John Molyneux on the economic crisis

Written in late October 2008 and republished from here, with some minor edits:

This month it is very hard for a Marxist to write about anything other than the astonishing crisis that has swept through world capitalism in the last six weeks or so...I will offer only some Marxist observations on the situation rather than an overall account. Watching the crisis unfold I have wanted both to laugh and to cry. To laugh at the contradictions and contortions the western ruling classes and their political and ideological representatives have fallen into as they have been forced to abandon all the economic doctrines they have been proclaiming with such certainty over the last twenty years or so. To cry at the misery that, without a shadow of a doubt, will be inflicted on the working people and the poor of the world as we are expected to pay up the bill for their crisis.

There has been plenty to laugh about. For example George Bush’s right wing neo- conservative neo-liberal government being forced into the biggest nationalisation in history, with the takeover of mortgage firms, Freddie Mac and Fannie Mae, followed by a series of other nationalisations. But isn’t that socialism? Well actually it is state capitalism not socialism but Bush and co. would have denounced it as socialism a few months ago. In Britain it was particularly funny to see the British government complain about the Irish government guaranteeing deposits in Irish banks on one day (unfair competition you know, distorting the market i.e. people would take their money out of British banks and put it in Irish ones), only to complain equally bitterly the next day about the failure of the Icelandic government to guarantee British deposits when the Icelandic banks went bust.

Then there was Alan Greenspan, former head of the US Federal Reserve Bank and the Pope of the free market, admitting there was a ‘flaw’ in his ideology. In truth the whole spectacle of Lehman Brothers, AIG, Merrill Lynch, HBOS, Wachovia, - these giants of capitalism, masters of the universe with centuries of accumulation and exploitation behind them - falling like nine pins and going cap in hand to the state has made schadenfreude impossible to resist.

But, of course, we know that their embarrassment is going to be followed by real suffering for ordinary people. Wage cuts and job cuts, unemployment and poverty, house repossessions and homelessness – these are the inevitable consequences of recession. Cuts in welfare benefits and social services, in health and education – these, before long, will be the responses of capitalist governments. In the poorest countries there will be famine and starvation, in the developing countries their development will falter and some will collapse, and even in the richest, most advanced countries the working class will feel the pain.

Torn between laughter and tears I am reminded of the motto of the great 17th century philosopher, Spinoza, ‘Neither laugh nor cry, but understand!’. And as a contribution to understanding this crisis I want to make three points. First it is not some natural disaster or weather calamity. Greenspan described it as ‘a once in a century tsunami’, and the media is full of phrases such as ‘economic typhoon’ or ‘hurricane’. This is nonsense: the crisis is neither natural nor an act of god but entirely man made; it was, in broad outlines, predictable and predicted for example by Marxist economists such as Chris Harman and Robert Brenner; and, pace Greenspan, these crises recur a lot more frequently than ‘once in a century’.

Second, it is not basically a crisis of confidence. The capitalist media and its commentators always try to suggest that these crises are fundamentally just a question of investors, speculators and even manufacturers’ confidence. Sometimes they try to get away with the old claim that ‘the underlying real economy is sound’. Now obviously confidence does play a role: if you are worried that a bank is going to go bust you will be tempted to take your money out of it, thus making it more likely to go bust. If you anticipate a low rate of return on your investment in a company you are likely to invest elsewhere, and if you anticipate a general recession you will probably put your money in gold, and this in turn contributes to the depth and length of the recession.

BUT this ‘confidence’ or lack of it is not arbitrary or random. It doesn’t just float into the minds of investors from the ether. It is based on evidence and experience from the real world. For example the problems in the US sub-prime mortgage market, which initiated the credit crunch, were not just problems in people’s heads, they were real problems of people who really couldn’t keep up their mortgage repayments, and from the standpoint of the mortgage lenders the real problem of not being able to sell repossessed houses profitably in a falling house market.

One of the great achievements of Marx’s economics was to show that all wealth creation depends ultimately on the application of labour to nature, and all [exchange] value rests on the expenditure of socially necessary labour time. If prices in the elevated worlds of stock exchanges, hedge funds and currency speculation depart too far from these real material values then, sooner or later, they will spring back like overstretched elastic.

Which brings me to my third point, namely that this is not just a crisis caused by greedy bankers and financiers on Wall St etc. This is not to excuse the bankers and financiers who are undoubtedly greedy, and whose greed is an important component of the dynamic of the crisis. But let’s be clear, in their relentless pursuit of maximum profits the bankers were only following the same logic that drives Exxon and Shell, Wal-Mart and Samsung and every other capitalist company in manufacturing, retail or any other sector, i.e. the inherent logic of capitalist competition. ‘Accumulation for accumulation’s sake’ as Marx put it. The over lending by banks is only a variation on the general tendency towards overproduction in booms, long ago identified by Marx.

Moreover the roots of the present crisis lie not just in the financial sector but in the so-called ‘real’ economy. In Britain figures have just been released showing that the British economy moved into recession in the July-September quarter, the quarter BEFORE the financial meltdown. Clearly it has been problems in the ‘real’ economy that have triggered the banking crisis and brought about the loss of confidence referred to above, particularly the underlying decline, in recent, in the overall average rate of profit.

What lies behind all three of these myths- of the crisis as bad weather, as loss of confidence, and as caused by greedy bankers – is the desire of politicians, and of the media and its tame pundits to pin the blame for the collapse on relatively superficial aspects of the system and avoid any analysis which points to capitalism itself as the culprit.

And that reminds us that Karl Marx went one step further than Spinoza when, in 1845, he wrote, ‘The philosophers have interpreted the world in various ways, the point, however, is to change it!’. Changing the world, in the present circumstances, means two things: mobilising the working class to resist the job cuts, wage cuts, house repossessions, welfare cuts, tax increases and all the other attacks that will come our way, and, at the same time, building a movement and a party which understands that the only ultimate escape from capitalist crisis lies in the overthrow of capitalism and its replacement by production for need not profit.

Edited to add: Zizek on the crisis