Is the Economic Crisis Over?

According to the media, the world capitalist economy has been in a recovery for almost two years. Yet there remains a widespread impression that the economic crisis that began in 2007 is far from over. True, the rate of profit has risen sharply since 2009, and the mass of profits is at record levels. Yet the crisis of mass unemployment persists.

At the current rates of job creation in the U.S. and other imperialist countries, it will be years before the number of jobs returns to the levels that prevailed in 2007 on the eve of the crisis. And even the pre-crisis 2007 levels were far from full employment. Therefore, is the economic crisis that began in 2007 really over?

The passage of a cyclical crisis described

Rosa Luxemburg in “What Is Economics?”—which was written shortly after the economic crisis of 1907-08—gave this vivid description of how a cyclical crisis of overproduction is reflected in the capitalist media:

“…once the crisis is in full swing, then the argument starts about who is to blame for it. The businessmen blame the abrupt credit refusals by the banks, the speculative mania of the stockbrokers; the stockbrokers blame the industrialists; the industrialists blame the shortage of money, etc.”

Though these words were written a century ago shortly after the 1907-08 crisis, they could just as well have been written to describe the crisis that began exactly a century later in 2007.

The recovery

“And when business finally picks up again,” Luxemburg continued, “then the stock exchange and the newspapers note the first signs of improvement with relief, until, at last, hope, peace, and security stop over for a short stay once more.”

“Modern society,” Luxemburg further explained, “notes its [the cyclical crisis—SW] approach with horror; it bows its head trembling under the blows coming down as thick as hail; it waits for the end of the ordeal, then lifts its head once more—at first timidly and skeptically; only much later is society almost reassured again.”

Crisis of 1907-08 in historical perspective

As it turned out, after the crisis of 1907-08 capitalist society had little time to get “reassured again.” If the industrial cycle that began with the crisis of 1907 had followed the typical 10-year course, the next crisis of overproduction would have been due around 1917.

Instead, a new worldwide recession began in 1913, about four years early. In Europe, this new recession did not end with a new upswing that left society “almost reassured again.” Instead, it ended with the “Guns of August”—the outbreak of World War I.

Capitalism ‘celebrates’ the anniversary of 1907 crisis

The capitalist economy “celebrated” the 100-year anniversary of the crisis of 1907 in the most “appropriate” way possible—with yet another crisis. And like its predecessor a century earlier, the crisis that began in 2007 proved to be unusually severe. There is a feeling now that the crisis of 2007-09 is perhaps, like the crisis of 1907-08, no ordinary crisis. Could this crisis, too, be the herald of a far more fundamental crisis of capitalist society?

A New Imperialist War

The last few weeks have seen the beginning of a new imperialist war, this time against the small oil-rich country of Libya. The war began on March 19, when the United States, Britain and France launched a missile attack against Libya’s air defenses.

The opening of this new U.S.-led imperialist war of aggression occurred on the eighth anniversary of the U.S.-led invasion of Iraq. To add to the irony, the first missiles began to fall during U.S. West Coast anti-war demonstrations timed to mark the beginning of the imperialist invasion of Iraq—a first in the history of anti-war demonstrations, I believe.

I had been asked what is my opinion of the current economic conjuncture. I had intended to devote a reply to this question, since I have not written about this for some time and there have been some interesting developments on this front. However, the explosive events in North Africa and the Persian Gulf region combined with the Japanese earthquake, tsunami and nuclear disasters are raising a different set of questions that should be dealt with first.

What will be the effects of these events on the world capitalist economy? These events are external to the industrial cycle, though they will no doubt exert an influence on the evolution of the current global industrial cycle that began with the outbreak of the last general crisis of overproduction in 2007. Therefore, this month I will examine the effects of the North African and Persian Gulf events and the Japanese disasters on the capitalist world economy. I will postpone until next month an examination of the current conjuncture in the global industrial cycle.

Are Marx and Keynes Compatible? Pt 9

The aftermath of the crisis of 2007-09 is bringing in its wake a revival of workers’ struggles in many areas of the world. Last year, we saw a wave of demonstrations in Europe centering first in Greece and then in France, Portugal and Spain. In these countries, public-sector workers staged demonstrations and strikes supported by industrial and other workers as well as students who are facing massive cutbacks in education.

Then, starting in January, mass demonstrations beginning in Tunis against unemployment, soaring food prices and police-state rule quickly spread to other Arab countries under the rule of imperialist-supported monarchies and dictatorships. These demonstrations have now spread to U.S.-occupied Iraq.

Monetary Keynesianism and high world food prices

In the Arab world and other countries that are nationally oppressed by imperialism, the demand for governments to do something about the skyrocketing price of food has become an increasingly important issue. Rising food prices can be traced back to the “Keynesian monetary” policies that the U.S. Federal Reserve System has followed since the last global economic crisis entered its most intense phase in the fall of 2008.

Under the prevailing dollar-centered international monetary system, any devaluation of the U.S. dollar forces even greater devaluations in the currencies of most nationally oppressed countries. The result of the devaluations is skyrocketing food prices in terms of local currencies. The rise in food prices is being fueled by speculators who are purchasing agricultural commodities as a hedge against still further devaluations of the dollar and its local satellite currencies.

Fight spreads to the USA

And now the struggle of the workers and their allies has suddenly flared up in the U.S. itself, beginning with the state of Wisconsin.

In the November 2010 Wisconsin elections, Republican candidate for governor Scott Walker was victorious. The Republicans also won control of both houses of the state legislature. The Republican sweep in Wisconsin was rooted in the failure of the Obama administration and the Democrat-controlled U.S. Congress elected in 2008 to launch the “new New Deal” that U.S. progressives had expected.

As a result, many progressive voters stayed home on election day and some workers voted Republican as a protest against the failure of either the Obama administration or the Democrat-controlled Congress to launch an effective attack against the massive unemployment crisis that was created by the economic crisis of 2007-09.

Republican governor Scott Walker, however, not only put forward a massive program of cuts in state services combined with cuts in wages and jobs for state workers. He and the Republican majority in the state legislature planned to pass a bill that would take away the right to collective bargaining from state workers.

This goes beyond mere job and wage cuts and other austerity measures. The right of workers to bargain collectively over their conditions of employment is a basic (bourgeois) democratic right. Walker had assumed that the state workers and the trade unions would limit themselves to a few ineffectual complaints.

Instead, unions throughout Wisconsin, including unions in the private sector, along with students who are seeing their chances of getting a decent education vanish, seized the state capitol building, in effect preventing the legislature from meeting and passing the anti-union, anti-democratic legislation.

Are Marx and Keynes Compatible Pt 8

Sweezy attempts to develop a theory of crises in ‘Theory of Capitalist Development’

In “Monopoly Capital,” Sweezy (and Baran) treated crises and the industrial cycle only in passing. In contrast, in “The Theory of Capitalist Development” Sweezy examined Marxist crisis theory in considerable detail. Even today, “The Theory of Capitalist Development” can be recommended for anybody interested in the development of Marxist crisis theory in the first part of the 20th century.

In his survey, Sweezey examined the writings of such Marxists as Kautsky, Hilferding, Rosa Luxemburg and Henryk Grossman. Sweezy found essentially three crisis theories among these early 20th-century Marxists.

One was put forward by Karl Kautksy around the turn of the 20th century. It involved the question of whether capitalism was evolving toward a state of chronic depression.

What is sometimes called the “Great Depression” of 1873-1896 had come to an end, and the world capitalist economy was entering a phase of rapid economic expansion. According to Kautsky, it was the existence of agrarian markets still dominated by pre-capitalist simple commodity production that explained capitalism’s continued ability to grow.

However, as capitalism continued to develop, these markets would be expected to decline in importance and the world capitalist economy would, if socialist revolution did not intervene, sink into a state of more or less permanent depression. This would mark the end of capitalism’s ability to develop the productive forces of humanity.

Therefore, according to Kautsky, the cyclical crises and their associated depressions were heralds of the approaching state of permanent depression. As such, they were reminders that capitalist production was historically limited and would inevitably give way to a higher mode of production.

Later, in 1912, Rosa Luxemburg attempted to prove Kautsky’s turn-of-the-century views in a rigorous way in her “Accumulation of Capital.” Luxemburg believed that she had indeed proven that assuming that all production is capitalist—that is, there are no more simple commodity producers—expanded capitalist reproduction would be a mathematical impossibility. And remember that according to Marx capitalism can only exist as expanded reproduction.

Are Marx and Keynes Compatible? Pt 7

Last week, I examined the letter Baran sent to Sweezy in 1960 that dealt with the concept of the “economic surplus.” Over the next two weeks, I will examine the letter Sweezy sent to Baran dated September 25, 1962, which deals with monopoly, capitalist stagnation and Keynes.

Sweezy and stagnation

Sweezy described himself as a “stagnationist.” In his mature writings, he came to believe that the “default” condition of monopoly capitalism is a state of “stagnation.” But what exactly did Sweezy mean by “stagnation”? To understand what he meant, we have to understand the traditional marginalism that formed the starting point of Sweezy’s economic studies.

Marginalist, or “neoclassical,” economics claims that a capitalist economy has a strong tendency toward full employment of both the means of production and workers. Remember, the marginalists hold that, assuming there are no unions or social legislation, the capitalist economy will have as its normal condition a situation of full employment of both the means of production and workers.

When Sweezy began his economic studies at Harvard before both the New Deal and the rise of the CIO (Congress of Industrial Organizations), there was virtually no social legislation or social insurance of any kind in the United States. The union movement was very weak and, outside of mining, in basic large-scale industries was virtually nonexistent.

Therefore, according to marginalist theory the U.S. economy should have been very close to a situation of full employment of both the means of production and the workers. But in the early 1930s as Sweezy was studying economics at Harvard, the U.S. was facing an extreme crisis of mass unemployment. Clearly, there was something very wrong with the economics that Sweezy was learning.

Are Marx and Keynes Compatible? Pt 6

In its December 2010 edition, Monthly Review published two letters by Paul Baran and Paul Sweezy to one another. One, dated May 2, 1960, by Baran deals with “the economic surplus” and its relationship to Marx’s surplus value. The other letter is by Sweezy to Baran dated September 25, 1962. In his letter to Baran, Sweezy has some very interesting things to say about the work of John Maynard Keynes and about monopoly and economic stagnation. This week, I will examine Baran’s letter to Sweezy, and next week I will deal with Sweezy’s letter to Baran.

Baran’s surplus

In “Monopoly Capital,” Marx’s category of surplus value was replaced by what Baran and Sweezy called the “the economic surplus.” Ever since “Monopoly Capital” was first published in 1966, there has been much confusion over whether “the surplus” is simply another term for surplus value or something else. If “the surplus” is simply another term for surplus value, what is gained by renaming the most important economic category in all of economics? If “the surplus” is something other than surplus value, what exactly is its relationship to surplus value?

Baran’s 1960 letter to Sweezy sheds some light on the question of “the surplus” and how it relates to surplus value. In his letter to Sweezy, Baran writes that the “surplus” was indeed something more than simply another name for surplus value, though he admitted he was having difficulty defining exactly what “the surplus” actually is. “We want to show,” Baran wrote, “that the sum total of profits, interest, rents + (and this is crucial!) swollen costs of distribution + advertising expenses + PR + legal departments + fins and chrome + faux frais [incidental operating expenditures] of product variation and model changes = economic surplus, and that this economic surplus increases both in absolute and relative terms under monopoly capitalism.”

But Baran then admits that he was having trouble defining “the economic surplus” in a precise way. “What it does hinge on, however,” Baran wrote to Sweezy, “is what you have called ‘vision’ combined with conceptual clarity. I think we have the former but I am having a dog’s time now with the latter [emphasis added—SW].”

The problem is, in my view, that Baran was mixing up different ideas under the catch-all concept of the “the economic surplus.” The result was “vision” without “conceptual clarity.”

Are Marx and Keynes Compatible? Pt 5

Keynesian economists blame their failure on the trade unions

Keynesian economists in general—and some Marxists influenced by them—blame the failure of the Keynesian policies of the 1970s on the trade unions. Basing themselves on Keynes, they falsely blame the inflation of the 1970s not on the inflationary monetary policies of the central banks that were so strongly supported by Keynesian economists at the time but on the trade unions.

These economists claim that by achieving raises in money wages during the inflation, “over-strong” unions were responsible for the inflation of the 1970s. Supposedly, a “wage-price spiral” pushed money wages relentlessly higher forcing the central banks to periodically raise interest rates to prevent even worse inflation, which in turn led to the recessions and unemployment of the 1970s and early 1980s.

However, in reality it was the trade unions that found themselves increasingly on the defensive as both inflation and unemployment rose during the 1970s and into the early 1980s. What the Keynesian economists call the “wage-price spiral” of the 1970s was really a “price-wage spiral.” The unions were only reacting to the ongoing inflation in their attempts to maintain—not entirely successfully—the living standards of their members.

Are Marx and Keynes Compatible? Pt 4

The Keynesian revolution in economic policy

Before Keynes, neo-classical marginalist economists believed that capitalism was stable if left to its own devices. These economists held that a capitalist economy tended strongly toward an equilibrium at full employment of both workers and machines. Therefore, if a recession were to occur the response of the authorities should be pretty much confined to having the central bank lower the discount rate. Otherwise, the government should stay out of the way. As long as it did, the marginalists claimed, the capitalist economy would quickly move back to its only possible equilibrium position, “full employment.”

The events that followed World War I, especially the U.S.-centered Great Depression of 1929-1941, discredited this view. Under the influence of Keynes—and more importantly the Depression itself—most of the new generation of (bourgeois) economists believed that it was now the duty of the capitalist government to actively intervene whenever recession threatened.

Bourgeois economics split in two. One branch, purely theoretical, is called “microeconomics.” Microeconomics is simply the old marginalism. The branch that emerged from the Keynesian revolution is called “macroeconomics.”

Macroeconomics tries to explain the movements of the industrial cycle. More importantly, it seeks to arm the capitalist governments and “monetary authorities” with “tools” that will keep the capitalist economy from sinking again into deep depression with the resulting mass unemployment. The new stance of the bourgeois economists was that if the capitalist governments and their monetary authorities use the “tool chest” provided them by macroeconomics correctly, they should be able to maintain “near to full employment with low inflation.”

Full employment was defined by this new generation of (bourgeois) economists not the way workers would define it—everybody who desires a job can quickly find one—but rather as a level of unemployment sufficiently high to keep the wage demands of the workers and their unions in check but low enough to prevent wide-scale unrest that could lead to working-class radicalization and eventually socialist revolution.