The Biggest ‘October
Surprise’ Of All: A World Capitalist Crash
“There will be periods of 30 years which will pass with the seeming
importance of a single day, and single days with the importance of 30
years.” (old Marxist maxim)
(Note: To avoid reinventing the wheel, and under the pressure of recent
epochal events, I have used fragments of other texts I have written in
the past few years, making up no more than 15-20% of the following
article. I ask the reader’s forbearance for any annoyance.)
Given the fascination of the events of the past 14 months of “credit
crunch”, many people (myself included) have sometimes tended to
neglect the “deeper” sources of this crisis in production and
reproduction. Analysis of a credit crisis has now become almost banal
in the mainstream media. But as Marxists we know that there is rarely,
if ever, a “pure” credit crisis without a deeper dimension in the
material reproduction process (1).
We recall Hegel’s three stages of the introduction of a new idea: 1)
total silence and indifference 2) great hostility and denunciation 3)
“that’s what we’ve always believed”
It’s amazing to see how the media have gone in a year and a half from
1) to 3), barely stopping at 2), a marginal pastime over the last 30
years when dealing with “skeptics”. Suddenly the word “capitalism” has
reappeared in popular discussion after decades of euphemisms such as
“free-market economies” and Barack Obama’s support for massive
government bailouts of Wall Street is attacked as “socialist” when in
fact it is nothing but the old capitalist refrain of
“privatization of profit, socialization of costs”.
Increasing media attention is being given to the difficulties of
“non-financial corporations” in getting loans as credit tightens and
dries up. One wonders exactly what this can mean, however, given that
such “non-financial” corporations at GM, Ford and General Electric have
increasingly been making ever-greater profits in financial endeavors.
Given the ever-growing prominence of finance and financial markets in
capitalism since the 1970’s, and the deep ideological falsification by
official capitalist statistics at all levels, serious information
on the “real” economy is harder to come by, since (as exemplified by
the financial turn of these former pillars of US production) a
fictitious dimension is present pretty much everywhere.
I would however like to throw out my own interpretation of events to
stimulate some debate.
I. A CAPITALISM IN ADVANCED DECAY
Let us first sketch the overall credit and financial situation, to get
it out of the way. (Most of the following figures are from 2005; I
presume that many of them are being altered daily by the deflationary
crash now underway.)
There is more than $33 trillion in outstanding debt (Federal, state,
personal) in the U.S. economy, three times GDP. (No one knows how much
is tied up in the international hedge funds and derivatives.) The state
Federal, state and local levels) consumes 40% of GDP.
The net U.S. debt abroad is roughly $5 trillion ($13 trillion held by
foreigners minus $8 trillion in U.S. assets abroad-2008-LG) That amount
has been growing by $700-800 billion a year until very recently (before
the decline of the dollar and of consumption in the US, and capital
flows snapping up cheapened assets in America, improved the US
trade deficit and the balance-of-payments generally). Foreigners hold
an increasing percent of U.S. government debt; the four major Asian
central banks (Japan, China, South Korea, Taiwan) alone hold $4
trillion (2008). (The recent—and already how long ago it seems—bailout
of Fannie Mae and Freddie Mac was taken first of all with China’s $500
billion holdings of Fannie’s and Freddie’s debt in mind.) It is the
Federal government’s debt which makes possible the reflationary actions
of the Federal Reserve Bank. If Doug Noland’s notion of “financial
arbitrage capitalism” (2) is right, the old core conceptualization of
the role of the banking system (deposits and lending based on deposits)
and the Fed’s (apparent) ability to expand and contract credit
availability through it, is superseded; increasing amounts
of “virtual” credit are created by “securitized finance” “off the
balance sheet” of banks. One must also consider the government-linked
entities (Freddie Mac, Fannie Mae), which backed the reflation of
mortgages of the past 4 years, leading to an incredible housing bubble,
now collapsing. This entire edifice depends on 1) low inflation in the
U.S., as higher inflation would scare off foreign lenders; 2) the
willingness of U.S, “consumers” to go more and more heavily into
debt (with debt service now taking 14% of incomes, as opposed to 11% a
few years ago) 3) the willingness and ability of foreigners to go on
re-lending U.S. balance-of-payments deficits back to the U.S.
Let’s shift to another level altogether: the extent of
unproductive labor and unproductive consumption in the U.S. and many
other “advanced” economies (advanced mainly in decay). Marx defines the
state debt as fictitious; he defines labor performed for revenue (as
opposed to capital) as unproductive (3). Many Marxists would agree that
military expenditure performed for the
revenue of the state is unproductive labor, even if it produces a
profit for an individual capitalist. One can extend that paradigm, I
think, much farther in
terms of other goods and services commanded by state revenue, and/or
the fictitious capital of the state debt. To be productively consumed,
surplus-value that is concretely means of production (Dept. I) or
means of consumption (Dept. II) must RETURN to C or V for further
expanded reproduction; by that criterion, it would seem that
unproductive consumption in the U.S. economy must be enormous.
I will sidestep theological debates on exactly what constitutes
unproductive labor by pointing to the tool developed by Marx permitting
us to grasp the huge amount of unproductive consumption in modern
(from Capital, vol. I (pp. 726-727, Penguin translation 1973):
“Accumulation requires the transformation of a portion of the surplus
product into capital. But we cannot, except by a miracle, transform
into capital anything but such articles as can be employed in the
labour process (i.e. means of production), and such further articles as
are suitable for the sustenance of the worker (i.e. means of
subsistence)…In a word, surplus-value can be transformed into capital
only because the surplus product, whose value it is, already comprises
the material components of a new quantity of capital.”
In another words, unmanned drone bombers, tanks, police riot gear,
yachts, Rolls Royces, gourmet restaurants and Louis Vuitton handbags
may well produce a profit for an individual capitalist, but unlike
means of production for broadly useful goods (what Marx called ‘Dept.
I’) and means of consumption (e.g. machines to make refrigerators) or
producing such goods (Dept. II: let’s make it simple: bread) they
CEASE TO BE CAPITAL by dropping out of the circuit of capital in
expanded reproduction; they cannot be productively consumed as either
further means of production or as means of consumption for reproducing
labor power. Such commodities constitute the unproductive consumption
of the capitalist class and of that class’s “servants”—civil servants,
corporate bureaucrats, etc-- in the vast armies (however one wishes to
define them) of unproductive laborers in today’s (ideologically touted)
We must be careful to distinguish a Marxian analysis of fictitious
capital from myriad theories of monetarists, Hayekians, “bankers rule
the world” conspiracy theorists or the sophisticated left-Keynesian
Hyman Minsky, all of whom see finance in isolation, by firmly
connecting fictitious capital at its origin to the sphere of
production. We can call this origin “technodepreciation”, or the
increment of overvalued fixed capital “f” that develops over time due
to the heteronomy of capitalist social relations. Capital for
capitalists means first of all a “capitalization” (4) of an anticipated
cash flow. The cheapening effect of advances in productivity is
constantly undermining that capitalization (5), but in a way which is
only fully apparent in a deflationary breakdown crisis like the current
one. Over the course of a capitalist cycle, operations of the central
bank act to slow down the bursting of this fictitious bubble but must
ultimately show themselves impotent against the underlying downward
movement of prices (6)..
Such a view renders totally academic (if any further proof were
necessary) most of the Marxist heavy lifting over the “price-value”
“transformation problem” of the 1970’s and 1980’s. Because, over long
periods of time, the market price of an individual capital does not
directly correspond to its social cost of reproduction, but rather to
this capitalization, in the environment set by the generally available
rate of profit. Capitalist paper—titles to wealth consisting of
profit, interest and ground rent—can circulate for a long time with no
immediate relationship to “value” as long as adequate amounts of
surplus value from somewhere sustain them. This surplus-value can come
not merely from the direct exploitation of workers in production but
from “free” inputs that involve either primitive accumulation
(incorporation of labor power reproduced by other modes of production)
or by out-and-out looting, i.e. non-reproduction, of nature,
existing labor power and capital plant. These are empirical questions
that cannot be settled by recourse to exercises in matrix algebra. (7)
Hence the post-July 2007 “credit crunch” is in fact rooted in a long
process in the capitalist cycle of production and reproduction of
recent decades, to which we now turn.
II. CAPITAL SPIRALS BACKWARDS TO SOLVE ITS CRISIS
First, a bit of history, to grasp the enormity of the social and
economic RETROGRESSION of the past three or four decades.
This crisis can be traced to the end of the post-World War II
reconstruction boom, which was signaled by mild recessions in 1965-66
in the US, Japan and Germany, and which had earlier been signaled by a
“dollar crisis” starting in 1958. The proportions at that time, of
course, seem derisory when compared with the situation today.
In March 1968, the Bretton Woods system almost came unstuck and world
exchanges closed for several days to prevent a panic (8).
A genuine corporate liquidity crisis erupted in the US in 1969-70,
highlighted by the bankruptcy of the Penn Central Railroad (moreover an
excellent illustration of the relationship of capitalist valuation by
“capitalization” and the actual underlying value of assets) (9).
Corporate debt in 1970 was at (to that point) post-WW II highs, and
investment in “real” production had already been slowing since the deep
1957-58 recession, or was sustained by military production for the war
in Vietnam (10).
At that point, going into the recession of 1969-70, corporate liquidity
was at the center of concerns.
I would argue that from these late 1960’s signals of the end of the
previous era of expansion onward, world capitalism has been basically
“running on empty”, with ever increasing credit pyramiding of
unbelievable and unprecedented proportions being the main “motor” of
“growth”, paid for by ever-increasingly social retrogression of every
kind, that we can call CONTRACTED social reproduction, or
non-reproduction on a world scale.
It is also interesting to note that, according to a UN study of several
years ago, 1968 was exactly the turning point in post-World War II
income distribution in the “advanced capitalist” world; from 1945 to
1968, the wealthiest fifth of the US population and the poorest fifth
moved closer together; after 1968 they began to move apart and today
are farther apart than in 1929. Similar trends are discernible, though
not as extreme, in most other advanced capitalist economics.
Another fundamental index of the end of an era is summed up in the
single “fact” of the disappearance of the single paycheck working-class
family, beginning in the 1960’s and accelerating ever since. This takes
us in one step to the heart of the crisis as a crisis of social
reproduction. Forty hours per week ca. 1960 reproduced millions of
families of four, whereas eighty or more (often significantly more) are
The Bretton Woods (“gold-dollar” standard) system (11) collapsed in
1971-73 and was replaced by the straight-up “dollar standard”, whereby
the debt of the U.S. state became openly the anchor of the world
financial system, and remains that to this day.
This was an expression at the level of what Marx called “world money”
(12) of the crisis of value at work deep in the system of production
and reproduction, to which I will return.
The major reflation of 1972-73 resulted in an inflationary acceleration
and was followed by the 1974-75 world recession, the deepest (up to
that point) since World War II. The reflation out of the mid-1970’s
recession led to the inflationary blowout of 1978-80, followed by the
“Volcker austerity” and the triumph of Thatcher- Reagan
“neo-liberalism”. This was the last Keynesian (1975-79) reflation
bearing that name,, issuing in the late 1970’s developments such as
runaway inflation, California’s Proposition 13 (13), the US
bailout of Chrysler, Carter’s budget cuts and the British “winter
of discontent” that preceded the triumph of Thatcher and Reagan (14).
After 1979-80, capitalism turned to what might be called “military
Keynesianism”, with military buildup and tax cuts for the wealthy.
We should not fail to note, when discussing the mid-1970’s, the
apparent slippage of U.S. hegemony in a series of world crises: the
worker insurgencies in Spain and Portugal, the military defeat in
Indochina, the appearance of “pro-Soviet” regimes in the Horn of
Africa, insurgency in South Africa, further “pro-Soviet” regimes in the
ex-Portuguese colonies of Africa (Angola-Mozambique-Guinea Bissau), and
the seeming leftward movement in Europe in the phenomenon of
“Euro-communism” (France-Italy-Spain). Further fires broke out in the
Nicaraguan and Iranian revolutions of the late 1970’s.
The counter-offensive of the “Washington consensus” seemed to nullify
this slide of US hegemony, and its “balance sheet” should be touched on
for a sense of its human cost. Social Democracy and Stalinism did their
share of the work in Spain and Portugal in channeling worker revolt
into bourgeois democratic channels, but in most places the reaction was
long and bloody; military dictatorships were established in the
Southern Cone (Chile-Uruguay-Argentina, added to Brazil’s dating from
1964) between 1973 and 1976; the more diffuse challenge of the
“Group of 77” of developing countries at the United Nations demanding
food, fuel and debt relief through a “New International Economic Order”
was defused; the various “national liberation movements” in Africa and
Indochina collapsed into ignominy and stagnation, or issued quickly (as
in Vietnam) in “market socialism”; the mullahs triumphed in Iran, wiped
out the left and sent millions off to fight the 1981-89 Iran-Iraq war;
; a fifteen-year civil war between Sunnis, Shi’ites, different
Christians and their international backers (Syria, Iran, Israel, the
US) ruined Lebanon; Saudi money and propaganda fueled Islamic movements
from the Uighurs in western China to Morocco; the US-backed Islamic
insurgency in Afghanistan wore down the left-nationalist regime and the
Soviet army and ultimately brought the Taliban to power; the US-funded
military stranglehold brought the Nicaraguan revolution to heel; the
US-China alliance against the Soviet Union solidified internationally;
Reagan, Thatcher, Mitterand, Gorbachev and Teng all agreed on the
superiority of the market; in the wake of the collapse of the “national
liberation” movements, the IMF imposed its “structural adjustment
programs” on 100 developing countries. The Soviet bloc collapsed in
1989-1991. The US armed forces killed hundreds of thousands of Iraqis
in the 1990-91 Gulf War. By the early 1990’s, forty wars were in
progress around the world; the six-nation war in southern Africa alone
killed 4 million people, more than any other war since 1945 (and there
was no year without a war somewhere after 1945); into the void
left by “national liberation movements” stepped the Four Horsemen of
the Apocalypse seemingly without ideology or goal beyond pillage and
looting and massacre in places such as the Congo, Liberia, and Sierra
Leone; the ANC came to power in South Africa and quickly joined the
Washington consensus; the Yugoslav wars of 1990-95 and 1999 saw the
birth of murderous nationalist and ethnic bloodlines, and gave the US
an opportunity to humiliate the impotent European Union; the “hermit
kingdom” of Kim Jong-il in North Korea oversaw famine in one of the
last standing “workers’ states”, and throughout the Third World six
million children die every year from diseases and conditions (e.g. lack
of clean water) with purely economic causes.
III. BALANCE SHEET OF THREE DECADES OF THE ‘WASHINGTON CONSENSUS’
The 30 years of the “Washington consensus”, in spite of its triumph
over statist development regimes, was punctuated with “financial
events”, now overshadowed by the “Big One” of 2007-8, events in which
the ostensibly-maligned state had to intervene again and again:
1979-82: Volcker’s Federal Reserve management raised interest rates to
20%, finally introducing a positive rate of interest after the 1970’s
hyper-inflation, and inducing a deep recession in 1980-82; the funding
of the huge Reagan deficits for military buildup was made possible by
loans from the Japanese (15). It was also in this period that “junk
bonds” and “leveraged buyouts” moved to the fore. (16) A wage of
“concessions” swept U.S. labor relations, with even profitable
companies forcing renegotiations of unexpired contracts (17).
1982: the first major Third World debt crisis, with Brazil and Mexico
on the verge of default; the losses of the US banks were effectively
nationalized; the living standard of ordinary Mexicans fell by 50% in
the resulting austerity.
1984: the US moved officially for the first time since World War I from
being the world’s biggest creditor to being the world’s biggest debtor;
after howling for years about “deficits” from “tax and spend” policies,
neo-liberals and neo-conservatives suddenly were saying laconically
that “deficits don’t matter”.
1985: The Plaza agreement forces Japan into a 50% revaluation of the
yen, meaning a 50% devaluation of their previous dollar holdings.
1986: London financial markets had their deregulation “Big Bang”
opening to expanded activity in world markets.
1987: the world stock market crash, seemingly a largely
“financial event”, is followed by new Fed chairman Greenspan’s rapid
relaxation of liquidity and a gradual recovery of paper values into the
1989-1991: the savings and loan meltdown in the US adds another $150
billion to the national debt; an official recession begins in 1990, and
housing prices plummet 20% on the average. The previous decade’s “junk
bond” heroes were wiped out.
1990: Japanese stock market collapses from 38,000 to 12,000, and bad
bank loans and real estate investments plunge Japan into more than a
decade of deflation.
1994: the Mexican “tequila crisis”; the US government spends $50
billion to bail out American holders of Mexican bonds; Orange County
(California) goes bankrupt on bond market losses;
1997-98: Asian crisis tips South Korea, Hong Kong, Indonesia, and
Thailand into meltdown. The IMF lends South Korea $57 billion and
imposes draconian austerity (18), and huge economic and social turmoil
affects tens of millions in those countries.
1998: Russia defaults; the hedge fund Long Term Capital Management was
wiped out as a result and required a $13 billion dollar rescue
involving various banks and overseen by the Fed;
2000: Dot.com boom collapses; NASDAQ loses 60% of value and never
2001: After 9/11, a further major stock market plunge, part of a
larger 2000-2003 “bear market”. The Enron bankruptcy again signals a
deepening crisis of “off-balance sheet” scams, followed in 2003 by
2002: The Dow Jones Industrial average hits a 7,300 low in continuing
bear market; Federal Reserve Chairman Greenspan brings interest
rates down to 1%. The 2000-2001 recession is followed by the most
anemic recovery since World War II. The Dow recovers and begins ascent
to over 14,000 by fall 2007.
2003: Asset inflation (stocks, real estate) driven by massive easing of
credit accelerates, above all in the US and then European (Spanish, UK,
Ireland) housing bubble.
It was coming out of the 2000-2003 bear market and 2000-2001 recession
and the ensuing “jobless recovery” that the “sub-prime” phenomenon came
to the fore.
IV. THEORETICAL UNDERPINNINGS OF THE BIGGEST PONZI SCHEME IN HISTORY
Capitalist finance over the previous two decades has discovered
“securitized finance”, which means taking a cash flow from some
“underlying” income stream, packing it into a saleable form and selling
it on for its “capitalized” value. The previous packaging could be
packaged in turn, creating a theoretically infinite “architecture” and
“gearing” ultimately resting on the original cash flow. Thus the shaky
sub-prime mortgages in the US were generalized through the world
financial system like a proliferating AIDS virus, often concealed in
the highest (‘AAA’-rated) types of paper. “Securitized finance”
allowed capitalism to build a classic “Ponzi scheme” (19) of ever-more
opaque instruments, announced as a “revolutionary” innovation.
Underneath, however, the “leveraging” (the ratio of total paper value
issued to paid-in capital or cash on hand) reached absurd levels, so
that a small decline of paper value quickly spelled bankruptcy (20).
“Underneath” everything else in the financial sphere, the shift from
the pre-2000 “dot.com” boom to the housing boom thereafter was
the result of Federal Reserve attempts to keep purchasing power in the
hands of the “American consumer”. To the capitalist pundits, deeply
oblivious to any deeper crisis of production and reproduction, this
ever-more indebted “American consumer” had been the “locomotive” of the
world economy for decades, in the context of ever-increasing
indebtedness (corporate- government- personal) in the U.S. economy, all
of it subsidized by loans from abroad which by 2007 had reached $3
billion PER DAY. Subsidizing the purchasing power of the “American
consumer” became the urgent necessity of keeping the whole world
fictitious edifice standing, and preventing the eruption of the deeper
deflationary pull of the sphere of production.
The $1-2 trillion in the Bank of China, for example, consists of little
green pieces of paper exchanged for real Chinese goods produced by the
exploitation of Chinese workers, pieces of paper then re-lent to the
“U.S. consumer” so he/she could buy those goods. That money will
never be seriously repaid, particularly if U.S. policy makers get their
way and the Chinese revalue their currency to the desired level of 4
renminbi=$1, cutting in half the value of those reserves to
themselves. The Japanese, who saw their dollar holdings reduced
in value by Nixon's dissolution of the old Bretton Woods system
in 1971, can tell the Chinese a thing or too (and the Chinese know the
stakes very well and have discussed them publicly).
This very brief summary of the 30-year history of the “Washington
consensus” in reality, touches on the surface of events. For what we
are dealing with in reality is the latest turn in the decadence of the
capitalist system as a global mode of production, a process that began
in the first decade of the 20th century.
V. DECADENCE OF A MODE OF PRODUCTION
What does “decadence” in this sense mean?
Around the time of World War I in 1914, capitalism reached a certain
point in history at which it ceased to be a progressive mode of
production on a world scale. Historically we see that in the first
century of capitalism’s existence from the early 19th century to 1914,
there was a steady development of productive forces, and a growth of
the productive working class on a world scale (21), in those areas that
were fully capitalist. In that period, capitalism got to a stage where
that kind of development could no longer happen in a peaceful
evolutionary manner (22). (To periodize capitalism in this way is in no
way to overlook its historical crimes, including the centuries of the
African slave trade and the pillage and depopulation of the New
When America and Germany were catching up with and passing England as
major capitalist powers, the productive working class was growing on a
world scale, as a percentage of the active capitalist population.
And from World War I until the 1970s, no country succeeded in
developing into an advanced capitalist power in the way the US and
Germany did. Starting in the 1970’s and particularly 1980s, South Korea
and Taiwan did in fact evolve into effectively first world countries,
but these were special cases permitted by the U.S. as showcases to
compete with the appeal of China and North Korea (the latter being more
developed than South Korea until the 1970’s). Since then, Hong Kong,
Singapore and later China and Vietnam have followed the South Korean
and Taiwan models, but this has to be offset against decline and
stagnation in the US and Europe, as well as against outright
retrogression in Eastern Europe, Russia, Central Asia, the non-oil
countries of the Middle East, black Africa and Latin America.
So, unlike the period prior to 1914, the rise of the Asian Tigers
has not been not expansion on a world scale but it was growth here and
Historically, we can consider the period from 1914 to 1945 to be mainly
lost decades for capitalism as a system, just more or less permanent
crisis, war, reaction, destruction, and so on. There was to be
sure exceptional growth in Japan, tied to its expansion into China, and
some technological innovation, as in the US and Germany during the
“rationalization movements” of the 1920’s (always tied to historically
high unemployment of 8-10%, that being the point), and even (e.g. the
US auto industry) during the 1930’s depression. Latin America from 1929
to 1945 built its “import substitution” populism behind high tariff
walls. And we should not forget the Stalinist forced-march
industrialization of the Soviet Union which killed upwards of 10
million peasants in the collectivizations, crippling Russian
agriculture for the remainder of the Soviet period, and which placed
factory speedup under the management of the GPU (the Soviet secret
police). Quiet aside from World War I (20 million dead) and World
War II (80 million dead), the “purely economic” character of the period
was these local spurts of growth offset by the larger preponderance of
crisis, stagnation and retrogression in the world as a whole.
That local growth which did occur had to await the world reorganization
after World War II to be truly effective in a general surge of
The period from 1945 to the early 1970s, called the postwar boom,
can be understood as a period of reconstruction from that earlier
period of the 1914-1945 crisis. This does NOT mean merely rebuilding
what existed before 1914, but an expansion that could continue until,
again, socially necessary labor time of reproduction was
superannuated as the “numeraire”, the common denominator, of capitalist
exchange at the new, higher “standard of value”. The most important
social expression of this superannuation was the worker rebellion in
the US and Europe from 1965 to ca. 1977.
In reality, the postwar boom ended in the mid-1960s but it continued
into the 1970s because of the credit expansion that created the runaway
inflation of the 1970s.
In the mid 1960s, as indicated, there were important recessions in
Japan, Europe, and the United States. And the US and the other major
capitalist countries reflated their economies with credit and extended
the boom into the early 1970s. But the dynamism was
Since the early 1970s, on a world scale, the system has been in
permanent crisis, trying to reestablish a dynamic equilibrium.
Capitalist crisis means a plunge in production, mass unemployment, the
destruction of old capital and creation of the conditions for a new
expansion with a viable rate of profit. A ‘slow motion” crisis
that never ended began in earnest in 1973, now accelerating into a
full-blown crisis on the 1929 model. Marx’s Capital has a
description of the nature of crisis. Wiping out old competing capital
that’s not competitive, wiping out lots of fictitious capital, credit,
and forcing prices and wages down so that a new phase of expansion can
start with a rate of profit that will make capitalists invest. That is
the mechanism of crisis.
In order to really adequately frame this analysis and get beyond
description, it is necessary to use Marx’s terminology, while trying to
remain as clear as possible.
Capitalism as a system is regulated by what Marx called the law of
value. The law of value means that the universal, average cost of
reproducing all commodities—everything bought and sold in the
capitalist system—is determined by a general “standard” which is set by
the socially-necessary labor time required to REproduce them TODAY. The
ultimate foundation of this standard of value, which sets the value of
all commodities, is the socially necessary time of reproducing labor
power, the living labor capable of using contemporary technology.
Capital without living labor to exploit produces no profit, as shown in
the limits of automation and robotics to “solve” capitalism’s crisis.
From one cycle to the next, capitalism develops productivity and it
makes commodities cheaper. It makes technology cheaper, and it makes
wages (the capitalist price of labor power) cheaper, but it can
compensate in many circumstances for cheaper wages because working
class consumer goods also become cheaper.
So in the whole system, “variable capital”, the total cost of
reproducing labor power, gets smaller because of productivity
Marx called this process of the decline of the total wage bill (V, or
variable capital) relative to the value today of all means of
production (C, or constant capital) the rising organic composition of
capital, expressed in the relationship C/V. Since capitalist profit can
only come from the exploitation of living labor (V), Marx saw a general
tendency for the rate of profit to fall relative to the mass of capital
(C) which living labor set in motion.
Some examples of a declining V offset by a rising material content of
workers’ wages are in order. In the 19th century in America, England,
France and Germany, the most important capitalist countries at that
time, the workers spent half of their wages on food. Then an agrarian
revolution happened worldwide. Canada, Argentina, Russia, the U.S. and
Australia used the most modern methods of cultivation and
transportation to produce and ship grain very cheaply, creating a
deflation of grain prices and a crisis in other countries (mainly in
Europe) still using small-scale peasant agriculture and inland
transport. So by the time of World War I, the working classes were
spending less on food and had more wages to spend on other consumer
The explanation for the post-World War II boom was an increase in
productivity lowering the total wage by productivity gains. But because
food and other basic necessities became far cheaper, workers
could buy TVs, cars, houses, things that they could not buy or which
did not exist before World War I. In other words, the law of value was
cheapening production but living standards up to a point, including for
workers, could rise.
But we have to see 1914-1945 as a period in which capitalism was trying
to do the same thing that it had done in the classic crises of the 19th
century, namely find a new foundation for a new expansionary phase. It
couldn’t happen in the old way, it couldn’t happen just by a crash, a
couple of years of depression, and then a new expansion. In the world
then dominated by the capitalist system, the total productivity of
labor was too high to be contained within the capitalist form. What
previously had happened by the cycle of crash, deflation,
depression recovery and boom (which involved, as indicated, the
destruction of outdated technology, the acquisition of newer technology
at deflated prices after which it could become profitable, and extended
periods of mass unemployment) required a much larger scale of actual
physical destruction, both of technology and of working people. There
was tied up with institutional and geopolitical elements, because Great
Britain could no longer be the No.1 capitalist power, But Great Britain
was not going to just graciously step aside; it had to be pushed side.
And Germany tried to push the British aside and the United States
succeeded in pushing them aside. So it required thirty years of, as I
said previously, war and political transformation to create new
conditions for capitalist accumulation on a world scale.
The above-mentioned “organic composition of capital” is again most
pertinent here. The decadence of the system on a world scale is
expressed in the “fact” (another face of productivity being too high to
develop further in a capitalist form), that the great
accumulation of capital investment (C) becomes an obstacle to further
development. Any important cheapening of C by further technological
innovation would destroy the value of too much existing invested
capital. Hence the need to preserve that value becomes a brake on the
very dynamism that developed capitalism to a high level.
Thus the crisis is two-fold: a reduced rate of profit, systemically,
from a rising C/V ratio, becoming a brake on real innovation,
which is also the expression of the fact that V, the cost of
reproducing labor power, diminishes to the point where it cannot be the
common denominator of commodity exchange. The crisis is neither a lack
of productive technology nor of labor power as such, but the restraint
of their potential in a system demanding an adequate rate of profit for
capitalist investment. The anarchic character of the system can only
re-establish an adequate rate of profit through destruction and
retrogression, the backward movement socially experienced in 1914-1945
and since 1973. A revolution taking economic and political power
away from the capitalists would make possible an immediate end to the
requirements of the capitalist law of value on both existing technology
and labor power, and permit a rapid transition to a far greater
creation of real wealth, initially freed from its capitalist form
and subsequently evolving into completely different kinds of productive
activity and wealth.
An obvious example of a capitalist brake on real human development is
the car-oil economy which has been so central to capitalist
accumulation since the 1920’s and especially since 1945. The patents of
the many far-more fuel efficient automobile engines invented
periodically have been bought up by the major oil producers, never to
be heard of again. Similarly, auto and oil producers have successfully
lobbied against any serious program of public transportation in the
U.S. to keep people using cars, with the billions of lost hours in
traffic jams, commute time and huge oil consumption that implied, while
allowing the railroad system to rot. (In Los Angeles, as merely one
example, a good system of public transportation existing before 1914
was dismantled under the pressure of the auto industry to make way for
the suburban commuter nightmare that exists today.)
Hence the conventional (Malthusian) view (held by much of the
environmental movement) of the current crisis as the result of “too
much technology” is the perfect ideological cover for the fact of the
NON-development of many technologies which has heavily contributed to
A process similar to 1914-1945 has been happening since the early
1970s, in the great retrogression I described earlier, where America
can no longer play the role of the system’s hegemon. The United States
can no longer play this role, and nobody else, no other country
can really replace it, but there’s a struggle for reorganization of the
world system that would allow a new expansionary phase to happen. And I
think, like in the 1914- 1945 period, this cannot happen
peacefully. I don’t know exactly how it could happen, I’m not sure it
can happen because the underlying crisis is very deep. But nevertheless
that’s the problem on a world scale today.
In this situation, different regions in the world, East Asia (Japan,
Korea, China, Taiwan), Russia, India, Europe, are all dissatisfied with
the current world system, and would like to reorganize it. But none of
them is individually strong enough to overthrow the power of the United
States, and the US has been skillfully trying to keep them from forming
a powerful bloc (23). That’s the world geopolitical context for the
ongoing crisis, analogous to the.logjam created by a superannuated
British hegemony from 1914 onward.
But nevertheless this is only one level of the problem. The deeper
level is, once again, that, as in 1914, there cannot be an expanded
world boom, it couldn’t be within a capitalist framework because the
capitalist law of value is no longer capable of expanding the world
productive forces in the same way it did prior to 1914.
VI. CAPITAL ABORTS HUMAN DEVELOPMENT TO SAVE ITSELF
Let’s look more closely at the balance sheet of capitalism since the
late 60s and early 70s. In Latin America, there has been massive
impoverishment and deindustrialization, as in countries like Argentina.
In some countries, such as Brazil, this has meant the marginalization
of ca. 20~30% population from participation of almost any kind in the
economy. Black Africa has been even worse: almost a total disappearance
of real investment in the many so- called failed states. Eastern Europe
and Russia have had 15 years of so-called shock therapy and a
transition to private capitalism with millions of old people dying,
because their pensions became worthless, with the new inflation. In the
ex- Soviet Central Asian Republics., conditions fell sometimes to
30% of the living standard of pre-1991. In the non-oil producing
countries of the Middle East it was not quite as systematic but there
were similar kinds of marginalizations of populations. There was very
distorted development in the countries with the oil revenues. Then in
Asia itself, a certain kind of economic development I mentioned before,
the tigers, China, but in reality in India and China combined, there
are one and half billion peasants who are left out of this process. I
see no way that capitalism pull them into the process. And in Europe
and the US , there have been extended periods of mass employment,
the deindustrialization of the US, the deindustrialization of Britain.
1% of the US population is in prison. That, again, is the balance sheet
of capitalism since the early 1970s,
In these phenomena we see how capitalism continues to develop
productivity (24) but cannot translate that productivity increase
into real gains for society.
In other words, capitalism has created the productive ability to have
much shorter working hours, and society could have a much shorter work
week on a world scale. But that can’t happen in a capitalist framework.
Capitalism needs living labor and exploitation of living labor in order
to be capital. (To be sure, the CONTRACTED social reproduction since
the early 1970’s has undermined somewhat the total productivity in
existence—that is its purpose—but on a world scale productive forces
still exist which can be the basis for a rapid transition out of
From the middle of the 19th century until the middle of the 20th
century, one of the main slogans of the world working-class movement
was for the 8-hour-day and 40-hour-a week. And from that period and
into the 1960s, capitalism was in fact shortening the work week, under
the pressure of the classical workers’ movement.
But then what happened? This tendency, like the tendency to greater
income equality, was reversed and now the work week is
lengthening in North America and Europe, and why? Not because there
isn’t productive capacity around but because, once again capital needs
to exploit living labor in order to survive and profit as capital.
Nothing better illustrates capital’s inability to socially realize its
own gains in productivity, and hence its nced to destroy productivity
to re-establish an adequate rate of accumulation and profit.
This is right in the middle of Volume III of Marx’s book Capital. What
did he say? Capital becomes an obstacle to itself.
Past a certain point, capital cannot realize, socially, the gains in
productivity that it creates through competition. It lives from the
privatization of profit and the socialization of costs.
It happened once from 1914 to 1945, and it’s happening again since the
late 1960s-early 1970s in (so far) as more diffuse form. Here’s a
thumbnail sketch of the United States since 1973, during which time
“GDP” has increased about tenfold. There are many aspects of the social
reproductive dimension of the post-1973 crisis in the U.S., but none
stands out more sharply, as indicated earlier, than the
disappearance of the one-paycheck working-class family, of which
millions existed ca. 1960. The recognition that most of those
single paychecks in 1960 were earned by “white men” should not divert
attention today, when two or more paychecks are required to maintain an
working-class household, from a terrible rollback. Without for a moment
denying the importance of the “feminization of the work force”, the
fact remains that millions of women entered the the U.S. work force
after 1960 because they HAD to. Even at the individual level, the
average work week has crept up from ca. 39 hours in 1970 to about 43
now. The minimum wage in the U.S. in 1973 was $3.25 per hour; today it
is $6.15, and it would have to be raised to $18 to recover the
purchasing power of the 1973 level. More broadly, real wages
plateaud in 1965-1973 and have stayed flat or fallen (mainly fallen)
for at least 80% of the population since. The cost of higher education
has spiraled out of control, increasingly closing it off to the
majority of people (this is overlooking for the moment the
retrogressive dominance in much higher education of the
“post-modernists”(25). The U.S. routinely scores 20 out of 20 “advanced
capitalist” countries in comparative testing of high school students.
Under the impact of the 1978 populist “tax revolt”, California’s public
schools fell from the best to the worst in the U.S. in 30 years. U.S.
life expectancy is 42nd in the world, rivaling…Jordan, and many
semi-developed countries have lower rates of infant mortality. In order
to satisfy the demands of big pharmaceutical companies and insurance
companies, health care takes 14% of “GDP”, much higher than many other
OECD countries with better (and universal) systems. 40 million
Americans have no health insurance at all. 1% are in the prison system,
an exponential increase from 35 years ago.
But the rollback has not merely occurred in the reproduction of labor
power, as these figures show, but also in the material reproduction of
the world. Current estimates of the requirements for rebuilding U.S.
infrastructure are conservatively $1.6 trillion, and we need only
recall New Orleans under Hurricane Katrina to grasp, in extreme form,
what this has meant generally as social retrogression.
Capitalist statistics make it very difficult to isolate “productive
investment” (as defined above), but at the very least productivity (in
capitalist terms) has since never, even in the mini-recovery under
Clinton in the 1990’s, recovered the annual average of 3% of the
Could there be a new boom like 1945 to 1973? Yes, but, just as the
1945-1973 boom excluded a very large part of humanity, there could be
another boom but it will also marginalize populations even more than
the 1945-1973 boom. That is what decadence is all about: the inability
of capital to further expand the social powers of humanity.
VII. PROGRAM: FORM AND CONTENT OF A TRANSITION OUT OF CAPITALISM
We now turn to the question of program.
Program looking forward is of the utmost importance if we are to
successfully discredit and overcome the reactionary programs, including
those put forward by the pro-capitalist left (Obama, Nader), that will
proliferate as the crisis deepens. It is essential to be able to
distinguish between a program that truly challenges the capitalist
system and one that merely seeks to reorganize it, even by “painting it
In the U.S., to a certain extent in Europe, and increasingly in East
Asia, the decadence of the system creates distortions in the economy
that make it more and more difficult for workers and ordinary people to
think concretely about what a working class revolution could do.
So, for example, in the US, the most decadent country except for
England, only about 15% of workforce is now involved in production
(which by no means implies that the other wage-workers are not also
proletarians with an immediate interest in revolution).
So, of course, the United States is a parasite economy in the world
It draws wealth through the international financial system from the
other parts of the world, such as East Asia, Korea, China and
This has allowed it to de-industrialize and have a so-called “service
But that service economy is totally dependent on the world continuing
to accept the dollar standard and to finance America’s ever- increasing
Basically the rest of the world produces and America consumes. And
America is able to do that because the rest of the world loans America
huge amounts of money. Now this arrangement works both ways. Because
the rest of the world can have apparently dynamic economic development,
as in China, and so they need the US markets to continue to expand. The
US can have this parasite role and gets its consumer goods and doesn’t
have to produce anything in exchange except little green pieces of
So therefore when you present a program for a working-class revolution
in a really a decadent economy such as America, many people wonder what
it can mean. In the 1960s and 1970s when America was still a major
industrial power, it was much easier to imagine what it might
mean, with the creation of workers councils and soviets. Here are
the factories, we take them over, run up the red flag, and that’s the
But now most of the factories are closed and people who used to work in
the factories now deliver pizzas and work for Macdonalds or they worked
(until recently) selling houses in the real estate markets, and so on.
So, of course, on a world scale, there is still adequate production to
have a transition to communism but in countries like America, the UK,
increasingly Western Europe, and, I think probably, to some extent,
Japan and now Korea, it is particularly necessary to push aside the
appearances of everyday capitalist production and present a program for
what an actual working class revolution would do with economy.
We don’t want workers councils and soviets in banks and insurance
companies and real estate companies and other unnecessary or downright
social harmful (i.e. arms production) parts of the economy; we want to
abolish those activities.
And we want to take all the labor power, all the workers trapped in
those unnecessary or harmful parts of the economy so they can help make
the work week much shorter and to generally establish high productivity
and high material living standards without all these obstacles draining
Take for example the American auto industry. In 1973 there were 750,000
auto workers in the industrial Northeast of the US.
And those workers at that time were the most militant and they were the
vanguard of the working class, particularly black auto workers.
In the last 35 years, that workforce has been greatly reduced so that
today, for example, in the UAW, there are only about 500,000 auto
workers left and soon there will be even fewer.
Right now, Ford Motors is in deep economic trouble, GM is in deep
economic trouble and so they’re trying to negotiate the best possible
settlement with the group of workers who are left.
Now there is even a possibility of a merger of GM and Chrysler.
At the same time, there are still a lot of non-union auto plants in the
US, particularly, in the southern states, and most of them are
foreign-owned auto plants : Japanese, Korean, German, and French.
But those factories are built in carefully-selected small towns, very
isolated, where there is no tradition of working class struggles, so as
far as I know, there is very little worker militancy in those factories.
What does it mean from the revolutionary point of view? It means that
even 40 years ago, the idea of continuing automobile production as it
existed was not part of the revolutionary program.
The real revolutionary program would be pointing to the decadence of
the huge resource loss from the whole social organization of the
automobile and pointing to other kinds of transportation, other kind of
cities, other uses of oil, and so on. Even 40 years ago, the
revolutionary program was not for more cars. It was changing the whole
nature of production so that the social dependence on cars declines,
and other kinds of transportation like mass transportation could
replace cars, and so cities could be organized in different ways.
That is material production which isn’t decadent in a social framework.
And so the revolutionary program would not be workers’ councils,
soviets, workers’ control for more cars (however important such
institutions will be elsewhere) but it would be for whole different
kinds of work, and whole different kinds of production.
This is all to answer the question about the link between program and
what I see as decadence of this system. It is simply a kind of abstract
model attempting to cut through the appearances of decadent capitalism.
I propose to use the following “heuristic” device to explore fictitious
capital in the world economy: imagine world production from the vantage
point of a world soviet after successful world working-class
revolution. This is of course heady, quasi-utopian thinking, but it is
in my view a kind of necessary abstraction that interacts with the
program from now until a world revolution makes such an abstraction
concrete. It is not unlike volumes I and II of Marx’s Capital, which
abstract from a thousand appearances to isolate what capital “really
is”, and then, at the end of volume II and in volume III, to plunge
that abstraction into daily realities closer to the visible working of
the system (on this method (26).
I think that the main reason for the eclipse of the type of struggles
dominant in the 1960/s and 1970’s and the relative absence of such
struggles today is the globalization of the stakes. There is no
meaningful reformism on the level of society as a whole (in contrast to
specific local and defensive struggles that can have temporary
victories). That is why the word “reform” is now the slogan of
reaction. If, as Marx said in 1844 “in France, it is enough to want to
be something to want to be everything”, today in order to be something
it is necessary to become everything.
The following offers nothing more than the bare bones of a program for
the expanded material reproduction of society; it does not begin to
discuss the equally if not more fundamental transformation of life, the
“development of human powers as its own goal” that would be the essence
of an actually communist society.
The old “imagination” of working-class revolution was a general strike
or mass strike, occupation of the factories, establishment of workers’
councils and soviets, the political overthrow of the capitalist class,
and henceforth a direct democratic management of socialized production.
This “imagination” was based on the experiences of the Russian, German,
Spanish and Hungarian revolutions and revitalized by the American,
British and French wildcat movement from the 1950’s onward, the French
May-June general strike of 1968, the Italian worker rebellion from 1969
to 1973, the worker rebellions in Portugal and Spain in the mid-1970’s
“transitions”, We can add the Argentine “Cordobazo” (1969), the Chilean
proto-soviet “cordones comunales” of 1973, and the Brazil heavy
industry strikes of 1978-1982.
I think this model has lost touch with contemporary reality, at least
in the West (in contrast to China and Vietnam) because
capital-intensive technological development, downsizing and outsourcing
have reduced the “immediate process of production” (the “volume I”
reality of capitalism) to a relatively small part of the total work
force (not to mention total population), and even the production
workers who remain are often involved in making things (e.g. armaments)
that would have no place in a society beyond capitalism. More
contemporary workplaces would be abolished by a successful revolution
than would be placed under “workers’ control”.
As I said, a merely heuristic device, but perhaps a useful one.
On a world scale, the total number of production workers, as a
percentage of the capitalist population (wage-laborers and
capitalists), has been shrinking even as the total global
“output” has grown. (This may appear to be contradicted by the
emergence of China and India, but China since 1997 has LOST over 20
million industrial jobs and in India workers are still less than 10% of
the total work force, which remains overwhelmingly rural. The issue in
any case is not mere quantity. What is important is the total VALUE, in
the law of value sense, of the total world work force. Workers earning
far less in China or high-tech workers in India eliminate highly-paid
workers in the West. The whole point of integrating them into the world
market is to REDUCE ‘V”, what Marxists call variable capital, the total
The first task of such a soviet would be to organize the global
transition out of the production of value (in Marx’s sense of value).
The world revolution will have presumably taken place when the ratio of
C (constant capital) to V (variable capital), the organic composition
of capital, is already very high, meaning that value is already
obsolete. But what is the basis of value? It is the social cost of
reproducing the existing productive work force of the two departments I
and II. The revolution would accelerate the development of the
productive forces on a global scale to truly free production and
reproduction from the value form.
What we need is a basic grasp of the total resources available on a
world scale, in terms of existing labor power and means of production,
to effect such a transition. The cost of reproducing world society in
today’s terms is the “foundation” of a measure of “fictitious capital”.
Here the is the minimum, “first 100 days” program:
I. abolition of the dollar standard, etc. and an “organized deflation”
of the world economy (which the crisis at any rate is doing quite
nicely for us, in an anarchic way)
II. abolition of all socially unnecessary and noxious labor
III. shortening of the working day, with the help of the millions of
workers freed by II.
IV. global expansion to uplift world population to an acceptable
worldwide standard of living
V. transition out of the automobile/ steel/ oil economy; dismantling of
the urban/ suburban/exurban sprawl produced by the needs of that
Tentative Further Remarks
Here are further programmatic points, offering more detail within the
above framework, for this victorious world soviet, very
tentative. They amount to “Chapter 11” bankruptcy proceedings for the
In abolishing fictitious capital as part of abolishing capital (a
social RELATIONSHIP, what Marx called the “capital
relation”), we impose “global accounting standards” or
“world resource accounting” to take an “inventory” of total existing
is pushing all production beyond the necessity of exchange, so that
social “measurement” occurs neither in price nor in labor-time but is
strictly in use-value terms of real goods and services produced. )
1) implementation of a program of technology export to equalize
upward the Third World.
2) creation of a minimum threshold of world income.
3) dismantling of the oil- auto- steel complex, shifting to mass
transport and trains.
4) abolish the bloated sector of the military; police; state
bureaucracy; corporate bureaucracy; prisons; FIRE; (finance- insurance-
real estate); security guards; intelligence services.
5) labor power freed by 5) performs socially useful work to
facilitate a shorter work week.
6) crash programs around energy: nuclear fusion power, solar,
7) application of the “more is less” principle to as much
as possible. (examples: satellite phones supersede land-line technology
in the Third World, cheap CDs supersede expensive stereo systems, etc. )
8) a concerted world agrarian program aimed at using food resources of
Canada, Europe and developing Third World agriculture.
9) integration of industrial and agricultural production, and the
breakup of megalopolitan concentration of population. This implies the
abolition of suburbia and exurbia, and radical transformation of
cities. The implications of this for energy consumption are profound.
It is time to take seriously the Communist Manifesto’s reference to the
contradiction between the city and the countryside, and
programmatically pose their integration.
10) automation of all drudgery that can be automated.
11) generalization of access to computers and education for full
participation in global and regional planning.
12) free health and dental care.
13) integration of education with production, thereby remaking
the very idea of what education means.
14) the shift of R+D currently connected with the unproductive sector
into productive use
15) the great increase in productivity of labor makes as many basic
free as possible, thereby freeing all workers (e.g. cashiers, etc.)
involved in collecting money and accounting for it.
16) global shortening of work week.
17) centralization of everything that must be centralized (e.g
use of world resources)
and decentralization that everything that can be decentralized (e.g
control of labor process within the general framework)
18)measures to deal with the atmosphere, most importantly the phasing
out of fossil fuel use.
Once again, in conclusion, the usefulness of such a basic program, much
of which can be quickly implemented by working-class power, is that is
cuts through the appearances of the deep distortions of fictitious
development since at least World War II. It cuts through the abstract
debates about “forms of organization” (party, class, councils,
soviets). Once again, we don’t want soviets and workers’ councils in
finance, insurance, real estate, and many of the other sectors
mentioned which exist only because the system is capitalist; we want to
abolish those sectors.
VIII: LOOKING FORWARD; THE BIGGEST OPENING FOR THE WORLD WORKING CLASS
This crisis, expressing the profound disarray of the capitalist class,
offers the anti-capitalist radical left its biggest opening since the
defeat of the world working-class upsurge following World War I.
Then, it was a century of British world domination and a phase of
capitalist accumulation that was tottering, with rising American
dominance in the wings; today, it is the decades of American world
domination and of the 30+ years of decay represented by the “Washington
consensus” that are up for grabs, and—most crucially, and for reasons
indicated by the preceding analysis—NO SUCCESSOR POWER waiting in the
wings. That “fact” throws open a struggle for both a
reorganization of world capital and a possible new working-class
“storming of heaven”. The biggest capitalist crisis since 1929 may just
be preparing the biggest working-class revolt since 1919. Defeat after
working-class defeat between 1914 and 1945 were necessary to
consolidate the new American era; the coming years will see a similar
battle to reshuffle the capitalist deck and it will be in this new
situation where “thieves fall out” that a possible revolutionary
breakthrough can occur.
Whether the 2007-2008 “financial crisis” results in merely a deep world
“recession” or an outright depression, the ideological baggage of 30
years has been thrown overboard in a matter of months, if not days. At
the same time, the ideological baggage for controlling the working
class of the preceding period— Social Democracy, Stalinism,
Keynesianism—has been greatly weakened, in the broad social
organizations (Socialist, Communist and Labour Parties, or the American
Democrats, unions) that previously sustained it. When, by 1921,
the Russian and German revolutions, and mass strikes and
insurrections in a dozen other countries had been defeated,
capitalist statism had a great future ahead of it in Stalinism, fascism
and the New Deal. But those “solutions”, like all real historical
solutions, required years of groping in the dark, factional battles
among the aspirants to power and finally (as I have argued) World War
II to produce the clear outlines of the post-1945 recovery. They
further built on ideologies and institutions (above all the world
socialist movement) which had been developing for decades before World
Today, on the contrary, we see the Western bourgeoisie, disarmed by its
own neo-liberal ideology, falling back in a flash on Keynesianism,
injecting hundreds of billions of dollars into the banking system to
stave off collapse, and dusting off forgotten laws and powers from 70
years ago to push through their emergency measures. We have hardly seen
the end of this. Left-of-center figures have emerged in the past
decade—Paul Krugman, George Soros, Jeffrey Sachs, Joseph Stiglitz—ready
to be the architects of a newly reformed capitalism. In mid-November,
the “Group of 20” (an expanded G-8) will meet in Washington DC to begin
discussions for a “new Bretton Woods” (27). We can be sure that the
conference will be remembered as faintly as the many highly-touted
disarmament and economic conferences of the 1920’s and 1930’s are
remembered today. Such matters are hardly settled peacefully around a
conference table, as the less-important but no less potentially
rancorous Doha Round on international trade, dragging out over years
and repeatedly ending in collapse, has shown. We can be reasonably sure
that the U.S. will not quietly cede an inch of its imperial
prerogatives, by admitting any significance demotion of the dollar, any
meaningful settlement of the $13 trillion external debt of the US, or
America’s controlling shares of the IMF and World Bank. Or, failing
that, any concessions it makes will be cosmetic. In addition to
the left-of-center candidates for the reorganization of the world
capitalism, we can also anticipate the re-emergence of the
authoritarian right, often (as with fascism in the interwar period)
having essentially same program as the moderate left, ready to frighten
potential insurgents into a “defense of (bourgeois) democracy”.
The real issues confronting the conference, which will be played out in
international confrontation and class struggle in coming years, will be
at the very least the demotion of the U.S. reflecting both its economic
decline and the growing economic power (first of all) of Asia, above
all East Asia. Asia accounted for 5% of world GDP (bracketing for a
moment the deceptive ideological content of “GDP”) in the 1960’s; it
accounts for 35% today. One way or another, the Asian capitalists will
insist on an institutional recognition of that shift.
The real issue, however, for this and future conferences will be
precisely preventing the implementation of the program outlined above.
Consciously or unconsciously, the superannuation of value (in Marx’s
sense) for the future expanded reproduction of humanity will be the
true “uninvited guest”. This and future conferences, before, during and
after working-class insurgencies and international confrontation (and
the intersection of the two, as in the Spanish revolution of 1936-1939)
will be how to reorganize the world system, dealing a new hand to new
players, and imposing a new system of “labor relations” on the world
working class. The issue will be forcing accumulation back into a basis
for an adequate rate of profit for global capital, as the system has
been doing in fits and starts since the late 1960’s, without (as
previously argued) finding an equilibrium.
It is our task to assure that the world capitalist class fails in this
reorganization, at our expense. Hic Rhodus hic salta! Here is the rose,
here we dance! Comrades, history has offered us an opening which, if we
fail, will not come again in our lifetimes. Ninety years ago, in the
words of Rosa Luxemburg: “The revolution says: I was. I am. I will be”.
That future is ours to make or break.
Some people have argued that 1907 in the US was such a crisis
but I withhold judgement pending further investigation.
2 Noland, a Hayekian also influenced by left-Keynesian Hyman Minsky,
developed this concept in the 1990’s to describe the rise of
“securitized finance” (cf. below in main text) which arose after
Minsky’s death. In Noland’s view, “securitized finance” made it
possible for banks to package and sell on income flows (such as
mortgage payments) in fancy AAA-rated bonds, etc. that themselves could
be repackaged and further sold. This superseded the old “20th century”
conception of banking as a process of deposits and loans by creating a
theoretically infinite possibility of pyramiding debt, further kept
“off balance sheet” and essentially unregulated. It is this whole
edifice which has been savagely “unwinding” in recent months.
3 Cf. the work of Seymour Melman. Melman, while eschewing a Marxist
analytic framework, has analyzed the stagnation and distortion of the
post-1945 US economy in works such as Our Depleted Society (1965) and
Profits Without Production (1982).
4 “Capitalization” means valuing an asset (stock, bond, real estate) in
terms of anticipated cash flow and profit relative to the
generally-prevailing rate of profit. When the general rate of profit is
5%, a $100 bond paying 5% interest is “worth” $100.
5. I thank a friend with long experience in Silicon Valley for the
following elaboration of both capitalization and
technodepreciation: “Concretely, this means that when capitalists
begin a new project they estimate the future cash flows that will be
generated by that project and “discount” those flows to present
value. They then issue shares or other forms of claims to
ownership to some portion of that estimated present value in order to
finance the project. Even if the project is to be financed out of
retained earnings, i.e., cash in the bank of the firm, the capitalist
will make a similar calculation in order to decide between possible
investment projects or to decide whether it would be better to return
that cash to the firm’s owners. To give one example: a few years
ago a large semiconductor company borrowed several billion dollars from
a banking consortium to build a computer chip foundry based on its
estimate of the present value of the proposed project. But within a few
months of finishing the plant it was, in relative terms,
worthless. Why? Because a competing firm had developed a new
technology that allowed them to produce more powerful chips in a much
less expensive manner. The value of the first company’s plant had
become entirely fictional in capitalist terms. The first company sold
off the plant for scrap even though the equipment inside had never been
6 For more on this, cf. the texts dealing with fictitious capital on
the Break Their Haughty Power web site at
http://home.earthlink.net/~lrgoldner , in particular “Fictitious
Capital for Beginners” (2007), “Once Again, On Fictitious Capital”
(2003) and “Remaking of the American Working Class” (1999)
7 Once again, cf. the BTHP web site.
8 For this and all subsequent reference to international monetary
matters, we do well to recall Marx’s formulation in the opening section
of Capital vol. 1 (1976 ed., Penguin, reprint 1990): "It is
in the world market that money first functions to its full extent as
the commodity whose natural form is also the directly social form of
realization of human labor in the abstract." pp. 240-41.
9 Penn Central was rated a “blue chip” stock paying top dividends
almost right up to bankruptcy.
10 Today, in November 2008, the crisis is again spreading to corporate
liquidity, despite many firms’ hoarding of cash in recent years. Small
and medium firms and some large ones, are finding it harder and
harder to borrow for short-term purposes, becoming illiquid while still
11 The Bretton Woods system, in force from 1944 to 1971-1973, provided
for fixed exchange rates between all major countries, anchored of
course by the US dollar with the dollar pegged at $35 per ounce of
gold. Central banks outside the US accumulated gold and dollars side by
side as reserves, since the dollar was supposed to be “as good as
gold”. The complicated story of the unraveling of this arrangement has
been told many times, but the essence was the U.S. unilateral decision
in August 1971 to break the dollar-gold relationship and create a
purely paper monetary standard. Fixed rates were abandoned in March
1973 and have never been restored; the world experienced the deepest
recession (to that time) in 1974-1975.
12 Again, Capital vol. 1 (1976 ed)., pp. 240-41.
13 Proposition 13 in 1978, fueled by neo-conservative anti-tax
populism, passed successfully and put a cap on property taxes in
California, California public schools went in 30 years from the best to
the worst in the US.
14 The workerist current in Marxism likes to point to the workers’
struggles of the 1965-1977 period (or however one wishes to date it) as
the main “cause” of the 1970’s crisis.
I would argue on the contrary, that most worker struggles of that
period were more a RESPONSE to accelerating conditions of austerity.
I would be interested in hearing from any remaining workerists just
where they locate the worker insurgency at the base of the current
15 R. Taggart Murphy. The Weight of the Yen. (1996)
16 A “leveraged buyout” meant taking control of a corporation with
borrowed money, then borrowing much more to force the company to
rationalize to keep up its debt payments, resulting in multiple plant
closings and layoffs while investors extracted “value” from the
company, which they then resold a few years later at a huge profit. A
classic example of fictitious capital at work, where credit makes
profit by destruction instead of the long-term investment of earlier
phases of capitalism.
17 U.S. working-class history in these years was mainly one long litany
of defeats: air traffic controllers (1981), Greyhound bus drivers
(1983), Phelps-Dodge copper workers (1984), P—9 cannery workers (1986),
Jay, Maine pulp and paper workers (1987-88). More muddled outcomes
characterized the 1989 Pittston (Va.) coal strike and the 1990 New York
Daily News strike.
18 A key part of the IMF (and US Treasury) demands on Korea included
opening the domestic market to foreign takeovers, extended the
“leveraged buyout” model there.
19 A Ponzi scheme means a pyramiding of debt made possible by paying
exceptional returns to initial lenders to attract more lenders, making
initial repayments with money from new loans, and finally pulling the
plug when debts coming due far outrun cash coming in.
20 One banker was recently quoted as saying “What we thought was a
‘wall of liquidity’ turned out to be just a wall of leverage”.
21 By “productive working class” is meant here those workers producing
the Dept. I and Dept. II goods that CONTINUE the capitalist circuit, as
expanded means of production or means of consumption for those same
workers, as opposed to those commodities (enumerated earlier) that are
unproductively consumed. Again, Marx vol. I (1976 ed.), pp. 726-727.
22 In contrasting 1815-1914 with the period since 1914, we should
nonetheless keep in mind the countless small colonial wars fought
between 1815 and 1914 in the consolidation of empires, as well as the
Crimean War, the American Civil War, the wars around the reunification
of Germany, the Franco-Prussian War, and Japan’s wars against China and
Russia. We should also not forget the huge death and destruction
wrought during the Taiping Rebellion in China from the 1840’s to the
1860’s. Cf. Sandra Halperin, War and Social Change in Modern Europe,
23 Cf. Zbigniew Brzezinski’s The Grand Chessboard (1997) for the
quintessential statement of this strategy for staving off imperial
24 Productivity has continued to improve in the advanced capitalist
world since the end of the postwar boom, though not as rapidly as
before. Productivity increases for capital, not for society; if
improved productivity does not benefit capital, it does not take place.
25 Cf. my book Vanguard of Retrogression (2001) on this phenomenon of
26 Cf. my article “Production or Reproduction” on the Break Their
Haughty Power web site. Against A Reductionist Reading of Capital
In the Left Milieu, And Elsewhere, on the Break Their Haughty Power web
27 The expansion from the “G8” (G7 plus Russia) will include such
newcomers as Peru, Brazil, India, China, South Africa, Mexico and
Turkey. This “new Bretton Woods” should not be confused with the now
(happily) defunct “Bretton Woods II” whereby it was imagined that the
world would forever tolerate a flood of dollars from U.S.
balance-of-payments deficits. In the past 14 months, “Bretton Woods II”
has joined “decoupling” in the lumber room of capitalist ideologies.
This text is from the
Break Their Haughty Power web site