why invest when there is no guarantee of selling?
Our journalist, and with him many of the bourgeoisie and the entire
petty-bourgeoisie, believes that it is enough to stop speculation for
investment to resume and production to return to healthier levels than
before. He does not understand that the accumulation of capital has
become so inordinate that it can only realise its value on credit. So
the bourgeoisie throw themselves body and soul into speculation with a
frenzy commensurate with the formidable capital accumulation of this
post-war period. The world’s capital (real or fictitious) is flowing
into the various stock exchanges, mainly Wall Street, the City and
Tokyo. On this subject we read in
Le Monde
:
‘For the first quarter, foreign placements in American securities
were at an annual rate of $37.2 billion, which is twice the net total of
placements recorded the previous year and seven times that of 1985’.
The takeover of companies or participation in them often, not having
an economic purpose but only a speculative one, obliges companies to go
into debt in order to buy back some of their own shares at a high price
so as not to lose control over themselves, the famous takeover bids
(OPAs) of which so much is said in the press.
‘The largest wave of buying and selling of entire industrial groups
in American history begins to spread general alarm. The quest for profit
is driving up share prices to levels no one would have predicted in
1985. But in the process American industrial and commercial enterprises
have become heavily indebted in order to pay off the billions of dollars
needed to maintain their control (...) The Federal Reserve (the American
central bank) states that the ratio of corporate debt to market value is
71.4%, a high level and in some cases a record. What makes this ratio
alarming, according to economists, is that both the value of
corporations and the level of their indebtedness are extraordinarily
high; although there has been a vast accumulation of debt since 1981 in
the wake of a wave of speculative profits, the increase in the value of
corporations has roughly kept pace with the increase in debt, mainly due
to rising stock market values and general economic expansion. But many
fear that the burden of debt servicing could seriously affect American
industry in the event of a deep recession and falling profits (...) A
new type of control has appeared for the past five years; buying not
with a view to expansion and diversification but solely to liquidate a
company for immediate profit’ (
The Herald Tribune
).
A new, far worse 1929
This is where the mad accumulation of capital in this post-war period
has led us: a gigantic engorgement of the markets in addition to
colossal indebtedness, frenzied speculation, plus a recession and
massive devaluation of commodity capital. This speculation, in turn,
could not fail to push up interest rates: all these factors, the
excessive swelling of commodity capital, colossal indebtedness both of
companies and of the various states, and first and foremost, of course,
of the United States, unbridled speculation, lead to the rise in
interest rates, the prelude to the general recession which this time
will be planet-wide.
After peaking in the 1980-82 crisis, the interest rate, while still
remaining at high levels, has since nominally declined. However, net of
inflation, the process is the opposite: in real terms interest has now
reached historic highs. Since the end of March 1987, both because of
speculation, which broke all records this year, and because of the
insatiable demand for money by the US Treasury, all medium- and
long-term interest rates have started to rise.
Bourgeois economists have directed their criticism at the US Treasury
and the record US federal budget deficit. The latter have indeed an
incomparable weight in the world economy, yet all states are now
over-indebted and all compete with corporations for loans on the
long-term capital market.
It is no less true that since the end of March, the yield on US
Treasury loans has been rising regularly under pressure from lenders, in
particular the Japanese, who are little reassured about the American
economic situation and the decline in the dollar which devalues the
bonds already traded by the same amount. In particular, the 30-year bond
rate, considered a sample loan, rises regularly, gaining strength with
each quarterly call by an increasingly insatiable Treasury. From 7.5% it
rises to 8%, then 9% and finally 10% to reach a high of 10.44% just
before the stock market crash. If we take the ‘prime rate’, which
corresponds to the loans granted by banks to the best companies, we find
the same phenomenon:
1987
May
June
July
August
Sept.
October
8.14
8.25
8.25
8.25
8.75
9.25
Under these conditions the discount rate of the various central banks
could only rise in turn. It is this general upward movement of rates
that causes the stock market crash.
Marx points out that the value of shares rises and falls in inverse
proportion to the interest rate. When the value of stocks goes up, their
yield (i.e. interest in relation to their value) goes down as well. This
is what happened last October. On the other hand, the rising cost of
credit has forced a number of institutions and companies to dispose of
their securities in order to obtain cash,
‘Therefore, when the money-market is tight these securities will fall
in price for two reasons: first, because the rate of interest rises, and
secondly, because they are thrown on the market in large quantities in
order to convert them into cash’ (
Capital
, Vol. III, Ch.
29).
All the bourgeoisie, having experienced the delights and delirium of
rising stock prices, are then assailed by terror and each rushes to sell
at the best.
‘When a panic exists a man does not ask himself what he can get for
his bank-notes, or whether he shall lose one or two per cent by selling
his exchequer bills, or three per cent. If he is under the influence of
alarm he does not care for the profit or loss, but makes himself safe
and allows the rest of the world to do as they please’
(
Capital
, Vol. III, Ch.25).
We know the result: millions and millions of securities sold in a
single day. All the press spoke at the time of fabulous losses; $1
trillion on Wall Street, $405 billion on the Tokyo Stock Exchange, etc.
All these astonishing figures are nothing but nonsense. The mountain of
paper that these securities represent has no value in itself. The money
capital that has been poured into its purchase has long since been
consumed, either in production by industry, or sterilely in murky and
speculative dealings, or unproductively for the needs of the state. In
any case, there is no creation of value in the stock market, nor, if the
stock market crash does not herald a general recession, do nations find
themselves poorer than before.
As Engels points out in a letter we read at one of our party
meetings, the stock exchange is first and foremost a place where the
bourgeois exploit each other, and a stock market crash has the effect of
concentrating stocks in the pockets of a few to the detriment of
others.
‘[The] depreciation [of securities] in times of crisis serves as a
potent means of centralising fortunes. To the extent that the
depreciation or increase in value of this paper is independent of the
movement of value of the actual capital that it represents, the wealth
of the nation is just as great before as after its depreciation or
increase in value (...) Unless this depreciation reflected an actual
stoppage of production and of traffic on canals and railways, or a
suspension of already initiated enterprises, or squandering capital in
positively worthless ventures, the nation did not grow one cent poorer
by the bursting of this soap bubble of nominal money-capital’
(
Capital
, Vol. III, Ch. 29).
Those who lose out, apart from a few speculators and the big
bourgeoisie, are more the petty bourgeoisie, but of course we will not
shed a tear over these cretins who well deserve the kicking and
thrashing of big capital.
The gazetteers, who present the crash as a general catastrophe that
would impoverish nations and could cause a recession, through the
consequent reduction of the market, being incapable, for class reasons,
of understanding the origin of value, invert the reality of things by
taking the effect for the cause.
In conclusion we will give the analysis that Marx and Engels made in
1850, in the
Neue Rheinische Zeitung
, of the economic events
that preceded the great crisis of 1847-48:
‘The years 1843-5 were years of industrial and commercial prosperity,
a necessary sequel to the almost uninterrupted industrial depression of
1837-42. As is always the case, prosperity very rapidly encouraged
speculation. Speculation regularly occurs in periods when overproduction
is already in full swing. It provides overproduction with temporary
market outlets, while for this very reason precipitating the outbreak of
the crisis and increasing its force. The crisis itself first breaks out
in the area of speculation; only later does it hit production. What
appears to the superficial observer to be the cause of the crisis is not
overproduction but excess speculation, but this is itself only a symptom
of overproduction. The subsequent disruption of production does not
appear as a consequence of its own previous exuberance but merely as a
setback caused by the collapse of speculation’ (Pamphlet V-VI,
May-October 1850).
Well dug, old mole: the 1975 crisis
The 1975 recession was the first major post-war recession to affect
all major industrialised nations at the same time, including the
countries of the East.
The great inter-war crisis that the party had been waiting for did
not occur in 1975. Evidently capitalism, in the major industrialised
countries, had not yet burnt through all its reserves and still had
sufficient room for manoeuvre and resources to prevent the
overproduction crisis from spreading with all its consequences: a sharp
fall in production combined with the massive devaluation of commodity
capital, including that enormous mass of paper that is securities of all
kinds, with its sequel of bankruptcies of industrial, commercial and
banking enterprises.
There was indeed a sharp fall in industrial production, with
resounding bankruptcies, but it was not enough and lasted for too short
a time to bring about the general devaluation of capital. Instead of
deflation, inflation was maintained, which instead, with the economic
recovery that followed, amplified to reach a peak during the 1980-82
crisis.
In the hardest hit sectors, such as steel production, cement
production, shipyards, and construction, the states intervened with
subsidies to support the industries and forced the industrialists of the
same branch to agree to reduce production in order to support prices.
This made it possible to raise the rate of profit, which had fallen to
zero, to the detriment of the workers who were well and truly
tormented.
At the same time, new markets opened up: the considerable rise in the
price of oil allowed a considerable transfer of wealth to the OPEC
countries, which in return provided an extensive outlet for western
goods. From the point of view of technology transfer, the so-called
third world countries (especially Latin America and Asia), renamed
‘developing countries’, were the object of multiplied attention, i.e.
increased exploitation: export of money capital (on credit, of course)
to allow the export of the imperialist nations’ overproduction.
At the same time, the indebtedness of the imperialist states
themselves in order to stimulate production assumed unprecedented
proportions.
Today capitalism has fired all the shells. The markets that had
opened up after the 1975 crisis have closed again, both because of the
weight of a debt that has become intolerable, which pushes poor
countries to export as much as possible and reduce imports as much as
possible, and because of the fall in the price of oil, due to
overproduction due to the multiplication of wells and intense
speculation in a sector that has become very lucrative, which also
forces the OPEC countries to drastically reduce imports.
The American market, which has been pulling the economy along since
the 1980-82 crisis, is in turn closing itself off to European and
Japanese imports, using the de facto devaluation of the dollar, almost
100% against the mark and yen, as a customs barrier. Domestic
consumption and economic activity itself, in particular construction,
have been falling steadily in recent months in the United States, and
industrial growth now relies heavily on exports. Against this backdrop,
competition on the world market is becoming fiercer and fiercer, making
any agreement even within the various branches of industry increasingly
difficult. The inability of the OPEC countries to come to an agreement
with each other is proof of this.
The indebtedness of states and the frenzied speculation of recent
years, after having granted a respite to capitalist reproduction, now
produce the opposite effects: by pushing up interest rates they
precipitate the crisis, as the rise in oil prices once did.
Even in the eastern countries, the economic situation is far from
shining. The ‘new’ economic and social policy of the Gorbachev
government is identical to that of the western states – ‘deregulation’
to make the laws of the market work more inexorably, closure of
unprofitable companies, dismissal of excess staff, price transparency –
and is only an expression of the difficulties of Russian capitalism. In
Le Monde
one can read a ‘transparent’ description of the state
of the Soviet economy reported by a state official:
‘What would be needed is a certain buffer of unemployment, a minimum
of insecurity in employment so that people would make an effort at work
(...) According to one of Gorbachev’s advisors for economic affairs,
agricultural production today is lower than it was in 1978; there was no
economic growth in the USSR from 1979 to 1985; the production of 40% of
industrial goods has declined, productivity is low, as is the return on
investment (...) For enterprises autonomy means that they have to
balance their budgets and that, to a certain extent, deficit-ridden
units will no longer be able to rely on state subsidies to maintain
artificially useless and obsolete production’. And the journalist
questions: ‘How will the authorities be able to practise a policy of
truthful prices and wages and at the same time defend living standards,
as they proclaim? Allow companies to dismiss supernumerary workers and
continue to artificially maintain full employment when productivity is
already dramatically low?’
Oil on fire
In the East as in the West, capitalism is ripe for a major crisis of
overproduction. All the ingredients for such a crisis are in place. And
the momentary fall in the interest rate, just as before the 1929 crash,
changes nothing about this underlying reality. On the contrary, the way
the game has been cooled has only made things worse. To prevent the
stock market crash from turning into a general failure of finance
capital, then into a commercial and industrial crisis, the Federal
Reserve Board, immediately followed by the other central banks,
instructed the various American banks to meet every demand for liquid
cash. This implies that it guarantees that these demands will be met by
dropping the interest rate. Federal funds rates dropped from 7.5% to
5.875%-6.125%. Those on 30-year Treasury bonds fell below 10%.
The intervention of the central banks thus helped to curb the
paroxysm, but on credit. This movement is reinforced by the fact that
since the beginning of the fall in stock prices, investors have flocked
en masse to fixed-income securities, i.e. the bond market, considered,
given the circumstances, to be safer. But as
Le Monde
points
out:
‘In practical terms, this means that the American central issuing
institute has begun purchasing public debt securities indiscriminately,
which the banks are trying to get rid of in order to obtain cash. In the
immediate term, this relieves the banks, but it also has the effect of
increasing the mass of Treasury bonds practically frozen in their
assets, this time of the US central bank’.
Yes, they put out the fire momentarily, but with oil! On the various
markets, the mass of securities has become colossal; the American
government, by flooding the bond market quarterly to meet its treasury
needs, is only increasing this mass. Now, in times of crisis, what is
needed is not securities but money! The central banks themselves, whose
function is to respond to the demand for liquidity by building up
monetary reserves, have tied up a good part of their reserves in such
securities.
Since the Louvre Accords, the various central banks have actively
intervened to support the dollar rate. They do this by massively buying
dollars, which they recycle across the Atlantic by purchasing US
Treasury bonds, which they hoard in their vaults because they are
unsaleable. In 1987 they spent between $110 billion and $140 billion to
prop up the US currency and between $32 billion and $37 billion on Japan
alone. In the same article the journalist noted:
‘We are no longer far away from the moment when, firstly, the
liquidity of the system as a whole is in danger of no longer being
ensured, and secondly, the advantages of simple negotiability – the
possibility to sell, but with price risk – will themselves be called
into question (which is already the case for some types of lending on
the Euromarket)’.
A great English bourgeois, quoted before a parliamentary committee of
enquiry following the 1847 crisis, already noted:
‘Our system is this: That we have £300,000,000 of liabilities which
may be called for at a single moment to be paid in the coin of the
realm, and that coin of the realm, if the whole of it is substituted,
amounts to £23,000,000, or whatever it may be; is not that a state which
may throw us into convulsions at any moment?’
And Marx comments
‘Hence the sudden change of the credit system into a monetary system
during crises’.
‘The quantity of circulating bills of exchange, therefore, like that
of bank-notes, is determined solely by the requirements of commerce; in
ordinary times, there circulated in the [1850s] in the United Kingdom,
in addition to 39 million in bank-notes, about 300 million in bills of
exchange – of which 100-120 million were made out on London alone. The
volume of circulating bills of exchange has no influence on note
circulation and is influenced by the latter only in times of money
tightness, when the quantity of bills increases and their quality
deteriorates. Finally, in a period of crisis, the circulation of bills
collapses completely; nobody can make use of a promise to pay since
everyone will accept only cash payment; only the bank-note retains, at
least thus far in England, its ability to circulate, because the nation
with its total wealth backs up the Bank of England’ (
Capital
,
Vol. III, Ch. 33).
We do not know the ratio that exists today between the mass of bills
of exchange in circulation, and in a more general way the whole house of
paper that is bonds, Treasury bonds, shares, etc., which represent
fictitious capital, and the real monetary mass, in circulation or locked
up in the vaults of the banks, especially central banks. But one can
imagine that this ratio must be dizzyingly high and far higher than it
was in England in 1847.
In Russia, the shortage of means of payment could be aggravated by a
fall in grain production, as happened in 1975, when it fell by 20%! The
cyclical nature of crises in Russia and the current shortage would seem
to support such a prospect. In this case, the Russian state would be
forced to tie up large funds in foreign exchange in order to buy
cereals. This outlay would, unfortunately, be taken advantage of by the
American crony and competitor, a thousand times the vampire, which would
be rid of an equivalent portion of its agricultural overproduction.
1847, prototype of every crisis
When the crisis arrives, sweeping in its wake all the paper castles
of finance capital, imposing the bankruptcy of thousands of commercial
and industrial enterprises, as well as the massive devaluation of the
plethora of productive and merchant capital, sweeping away the mirages
and illusions of bourgeois society, and, not least, shaking the
historical proletariat from its torpor by bringing the class struggle
back to life, we will then welcome it with all honours, exclaiming the
words of Marx: well dug, old mole!
‘But all the newly erected factory buildings, steam-engines, and
spinning and weaving machines did not suffice to absorb the
surplus-value pouring in from Lancashire. With the same zeal as was
shown in expanding production, people engaged in building railways. The
thirst for speculation of manufacturers and merchants at first found
gratification in this field, and as early as in the summer of 1844.
Stock was fully underwritten, i.e., so far as there was money to cover
the initial payments. As for the rest, time would show! But when further
payments were due (…) recourse had to be taken to credit, and in most
cases the basic enterprises of the firm had also to bleed.
‘And in most cases these basic enterprises were already
over-burdened. The enticingly high profits had led to far more extensive
operations than justified by the available liquid resources. Yet there
was credit – easy to obtain and cheap. The bank discount rate stood low:
1¾ to 2¾% in 1844, less than 3% until October 1845, rising to 5% for a
while (February 1846), then dropping again to 3¼% in December 1846. The
Bank of England had an unheard-of supply of gold in its vaults. All
inland quotations were higher than ever before. Why then allow this
splendid opportunity to escape? Why not go in for all one was worth? Why
not send all one could manufacture to foreign markets which pined for
English goods? And why should not the manufacturer himself pocket the
double gain arising from selling yarn and fabrics in the Far East, and
the return cargo in England?
‘Thus arose the system of mass consignments to India and China
against advance payments, and this soon developed into a system of
consignments purely for the sake of getting advances, as described in
greater detail in the following notes, which led inevitably to
over-flooding the markets and a crash.
‘The crash was precipitated by the crop failure of 1846. England,
and particularly Ireland, required enormous imports of foodstuffs,
notably corn and potatoes. But the countries which supplied them could
be paid with the products of English industry only to a very limited
extent. Precious metals had to be given out. Gold worth at least nine
million was sent abroad. Of this amount no less than seven and a half
million came from the treasury of the Bank of England, whose freedom of
action on the money-market was thereby considerably impaired. Other
banks, whose reserves were deposited with the Bank of England and were
practically identical with those of that Bank, were thus also compelled
to curtail accommodation of money. The rapid and easy flow of payments
was obstructed, first here and there, then generally. The banking
discount rate, still 3 to 3½% in January 1847, rose to 7% in April, when
the first panic broke out. The situation eased somewhat in the summer
(6½%, 6%), but when the new crop failed as well panic broke out afresh
and even more violently. The official minimum bank discount rose in
October to 7 and in November to 10%; i.e., the overwhelming mass of
bills of exchange was discountable only at outrageous rates of interest,
or no longer discountable at all. The general cessation of payments
caused the failure of several leading and very many medium-sized and
small firms’ (
Capital
, Vol. III, Ch. 25).
Productive forces rebel against relations of production
Marx intends to avoid any misunderstanding of the causes of the
crisis of overproduction when, analysing the crisis in its phenomenal
complexity, he emphasises the role of credit and the scarcity of means
of payment. In fact, considerable outflows of money, whether due to an
agricultural crisis, or to a sharp rise in the price of a raw material
indispensable to industry – such as cotton in England in the last
century, or oil in 1973 and 1979 – or whether due to a strong demand for
money by the state for its treasury needs, causing the interest rate to
rise, do not
cause
the crisis, but
hasten
it. The
crisis takes place because one is already in a situation of
overproduction. In the upward phase of the production cycle, when the
threshold of overproduction is still a long way off, considerable
outflows of funds by the Central Bank may at most disrupt the cycle,
cause a small crisis, but in no case a great historical crisis like that
of 1847.
The cause of overproduction is not external to the process of
capitalist production, but lies within that process itself. We reproduce
here Engels’ outline of the crisis mechanism in his
Socialism:
Utopian and Scientific
.
‘The enormous expansive force of modern industry, compared with which
that of gases is mere child’s play, appears to us now as a necessity for
expansion, both qualitative and quantitative, that laughs at all
resistance. Such resistance is offered by consumption, by sales, by the
markets for the products of modern industry. But the capacity for
extension, extensive and intensive, of the markets is primarily governed
by quite different laws that work much less energetically. The extension
of the markets cannot keep pace with the extension of production. The
collision becomes inevitable, and as this cannot produce any real
solution so long as it does not break in pieces the capitalist mode of
production, the collisions become periodic. Capitalist production has
begotten another “vicious circle”.
‘As a matter of fact, since 1825, when the first general crisis
broke out, the whole industrial and commercial world, production and
exchange among all civilised peoples and their more or less barbaric
hangers-on, are thrown out of joint about once every 10 years. Commerce
is at a stand-still, the markets are glutted, products accumulate, as
multitudinous as they are unsaleable, hard cash disappears, credit
vanishes, factories are closed, the mass of the workers are in want of
the means of subsistence, because they have produced too much of the
means of subsistence; bankruptcy follows upon bankruptcy, execution upon
execution. The stagnation lasts for years; productive forces and
products are wasted and destroyed wholesale, until the accumulated mass
of commodities finally filter off, more or less depreciated in value,
until production and exchange gradually begin to move again. Little by
little, the pace quickens. It becomes a trot. The industrial trot breaks
into a canter, the canter in turn grows into the headlong gallop of a
perfect steeplechase of industry, commercial credit, and speculation,
which finally, after breakneck leaps, ends where it began – in the ditch
of a crisis. And so over and over again. We have now, since the year
1825, gone through this five times, and at the present moment (1877), we
are going through it for the sixth time. And the character of these
crises is so clearly defined that Fourier hit all of them off when he
described the first “
crise plethorique
”, a crisis from
plethora.
‘In these crises, the contradiction between socialised production
and capitalist appropriation ends in a violent explosion. The
circulation of commodities is, for the time being, stopped. Money, the
means of circulation, becomes a hindrance to circulation. All the laws
of production and circulation of commodities are turned upside down. The
economic collision has reached its apogee.
The mode of production is
in rebellion against the mode of exchange. The productive forces rebel
against the mode of production for which they have become too
great
’.
It was not really necessary to give the whole long quotation, but it
was hard to resist. What does Engels say: that the enormous force of
expansion of the productive forces is opposed by the counter pressure
exerted by the market. Since the laws of development of the market and
those of production are different, a collision occurs which leads to
crisis, then to social explosion in the event of revolution. The crisis
results from the contradiction between the market and the expanding
forces of industry, which overwhelms any obstacle.
Engels does not stop there, he goes on to point out that the crisis
stems from the contradiction between ‘socialised production and
capitalist appropriation’, leading to a rebellion of the mode of
production against the mode of exchange and of the productive forces
against the mode of production for which they have become too great. The
contradiction is thus twofold; in effect it is one and the same
contradiction seen from two different aspects: the contradiction between
the social character of the productive forces and the private
appropriation of the means of production and consumption. This
contradiction is immediately manifested in the antagonism between
production, with its own laws of development, and the market, whose laws
of expansion are different.
However, if we stop at this aspect of things, the fundamental
contradiction inherent in capitalism would remain external to the mode
of production.
‘
First of all, there is a limit, not inherent to production
generally, but to production founded on capital
. This limit is
double, or rather the same regarded from two directions. It is enough
here to demonstrate that capital contains a
particular
restriction of production – which contradicts its general tendency to
drive beyond every barrier to production – in order to have uncovered
the foundation of
overproduction
, the fundamental contradiction
of developed capital; in order to have uncovered, more generally, the
fact that capital is not, as the economists believe, the
absolute
form for the development of the forces of production –
not the absolute form for that, nor the form of wealth which absolutely
coincides with the development of the forces of production’ (Marx,
Grundrisse
, Notebook IV, 22).
Marx enumerates these different limits, all of which are related to
the creation of value and thus to the private character of
appropriation. All the contradictions that capital in its movement must
constantly overcome can be traced back to this: capital in its hunger
for living labour, or more precisely for surplus labour, i.e. surplus
value, is forced to constantly increase labour power in order to reduce
the amount of labour required. It follows that labour is relatively
reduced in the face of the technological input and productivity of the
means of production. In doing so, capital generates its own negation: on
the one hand, in order to satisfy its insatiable appetite for surplus
value, it socialises labour and concentrates it, on the other hand it
relatively reduces the share of variable capital in relation to constant
capital; thus it develops the technical productive basis of communist
society on an ever larger scale while undermining its own basis as a
producer and accumulator of surplus value. Hence the crises of
overproduction after each cycle of accumulation, which become more and
more terrifying each time.
‘The exchange of living labour for objectified labour – i.e. the
positing of social labour in the form of the contradiction of capital
and wage labour – is the ultimate development of the
value-relation
and of production resting on value. Its
presupposition is – and remains – the mass of direct labour time, the
quantity of labour employed, as the determinant factor in the production
of wealth. But to the degree that large industry develops, the creation
of real wealth comes to depend less on labour time and on the amount of
labour employed than on the power of the agencies set in motion during
labour time, whose “powerful effectiveness” is itself in turn out of all
proportion to the direct labour time spent on their production, but
depends rather on the general state of science and on the progress of
technology, or the application of this science to production (...)
‘In this transformation, it is neither the direct human labour he
himself performs, nor the time during which he works, but rather the
appropriation of his own general productive power, his understanding of
nature and his mastery over it by virtue of his presence as a social
body – it is, in a word, the development of the social individual which
appears as the great foundation-stone of production and of wealth.
The theft of alien labour time, on which the present wealth is
based
, appears a miserable foundation in face of this new one,
created by large-scale industry itself. As soon as labour in the direct
form has ceased to be the great well-spring of wealth, labour time
ceases and must cease to be its measure, and hence exchange value [must
cease to be the measure] of use value. The
surplus labour of the
mass
has ceased to be the condition for the development of general
wealth, just as
the non-labour of the few
, for the development
of the general powers of the human head. With that, production based on
exchange value breaks down, and the direct, material production process
is stripped of the form of penury and antithesis. The free development
of individualities, and hence not the reduction of necessary labour time
so as to posit surplus labour, but rather the general reduction of the
necessary labour of society to a minimum, which then corresponds to the
artistic, scientific etc. development of the individuals in the time set
free, and with the means created, for all of them. Capital itself is the
moving contradiction, [in] that it presses to reduce labour time to a
minimum, while it posits labour time, on the other side, as sole measure
and source of wealth’ (Notebook VII, 3).
And this fundamental contradiction – which is the other aspect of the
antagonism between the social character of the productive forces and
private appropriation, appropriation whose private character is
determined by the relations of production that are the wage-earner and
capital – is manifested by the law of the tendential fall of the rate of
profit.
‘This is in every respect the most important law of modern political
economy, and the most essential for understanding the most difficult
relations. It is the most important law from the historical standpoint.
It is a law which, despite its simplicity, has never before been grasped
and, even less, consciously articulated. Since this decline in the rate
of profit is identical in meaning:
1) with the productive power already produced, and the foundation
formed by it for new production; this simultaneously presupposing an
enormous development of scientific powers;
2) with the decline of the part of the capital already produced
which must be exchanged for immediate labour, i.e. with the decline in
the immediate labour required for the reproduction of an immense value,
expressing itself in a great mass of products (...)
3) [with] the dimension of capital generally, including the portion
of it which is not fixed capital; hence intercourse on a magnificent
scale, immense sum of exchange operations, large size of the market and
all-sidedness of simultaneous labour; means of communication etc.,
presence of the necessary consumption fund to undertake this gigantic
process (workers’ food, housing etc.);
‘hence it is evident (...) that the development of the productive
forces brought about by the historical development of capital itself,
when it reaches a certain point, suspends the self-realisation of
capital, instead of positing it. Beyond a certain point, the development
of the powers of production becomes a barrier for capital; hence the
capital relation a barrier for the development of the productive powers
of labour. When it has reached this point, capital, i.e. wage labour,
enters into the same relation towards the development of social wealth
and of the forces of production as the guild system, serfdom, slavery,
and is necessarily stripped off as a fetter. The last form of servitude
assumed by human activity, that of wage labour on one side, capital on
the other, is thereby cast off like a skin, and this casting-off itself
is the result of the mode of production corresponding to capital; the
material and mental conditions of the negation of wage labour and of
capital, themselves already the negation of earlier forms of unfree
social production, are themselves results of its production process. The
growing incompatibility between the productive development of society
and its hitherto existing relations of production expresses itself in
bitter contradictions, crises, spasms. The violent destruction of
capital not by relations external to it, but rather as a condition of
its self-preservation, is the most striking form in which advice is
given it to be gone and to give room to a higher state of social
production’ (Notebook VII, 16).
Crisis, War, Revolution
The approaching crisis will sound the death knell for bourgeois
society, bringing with it the class struggle and marking the end of
sixty years of counter-revolution. Sixty years of oppression and lies,
which have seen fifty million men exterminated in a filthy
slaughterhouse to allow capitalism to go through a whole new cycle of
accumulation over the last three decades, further brutalising the
working classes, debilitating their consciences with the help of
opportunism and doubly exploiting them: first as producers of
surplus-value, then as consumer-electors, giving them a glimpse of a
‘welfare’ of a reified world, based on competition, the faux exaltation
of individualism, the dissolution of all class and personal community.
It passed off the most alienated behaviour as the pinnacle of human
development, using and exalting the meanest instincts, debasing the
highest sentiments, elevating thievery to the status of a system.
If the bourgeois and petty-bourgeois despair at the approach of the
crisis, we, on the contrary, welcome it with joy, drawing new strength
and vigour from it. It heralds the end of the nightmare that is
bourgeois society. Like an earthquake it will bring down the entire
social edifice to its foundations, sweeping away mirages and illusions,
demystifying the propaganda of opportunism and of the bourgeoisie. It
will ruin those ignoble swamps of social peace that are the middle
classes and the working class aristocracy; it will massively and
ferociously expropriate these debilitated and recoiled strata, the
indispensable condition for revolution. It will shake the proletariat
out of its torpor and lethargy, bringing it out of the state of
brutalisation to which bourgeois society has reduced it, making it ready
for action once again.
Engels wrote to his friend Marx in September 1852:
‘The workers would appear
après tout
to have become utterly
bourgeoisified as a result of the present prosperity and the prospect of
la gloire de l’empire
. They will have to be severely chastened
by crisis if they are to be good for anything again soon’.
Yes, the state of chronic economic crisis in which our bourgeois
society has found itself for 13 years will have ‘prepared the ground’.
The fraction of the proletariat that will separate from the masses to
join the party will then be larger than it could have been if the great
interwar crisis, which the party has long foreseen and awaited, had come
suddenly in 1975, after thirty years of ‘prosperity’ and general recoil.
On the contrary, it was heralded by two recessions that partly prepared
the masses, crises that insidiously exerted a liming work on the moral
influence of the bourgeoisie and its agents within the proletariat.
‘There’ll be a merry dance here when the crisis comes, and one can
only hope that it still last long enough to develop into a chronic
condition with acute periods, as it did in 1837-1842’.
If history re-establishes the link that the counter-revolution has
broken between the party and the masses, by a process of years,
following a curve that will not only be upward, after a long work of
agitation, organisation and propaganda, the final assault against the
bourgeoisie will be prepared. Against the crisis, the proletariat will
not rise up on its own, fully armed, as one man, ready to overthrow the
bourgeoisie, such spontaneist and anarchist illusions are not ours; the
objective preparation of the proletariat for the seizure of power
requires years of intervention by the party in order to win its trust
and following.
The economic crisis, with the strikes and uprisings it provokes, will
be able to create the conditions for a dress rehearsal of the
revolution, just as 1905 was the dress rehearsal for the Revolution of
1917. During the period of economic recovery, which will follow the
crisis and precede the Third World War, economic struggle and trade
union organisation will then be of great importance. With the economic
recovery, the balance of power on the terrain of economic struggles will
actually be favourable to the proletariat. The party will then try to
generalise and organise the class unions, which will have arisen or will
arise, trying to take the lead.
In a time that is impossible to predict, the outbreak of the Third
World War will present itself as inescapable. Unlike on 4 August 1914,
it will be a matter for the proletariat to seize the great historical
opportunity that will be offered to it, to fight, not to stop the war
with peace, but to overthrow the bourgeoisie by force of arms,
transforming, in Lenin’s words, imperialist war into civil war. Either
the war passes, or the Revolution passes!
Our perspective for this end of the century remains the one outlined
by the party for three decades now and which we repeat in these words
from our
Il
Programma
Comunista
Number 9 of
1958.
‘1929 crisis and America today.
‘(...) The question is whether there will be a world crisis in the
future with the same depth as then. Our answer derives from fidelity to
the traditional original Marxist doctrine, and it is in the sense that
such a crisis will come, and that it will precede a third world war by a
long way, and will put before it the possibility of an international
resumption of the class struggle and possible social war, the only
alternative to the catastrophe of the imperialist conflict.
‘If today’s prodromes are not yet those of such a great crisis, they
do, however, come to confirm the fallacy of all the welfare schools, and
to reaffirm the classic Marxist thesis that in the mercantile economy
every element of production, which only allows a fictitious rise in the
standard of living, and to simulate a social levelling off, only
prepares for the reversal of the process of advance and the real
crisis.
‘The true and proper crisis that will historically arise between the
Second and Third World Wars will be, even more than those between the
First and Second, international, and proof of this is what we are
emphasising about the collaboration of Russian state capitalism with
“anti-crisis measures”; collaboration which, culminating in the therapy
of the extension of world trade between the two alleged
blocs
,
even if only through its ideological presentation, stands instead to
prove, with dialectical force, that the next authentic crisis of
overproduction will strike all the monstrous production machines of the
world at the same time, it will be the crisis of the overproducing
madness that unites America and Russia in the vaunted, by both,
emulative competition.
‘And this crisis will put the world on the eve of another general
war, if it does not put it on the eve of revolution, one of the
conditions of which is the development, demanding decades, of a party
whose programme is destructive of the “myth of producing” and the “myth
of consuming”, linked by the “mercantile myth”’.