The Crisis of the Capitalist Economy

Jul 30, 1986

I. The capitalist system has gone through one more year of crisis without a catastrophic jolt, but without much improvement either. The American recovery that manifested itself starting in 1983 – and which has been the principal, if not the only cause of a small revival of the world trade – has been running in place since the beginning of last year. The rate of unemployment is currently almost double what might be expected during an upturn.

In the industrialized countries of Europe, production continues to stagnate or, at best, is developing only slowly. For the countries in the Common Market, the level of investment in industry is lower than what it was in 1973. In other words, in thirteen years, not only have productive investments not progressed, but they’ve declined. The number of officially counted unemployed in Western Europe is more than twenty million.

II. In fifteen years, the crisis has taken on, either simultaneously or consecutively, the appearance of a monetary crisis, an oil crisis, an industrial crisis, a commercial crisis – all this with the permanent threat of a financial crisis and two periods of absolute decline in production in 1974-75 and in 1980-82. There were also recoveries, but these were short; the highs and lows take place against a background of stagnation. The length of the crisis has attained more or less that of the period of expansion that preceded it – fifteen years, if we date its beginning in August 1971, with the crisis of the international monetary system.

III. The expansion of the 1960s, with its industrial growth, and rapidly developing trade, allowed the bourgeoisie to increase its profits through the growth of production. But this expansion was the mode of existence of the economy for only a limited time period. Whatever the supporters of the capitalist system pretended at the time, this expansion was not the expression of the economy’s capacity to develop on the basis of capitalism.

Stagnation is another mode of existence of capitalism in the epoch of imperialism. At most, the bourgeoisie learned after the Great Depression which followed 1929 to better manage the stagnation in order to alleviate for themselves the consequences of the stagnation. They can do this more easily given the fact that the present stagnation is unfolding on the basis of a higher world economic level than that which existed between World War I and World War II.

IV. The bourgeoisies of the imperialist countries, and to a certain extent those of the poor countries, have settled into the crisis. They have adapted the means of satisfying their thirst for profits to the weak development of the market by renouncing all attempts to develop production. But this renunciation only further restricts the market, that is to say, the solvent demand. But the bourgeoisie’s problem is not to expand the market and even less to develop production. It is to increase their profit.

V. From the point of view of developing their profits, the bourgeoisie has nothing to complain about the way the crisis has developed. In spite of the stagnation of production, overall capitalist profits have had a tendency to rise. In this respect, the last years were particularly favorable to the bourgeoisie. The OECD states, in discussing the situation of a number of important capitalist countries, the U.S., Germany and Italy among them: “In 1984 profits attained a level without precedent since the first oil crisis.” Even if the rate of increase in profits was less in 1985 in the U.S., they nonetheless rose ten per cent over 1984, on an operating basis.

VI. Whatever the particular manner in which individual capitalists benefit from the global increase in capitalist profits, this increase comes from a growth in the exploitation of the working class – from a decrease in the working class’s share of the national income. The bourgeoisie has been able to maintain and even to increase the global mass of its profits without increasing its sales and without increasing production because it has been able to squeeze a greater amount of surplus value from a more restricted amount of workers. Austerity policies, carried out by all the bourgeoisies of this world without exception, aim at lowering the standard of living of the working class, diminishing the mass of wages distributed, and reducing all the different forms of social spending. These policies are carried out not in order to stimulate production, but to increase profits.

VII. The present growth of profits, which was obtained without a growth in production, is not a promise of a future recovery and development of production. At the very moment that profits are increasing, productive investment continues to stagnate, or even decline. In a country like France, “the gross formation of fixed capital,” as it is called in the statistics, has been negative for many years. Even in the U.S., where gross private domestic investment had increased in 1983 and ’84, it decreased in 1985 again, in both nominal and real terms. The bourgeoisie has found another means to reap the profits accruing from the exploitation of the working class – a means better adapted to the crisis and to the limited character of the market, than investing in production. Their profits are going into other economic circuits: those essentially of a financial and banking system that has developed in spectacular fashion since the beginning of the crisis. Today the financial system is a hypertrophied parasite which exerts a powerful attraction on all available capital and offers more interesting and convenient profits than does production. There is an “international financial market” which offers, to those who want and are able to reach it, all sorts of financial products. There are all sorts of offers of capital and loans and all sorts of demands and borrowers. It’s a vast market, the only one which is experiencing rapid growth in a time period when the other markets, those for real products, stagnate and decline, or at best, only increase slowly. It’s a market where loans are negotiated and exchanged in all kinds of currencies, those that exist just as those which have only a fictitious existence, such as the ECU; where speculation on the variations of the different currency rates is one of the most lucrative activities.

VIII. The hypertrophy of the financial system is the salient feature of the present crisis of the capitalist economy; at the same time, it is the means the world bourgeoisie has found to adapt to the crisis.

When the crisis manifested itself in an absolute decline in production in 1974-75, the decrease in the rate of profit in industry and productive activity brought the possessing class to move a growing portion of their capital away from production and toward the financial circuits or simply toward monetary speculation. The banking system has transformed, first the well known petro-dollars, then a growing portion of capital from the large enterprises themselves, into easy credit for the borrower and, most of all, into lucrative loans for the lenders.

The banking system loaned to whoever wanted to borrow: to states, those of the large imperialist countries as well as those of the underdeveloped and Eastern European countries; to the big capitalist corporations; to companies large and small. In this way it offered lucrative employment for capital in search of profits and at the same time it permitted an artificial enlargement of the markets which actually led to a slight recovery after 1975. But the counterpart to this easy credit was an enormous debt.

IX. It is this enormous debt, both of states and of companies, which is the basis for the mushrooming growth of the financial system. It is absolutely impossible to reabsorb this accumulated debt simply by repayments. And not only for the states of the underdeveloped countries – some of which sacrifice half of their export revenues just to make their interest payments – but also for the U.S. which has a federal government debt of almost two trillion dollars, which represents more than double the amount owed by all the underdeveloped countries put together. And the state is not the only one to be hopelessly indebted in the U.S. Farmers owe the banks over 200 billion dollars, which is like the debt of Brazil and Mexico combined – the two most indebted underdeveloped countries.

X. Paying back the debt itself is not the principal problem, either for the bankers or for the owners of the capital who lend it out. Those who loan money today act as though the amount loaned out were equivalent to the fixed capital an industrialist freezes in buildings or major investments without hope of reselling them one day. What’s important is that the interest be collected. For the moment it has been. Having been scalded once by the financial crisis through which the crisis of 1929 began, the capitalist world has succeeded in creating a system of insurance and mutual protection which links banks and states. The banks insure the capital lenders. The central banks insure the particular banks. The states insure the central banks. The United States, directly or through the IMF, insures the world. A chain of complicity – based upon a fear of a financial collapse which could bring down the whole financial system and with it the economy – has allowed the bourgeoisie, up until now, to limit the consequences of the default of a debtor or the failure of a bank.

XI. In spite of this whole system of guaranties, Mexico’s announcement in August 1982 that it would not make its payments spread a wave of panic over the capitalist world. Bankers and the IMF rushed to accept a rescheduling of Mexico’s debt, and then that of others. Capital suddenly started moving away, not only from the underdeveloped countries, but from everywhere, to rush to the United States, the only apparent safe harbor in a world threatened by bankruptcy. This led the value of the dollar to skyrocket in relation to other currencies. Private banks, using the guaranties created to limit chain collapses, rushed to sell shaky debts to central banks, to the state or to the IMF. As a result, the flow of credit toward the poor counties dried up, making it more difficult to obtain new loans to meet interest payments on the old ones.

XII. However, the banking system, like the imperialist states, has no solution but to continue on the same course. After having taken the place of the private banks and acted as the bill collector to bring in interest payments, after having imposed austerity throughout the poor countries, the IMF finally decided last fall under the pressure of the U.S. to encourage the private banks to lend to the poor countries again. The private banks of course will do this only if they are guaranteed there will be no risk for them in lending again to countries which clearly have no way to reimburse them.

In other words, the United States is pressuring the states of the other imperialist powers to contribute more to the IMF so that it can assure the private banks and the lenders of capital that nothing threatens their interests.

XIII. At the same time, the U.S., which benefitted from the influx of capital, but which was worried that the increase in the value of the dollar would put the U.S. at a disadvantage on the international market, put pressure on the central banks of the imperialist powers to sell their reserves of dollars in order to reduce their value. The dollar has been falling. But to sell for seven francs dollars bought at ten represents a sizable tax which the U.S. has imposed on the central banks of France, Germany and Japan. And the new monetary unrest that this creates opens up new possibilities for speculation on the dollar. A new contingent of capitalists will be convinced that to realize fast and considerable profits it is much more interesting to “invest” capital in financial circuits than in production!

XIV. To avoid a chain of failures and a financial collapse, more and more guaranties are given to the lenders of capital. But the more the interests of the lenders are guaranteed, the more they are encouraged to stop investing in production and divert their capital toward finance or usury. This is the slip knot with which the economy is being strangled.

What initially might have seemed to be a remedy against the decline in production today is the principal cause of this decline. The capitalist’s thirst for profit which, in a time period of expansion could appear as a motor for the development of production, today shows itself for what it is: the brake on production.

XV. If no collapse occurs, if the mechanisms put in place to avoid it are effective – which is uncertain – if the bourgeoisie can continue to realize their profits without developing production, they will have solved their problem. But they will have resolved it at the price of a brutal growth of inequality between owners and workers, rich countries and poor countries; at the price of an enormous waste for all of human society.

The fact that the bourgeoisie has settled into the crisis means an important part of the productive capacity of the society is permanently left to lie fallow, that a fraction of the working class, an important one even in the industrialized countries, is left permanently unemployed accomplishing no useful activity for society, while there are immense needs to be satisfied, especially in the poor countries.

“To save society,” said Trotsky, when the last great crisis of the capitalist economy had plunged society into stagnation, before plunging it into war, “it is not necessary to stop the development of technology, nor to knock down the factories, nor to promise rewards to farmers for sabotaging agriculture, nor to transform a third of the workers into wretches, nor to call on maniacs to be dictators.... What is urgent and necessary is to separate the means of production from their present parasitic owners and to organize society according to a rational plan. Then it will be possible to rid society once and for all of its evils.”

It is the return of the capitalist economy itself to a new period of stagnation that gives these words their relevance today!