Is There A Crash Coming?

The news is awash with statements about Capitalism not going to be the same again following e.g. the collapse of Lehman or the US Govt. nationalising parts of its economy. It's quite probable that people are wondering if Capitalism is on the verge of some sort of collapse. As Spiegel Online put it

In fact, it really does look as if the foundations of US capitalism have shattered. Since 1864, American banking has been split into commercial banks and investment banks. But now that's changing. Bear Stearns, Lehman Brothers, Merrill Lynch -- overnight, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants left standing. Despite tolerable quarterly results, even they have been hurt by mysterious slumps in prices and -- at least in Morgan Stanley's case -- have prepared themselves for the end.

"Nothing will be like it was before," said James Allroy, a broker who was brooding over his chai latte at a Starbucks on Wall Street. "The world as we know it is going down."

Many are drawing comparisons with the Great Depression, the national trauma that has been the benchmark for everything since. "I think it has the chance to be the worst period of time since 1929," financing legend Donald Trump told CNN. And the Wall Street Journal seconds that opinion, giving one story the title: "Worst Crisis Since '30s, With No End Yet in Sight."

But what's really happening? Experts have so far been unable to agree on any conclusions. Is this the beginning of the end? Or is it just a painful, but normal cycle correcting the excesses of recent years?

The following article puts some perspective on it. - Gray

Capitalism is an inherently unstable system of society. Changes are continuously taking place, most of them unforeseen by workers and capitalists alike. Workers suddenly find that their supposedly safe jobs have disappeared; capitalists' markets and profits fade out. Something like 100,000 British companies have been wound up in the past ten years.

Every day something goes wrong for some group or other, and out of this uncertainty many observers over the past 200 years have concluded that capitalism will, or may, fall into chaos from which it cannot recover. Some have been capitalist spokesmen who feared what was apparently taking place. In 1829 William Huskisson, former President of the Board of Trade, wrote: "I consider the country to be in a most unsatisfactory state, that some great convulsion must soon take place". In 1884 Lord Randolph Churchill, describing the difficulties in which most industries found themselves because of the current depression, said: "Turn your eyes where you will, survey any branch of British industry you like, you will find signs of mortal disease". And in 1876 a Board of Trade official, Sidney Bourne, issued a warning about the dire consequences that would follow if the nation failed to tackle a problem that all the economists and politicians were talking about in June of this year — the adverse balance of trade, the excess of imports over exports.

While those people feared the "great convulsion", there were other observers who welcomed the possibility of a "collapse of capitalism" because they supposed that it would force the workers to introduce socialism. So in every depression there were forecasts of that kind. Typical of them is the statement by H.M. Hyndman of the Social Democratic Federation in 1884: "It is quite possible that during this very crisis ... an attempt will be made to substitute collective for capitalist control". In 1919 Herman Cahn published his The Collapse of Capitalism in which he said that it could not be postponed any longer and was "imminent". In 1922 W. Paul, a prominent member of the Communist Party, wrote: "There is the greatest possibility that the social revolution may take place in the immediate future:, and in 1931 James Maxton of the Independent Labour Party said that it was only a matter of months: "collapse is sure and certain".

There have been several different theories about the way the supposed collapse would be brought about. Herman Cahn's bogey was the 1914-1918 wartime inflation and consequent depreciation of the currencies of many countries in terms of gold. It was no more difficult to restore stable currencies after that war than it had been after the Napoleonic Wars and the American Civil War. Lots of banks did go broke and depositors and shareholders lost money, but "bad debts" are a normal feature of capitalism. In recent years some prophets of collapse have concentrated on the huge debts owed to American and European banks by Mexico, Argentina, Brazil and other borrowers who now want to default on repayment. It has all happened before, repeatedly in the nineteenth century and between the wars. A century ago, when British capitalists were the big world lenders, a large proportion of loans were never repaid.

Then there is the "adverse balance of trade". It is possible for a country to have its imports and exports tidily balanced, but actually there are always some countries with an adverse balance, that is, imports greater than exports and other countries with exports greater than imports. (For the world as a whole, of course, total imports and exports are identical, one country's exports being another country's imports.) The country with a favourable balance is one whose products are cheapest and which therefore predominate in world markets. For some time it has been Japan; earlier it had been Britain (in the nineteenth century), Germany and America. In due course it will be some other country or countries underselling Japan. It is a situation which largely repeats itself. If Japanese exporters capture markets the importers have to pay in Japanese yen, which they acquire by selling their pounds, dollars and so forth. This has the effect of putting up the exchange rate of the yen and depressing the exchange rates of pounds and dollars . . . which in turn takes away the relative cheap¬ness of Japanese goods and makes the American or British goods more competitive. Fifty years ago Professor Edwin Carman, when asked what governments should do about the "problem", told them to stop publishing import/export figures and just forget all about it.

Like Herman Cahn, many later politicians and economists have seen in inflation the great threat to the continuance of capitalism, Mrs Thatcher among them. She says that inflation causes unemployment and trade depressions, and has proposed to end it and get a stable price level. The Tory Election Programme 1987 had this:

Our success in the battle against inflation has been the key to Britain's economic revival. We will not be content until we have stable prices, with inflation eradicated altogether.

The Labour Party, on the other hand, has always been favourably disposed to inflation. The 1974-79 Labour government more than doubled the cost of living in five years, and during the depression between the wars their leading economist, Pethick Lawrence proclaimed the very opposjfe of the Thatcher theory. He wrote: "I regard it as indisputable that unemployment, as it has existed in the world in recent years, is due to falling prices". The Labour Party's remedy at that time was to get prices up again.

If the Tories and the Labour Party looked at the history of capitalism they would find that unemployment and depression exist whether prices are falling, rising or stationary.

Probably the most widely accepted "collapse" theory centres around the belief that unemployment is bound to get larger and larger. Karl Marx's colleague Frederick Engls put it forward in 1886, three years after Marx's death. He wrote:

Meanwhile, each succeeding winter brings up afresh the great question "what to do with the unemployed"; but while the numbers of unemployed keep swelling from year to year, there is nobody to answer that question; and we can almost calculate the moment when the unemployed, losing patience, will take their own fate into their own hands.

The same theory was advanced again in the depression which began in 1979 and it has met the same fate. Within a short time Engels saw unemployment falling and he aban¬doned the theory. And unemployment in the 1930s, which reached 23 per cent in Britain and 25 per cent in the United States was nearly double the unemployment rates'of recent years. British unemployment is now slowly falling again-, and American unemployment is at an all-time low.

When Engels put forward the theory he recognised that it was not a view held by Marx. It was Marx who put the whole question in perspective, showing that it is a continuous cycle, the recovery from the depression being as inevitable as the depression itself:

Capitalist production. . . moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis and stagnation.

Britain is now in the phase of "growing animation" with production, real wages, profits and employment all rising in the past few years.

Events since Marx wrote have fully confirmed the accuracy of his description, and all of the attempts by governments to promote permanent boom and full employment have failed. But we have something further to say about it. It needs more than capitalism's crises to produce socialism. It needs a predominantly socialist working class. As it was phrased in our pamphlet Why capitalism will not collapse, published in 1932:

So long as the workers are prepared to resign themselves to the evils of capitalism, and so long as they are prepared to place in control of Parliament parties that will use their power for the purpose of maintaining capitalism, there is no escape from the effects of capitalism.

H. Socialist Standard, September 1988