The capitalist economy is a system ridden with cyclic crisis which happens regularly between 8-12 years. For many years the crisis were so small that you hardly could call it a crises. This has changed now, and this article will try to explain why the crisis were week for some years, and why it has changed back to normal, and how the leaders of the capitalist states have tried to handle it.
The background for this article is that I’m working on an article about Protracted Peoples War in Imperialist countries, when I read the following from Revolutionary Communist Party (Organizing Committees) RCP(OC):
Capitalism in the imperialist countries has developed mechanisms that allow it to last, despite economic crisis.http://www.pcr-rcp.ca/old/en/pwd/2a.ph
I disagree on this. I think I first have to write about the Marxist theory on cyclic crisis in the capitalist economy as this has implications regarding what we can expect in the future regarding strength and weakness of the capitalist states, which are an important matter regarding a revolution.
One interesting fact in this respect is the fact that according to this theory – there will be a new crisis during 2019, and most likely it has potential to be a really serious one.
When Marx were writing his famous books: “The capital” – it was a common knowledge within bourgeois social science that capitalism had cyclic crises. Marx mention this fact, but didn’t make any analyses of why it was so. In 1954 A Textbook issued by the Economics Institute of the Academy of Sciences of the U.S.S.R were published. Here they have a chapter about the cyclic economic crisis in the capitalist mode of production. They have statistic who show how this theory is proven correct in practice showing that there are between 8 – 12 years between each economic crises from long time back, and until the publication of the book. I have checked unemployment statistic of Norway, and despite weaknesses of this statistic, I think we can conclude that we see that also in Norway from 1950’ties until today there is 8 – 12 years between each crises.
Marx wrote that the solution of the cyclic economic crisis in the capitalist economy is the crisis it selves. To understand the reason for why he thought this we must first understand the reason for the crisis.
The economic cycle in capitalist mode of production
The textbook on for U.S.S.R categorize the capitalist cycle in four phases, where the crisis is the fundamental phase in the cycle. The phases are as follows:
- The crisis: The contradiction between the growth of the productive potentialities and the relative reduction of effective demand breaks out in an acute and, destructive form. This phase of a cycle is characterised by overproduction of commodities which cannot find outlets, by a sharp fall in prices, by an acute shortage of means of payment and by stock exchange crashes which bring in their train mass bankruptcy, a sharp curtailment of production, a growth in unemployment, and a fall in wages. The fall in the prices of commodities, unemployment, direct destruction of machinery, equipment and entire works—all this means a tremendous destruction of society’s productive forces. Through the ruin and collapse of a large number of concerns and the destruction of part of the productive forces the crisis forcibly adapts, and that within a very short time, the magnitude of production to the magnitude of effective demand. “The crises are always but momentary and forcible solutions of the existing contradictions, violent eruptions, which restore the disturbed equilibrium for a while.” (Marx, Capital, Kerr edition, vol. III, p. 292.)
- Depression: This follows the crisis and in this situation trade proceeds sluggishly, the prices are low, to much money capital which finds it difficult to find places to invest. The pressure on the working class is getting tougher as the capitalists will get down their expenses and tries to squeezes as much labor power as possible out of the working class, there is high unemployment wish makes this possible.
- Recovery: Gradually the level of production attains Its former height, prices rise, profits grow.
- Boom: Production rises above the highest point attained in the previous cycle, before the crisis. During a boom new industrial enterprises, railways, etc., are built. Prices rise; merchants try to buy as many commodities as possible in the expectation of a further rise in prices, and by so doing stimulate manufacturers to expand production still further. The banks readily grant advances to manufacturers and traders. All this makes it possible to extend’ the” scale of production and trade far beyond the limits of effective demand. In this way the conditions for the next crisis of overproduction are created.
To sum up: The reason for the crisis is overproduction (or that the constant capital – machines and fabrics have grown to a strength where it now has the potential of overproduction).
The solution of overproduction is the destruction of the constant capital (machines, fabrics etc.) – because then there will be possible for growth again. In practice this happens in the way that some producers goes bankrupt, is bought up from competitors or fused with them and then dismantled. In this way the weak capitalists looses in the race during the crisis and when enough of them are crushed – it gives room for the one left to grow. The reason for the recovery is that after this destruction the remaining capitalists starts to invest in new machines/ factories etc. which are more productive then the former. This demand for new machines etc. gives rise for new production and capitalism goes back to growth.
The effect of the second world war
The tendency is that the crisis gets stronger and stronger (which also is related to the tendency of the rate of profit to shrink). We can see this tendency until the second world ware (WW2). WW2 however destroyed capital on a massive level, and left large parts of Europe in ruins. The rebuild gave a long time with growth. Capitalism still went trough its cyclic phases, but because of the rebuild the crisis got historical weak for a long time, until the 1970’thies. Here the crises started to grow in scale again and situation started to normalize (“normalize” as in larger and larger crisis) until the collapse and opening of the markets in the revisionist regimes in the east in the end of 1980’ties After this you got a new boost in capitalism with expansion in to this new markets. This didn’t have the same impact as WW2, but made the crisis much smaller then it else would have been.
The crisis in 2000
In 2000 the effect of WW2 and the collapse in the east was at an end, and the crisis at this point had a great impact. The leaders of the imperialist states almost panicked when they saw the scale which the crisis unfolded. They wanted to abort the crisis at any cost, and the solution were to get the masses to buy commodities to get the wheels spinning again. They managed this through making it easier for people to get loans. They did this with different financial tricks. In USA they removed some regulations regarding loans which they had imposed after the experiences of the great depression in the 1930’ties. One of this changes was that the organization which gave the loan had to sit with the risk. The consequence of this change where that it popped up many new firms which had business of giving loan, and then selling this loans to a bigger bank or finance institution.
The big banks and finance institutions did not sit with the risk either. They created a new financial product they called “Global securitization”. Global securitization where bond made out of a package of loans they had bought from smaller banks/finance institutions. From the buyers point of view this looked like a safe product, since the risk were spread on a lot of borrowers.
The result of this was as follows:
- Since the institutions 1 – the organization which gave the loan, and institution 2 – the organization buying and selling “global securitization” bonds where not the one keeping the risk in case of failure to pay from the borrower – they didn’t care much about the borrowers capability to pay, and instead tricked people to lend more money then what they could pay.
- In USA in contrast to most countries in Europe – the loan follows the house, and not the borrower. So if you are unable to pay for the loans – you get kicked out of the house, but you are then rid of your debt. Since you had to pay very little the first years after you get the loan – it was tempting for many to agree on this terms.
- The result was a boom in real estate marked, and the prices got higher, as did the profit for the capitalists in this marked.
- This boom functioned as the state wanted and aborted the crises before the crisis had solved the underlying contradictions.
- The unsolved contradiction was as a consequence left to the next cyclic crisis to solve
- The bonds were sold as safe and trustworthy, when in reality it wasn’t. This is what later was called the “subprime bubble”. With other word: The buyers had bought a product for a prize way higher then the actual value of the product.
The crisis in 2007/2008
As normal when the crisis hits the marked, such bubbles explodes and makes the crisis deeper then it else would. So when the crisis hit again in the end of 2007 – it exploded and made the situation even worse then during the last crisis in 2000.
This time the leaders of the imperialist states really panicked at a level not seen since the great depression in the 1930’ties. For the first time in history the leaders of the imperialist states got together in a meeting to decide a joint respond to abort the crisis.
What they decided was that the states should take up loans, save the finance companies who where “to big to fall”, and stimulate the economy.
The reason for why they did this, isn’t first of all because they would be nice to their friends in the financial capital, but because the finance capital is like the blood in the capitalist economy. If there is fear about who will fail – all banks will hold on the money so they can survive if they loos money. When this happens – they will not lend out money to the producing capital, and hence investments stops, and then the whole capitalist economy will collapse.
They also put interest lower then what has been seen ever before. In some countries they even got interest below 0 percent (something no one thought of as possible before). In countries like Sweden for example they kept the interest below 0 for years.
You don’t have to be a genius to understand that what they actually has done, is to create a new bubble in government bonds.
The big question is how they will solve the next crisis which according to our Marxist knowledge will happen during this year.
Back to the quote:
Capitalism in the imperialist countries has developed mechanisms that allow it to last, despite economic crisis.
They have no new “mechanism” which allow capitalism to last. But at the same time, as always – to quote Mao: “As long as it is not struck, it is impossible to make it fall.”