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Recessive Tendencies: a tale of boom, bust and that old devil called capitalism

As the global economy plunges deeper into crisis, people everywhere are facing home repossessions, unemployment, pay cuts and rising prices. The very same governments that for decades extolled the virtues of unfettered market forces, have committed the ultimate U-turn by promising billions of taxpayers’ money for bailing out ailing financial institutions. This, they argued, was necessary to avert a complete economic meltdown on the scale of the 1930s. But before the full horror of crisis unfolded, some speculators and hedge fund managers, who gambled on the chaos big style, have pocketed the cash and disappeared merrily off into the sunset.

We are told that this latest financial crisis was caused by a combination of mounting unserviceable debt, greedy bankers and the collapse of the American sub-prime mortgage market. But this is only half the story. As many are coming to realise, cycles of boom and bust are part and parcel of capitalism itself.

marx was (partly) right

Fundamentally, as Marx pointed out, capitalism is awash with contradictions. In Das Kapital (1867) he noted how a small minority (the bourgeoisie) own and control the means of production – the factories, fields and workshops. The vast majority of the population (the proletariat), on the other hand, have to sell their labour in order to survive. As capitalism has evolved, these basic class distinctions have become more complex, but have not disappeared.

Now, as in the 19th century, wealth in society is created not by speculators, financiers or bankers, but by the sheer labour of the workforce. Profits arise from capitalists stealing a proportion of that wealth. The difference between the value of the products or services provided by the workers, and the amount they are actually paid, stacks up as “surplus value” profit for the capitalist. The owners of industry are only able to maintain this exploitative relationship, argued Marx and his anarchist contemporaries, because government protects their interests. This is achieved by a combination of what the 1960s American “democrat”, Walter Lippman, referred to as “manufactured consent” and, failing this, the threat of or actual use of force.

Marx examined the tendency of capitalism to move through cycles of boom and slump. He noted that capitalism is based around the production of commodities for the market. Production is not linked to peoples’ needs, but with the sole expectation of making profit. Profit levels are dependent on the ruling class holding down wages, eroding working conditions and investing in technologies to increase productivity.

Nevertheless, competition between rival capitalists to produce more goods to realise ever greater profits, eventually results in a “crisis of overproduction”. More goods are produced than can be sold, leading to firms going bust and workers being laid off. In the ensuing uncertainty, the economy retracts as consumers have less to spend, banks refuse to lend and investment is cut. Inflation and prices both go up. Smaller firms (or banks) go bust, or are absorbed by bigger ones who then monopolise the market. The banking and airline industries provide us with recent examples of this.

In order to get out of the resulting slump, unnecessary productive capacity has to be wiped out. Unsold goods are either bought up cheaply or completely written off, as investment will not start if overproduction still exists. Profit rates have to be increased by cutting wages and interest rates. Each slump thereby provides the conditions for future economic boom, followed inevitably by yet another slump. This permanent state of insecurity is the natural cycle of capitalism and also a trigger for war between competing states.

Although workers have the productive potential to enable everyone on the planet to have a decent standard of living, this is not in the interests of the ruling class. Only a very different system – socialism – could make this an actuality. Marx recognised that the ruling class would not give up their positions willingly – a popular revolution followed by a period of “dictatorship of the proletariat” was therefore necessary to implement socialism and prevent the capitalist ruling class from regaining power. According to Marx, socialism and workers’ self-management would eventually prevail, and the state would become obsolete and “wither away”. These latter points are highly contentious, and underline a clear distinction which emerged between two traditions within socialist thought – the authoritarian tradition and the anarchist or libertarian tradition.

a bad case of the trots

The failure of subsequent revolutions to implement socialism resulted because the authoritarian/centralist tendencies – advocated by the likes of Stalin, Lenin, Trotsky and Mao – achieved ascendancy. But in practice these only resulted in dictatorship of the party, state run capitalism and another form of class rule – as libertarians such as Bakunin and Malatesta correctly predicted they would. Countless (thriving) movements based on libertarian principles were brutally crushed by alleged workers’ states for being “counter revolutionary”. Of these, Kronstadt (1921), Hungary (1956) and Spain (1936-7) are perhaps the most widely documented while Castro’s Cuba (see page 25) is another case in point.
Marx’s lack of insight into power as a self-perpetuating end in itself remains a disastrous oversight. The actions of various self-proclaimed leftist vanguards in power has wrought immeasurable damage to the credibility of socialist ideas. This fact in itself does not negate the need for sweeping social change, but only underlines why libertarian approaches and organisational forms are so critical.

First and foremost, libertarians do not eschew organisation – only authoritarian organisation. In contrast to authoritarians, they aim for real (direct) democracy, self-activity and solidarity. Libertarian organisation is based on free federations built from the bottom up rather than from the top down. Further, libertarians oppose all relationships based on power – not just class ones – and seek to establish the building blocks of the new society within the here and now. Crucially, as the IWA put it, the emancipation of the workers is the task of the workers themselves – not of self-appointed leaders, parties or intermediaries. Socialism, as experience bears out, cannot be built using capitalist or authoritarian methods and organisational structures.

Nevertheless, despite these objections, Marx’s writings continue to offer a germane explanation for the relentless cycle of boom and bust which afflicts capitalism. The misery wreaked by economic competition and the greed of a few can be seen all around us today. And the many contradictions capitalism presents – from poverty to global warming – may yet provide the mechanisms for its downfall.

Capitalist Contradictions: the Evidence

  • At the start of this recession, energy bosses announce multi-million pound profits, while consumers are hit with huge price rises and fuel poverty.
  • Northern Rock, bailed out by taxpayers’ money, rewards the public by repossessing homes on a grand scale; meanwhile, homelessness rises as the government allows thousands of properties to stand empty.
  • As banks are effectively nationalised, elsewhere publicly owned assets are incrementally privatised.
  • Corporate executives are awarded inflation busting rises as workers are told to accept what amount to pay cuts.
  • The use of low paid casual labour is widespread, and both unemployment and work related deaths continue to rise.
  • Across the world, rising food prices have resulted in riots and thousands going hungry even though there is more than enough food produced globally to go round.
  • Wars are being fought over declining oil supplies, when global warming indicators tell us to invest in renewables or face climate chaos.
  • Greenhouse gas production, the primary cause of global warming, continues to rise despite Kyoto and Bali.
  • The US furthers its imperialist ambitions not just by occupying Iraq and Afghanistan, but also with sorties into Pakistan and Syria; in response, incresingly marginalised groups turn to religious fanaticism and acts of terror.
  • As NATO expands into Eastern Europe, we are again reminded that a mere fraction of global military spending could easily eradicate world poverty.
  • There’s a shift towards centralisation of political and economic power within a small number of largely unaccountable transnational corporations and financial institutions (like the IMF).
  • As world financial markets have become deregulated, growing capital speculation and increasing destabilisation has resulted.
  • The deployment of state surveillance under the guise of “the war against terror” is broadening all the time; attacks on unions and the right to assemble and protest continue.
  • Social inequality is growing both between and within nations; even within relatively wealthy economies such as Britain, massive disparities in life expectancy and health exist that are closely linked to social class.
  • The production and sale of commodities upon which consumer capitalism’s economic growth is based, is decimating the earth’s natural resources at a horrific rate, even taking recession into account.
  • Capitalism homogenises and commodifies our leisure; it rests on power, competition and alienation, it spawns crime, violence and repression, and it supports racism, sexism, nationalism and tribalism.

In short, capitalism is rotten to the core, as are all governments, ideologies and social relationships founded upon prejudice, exploitation and power.

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