The year 2011 began with the customary toasts to health, happiness and success. As the bourgeois clinked their champagne glasses, it seemed as if their dreams were coming true. The collapse of financial markets that threatened to destroy the economic recovery in 2010 had failed to materialise. Global output has probably risen by almost 5%, a lot faster than forecasters were expecting 12 months ago.
“He who laughs has not yet heard the bad news” (Brecht)
All was for the best in the best of all capitalist worlds. Yet black clouds are ever present, darkening the clear bright sky. Despite the recovery of growth in Germany, predicated on exports, the crisis of the euro zone remains unresolved. And the growth in German manufacturing depends on the very uncertain prospects for the global capitalist economy.
The Bible informs us that Faith can move Mountains. At the dawning of a new year the bourgeoisie has taken this text very much to heart. They are so relieved that the worst has been avoided (so far) that for the first time in some years they have allowed themselves to express optimistic sentiments about the prospects for the world economy.
The Biblical term Faith is translated into the language of bourgeois political economy as Confidence. Indeed, as a Category of Political Economy, Confidence is far superior to Faith. It can move not only mountains but – what is far more important – the Stock Exchange. Religion says that if only we have Faith, we will save our Immortal Soul. The economists tell us that if only we have confidence, we will save the world economy.
Behind every school of modern bourgeois philosophy is subjective idealism. The philosophical basis of bourgeois political economy is no exception to the rule. A recent editorial of The Economist confirms this. It tells us: “Confidence determines whether consumers spend, and so whether companies invest. ‘The power of positive thinking’, as Norman Vincent Peale pointed out, is enormous.”
Unfortunately, experience tells us that no matter how much a pauper is convinced that he is really a billionaire, he must remain a pauper in reality. No amount of “confidence” can fill an empty stomach in Bangladesh or find work for an unemployed worker in Michigan. Nor will the “power of positive thinking” help to fill the yawning abysm left in the public finances by the most serious crisis of capitalism since the Great Depression.
The material basis of optimism
For the past 400 years in the West bourgeois thinking was based on optimism, enlightenment and progress. Oliver Cromwell and his supporters thought that their Revolution had issued in the Kingdom of God on earth. The Founding Fathers of the United States were convinced the country they created would be better than any that had come before, offering citizens life, liberty and the pursuit of happiness.
During the Great French Revolution the bourgeoisie aroused the semi-proletarian masses of Paris to fight against feudal despotism under the flag of Liberty, Equality, Fraternity, and the Rule of Reason. Meanwhile in England, an even greater Revolution was beginning: an industrial revolution based on steam power, machinery and the factory system.
In those times the optimism of the bourgeoisie had a material basis, because capitalism, despite all its crimes and appalling brutality, nevertheless played a progressive role in overthrowing decayed and degenerate feudalism and developing the productive forces. In pursuit of profit, the capitalists developed industry, agriculture, science and technology to an unheard-of extent. In so doing, quite unconsciously, they also developed the material basis for a higher form of society – socialism, and the class that is destined to overthrow it – the proletariat.
The bourgeoisie shared (and still shares) the common illusion of every previous ruling class in history – from the Roman slave-owners to the feudal aristocracy – namely, that its socio-economic system represented the final and highest stage of human development. It fervently believed in the celebrated phrase of Leibniz, cruelly parodied by Voltaire in Candide, that “everything is for the best in the best of all possible worlds”.
Nowhere was that sense of optimism more deeply engrained than in England, the former “workshop of the world”, which dominated the world on the basis of its industrial might and wealth. This was the basis for the World Outlook of the British ruling class up to 1914. The philosophy of British Liberalism was derived from a superficial version of the theory of Evolution, in which today was always better than yesterday and tomorrow would be better than today. This in turn was merely an idealised reflection of material reality: the rapid development of the productive forces.
The comforting Utopia of bourgeois Liberalism was blown sky-high by the First World War. It has never really recovered. The history of the last century is the history of the convulsive revolt of the productive forces against the narrow confines of private property and the nation state. It is reflected in two devastating world wars and the catastrophic economic collapse between the wars. The notion that the human condition was susceptible to continual improvement was contradicted at every step by harsh reality.
Different historical periods
History does not move in a straight line. Nor does it move in a never-ending cycle of “long waves”, as imagined by Kondratiev. His theories have become fashionable with certain bourgeois economists who seek to derive some comfort from the thought that “what goes down must come up.” In this way the bourgeoisie tries to recover its lost optimism. However, this is no more possible than for what used to be called a “fallen lady” to recover her lost maidenhood.
What is certainly true is that there are definite periods in the development of capitalism, and every period tends to be different to every other period. If we study the history of capitalism over the last 150 years, we see, on the one hand, a constant series of booms and slumps (which bourgeois economists used to call “the business cycle”). This has a somewhat irregular pattern that can and does vary in different periods. In Marx’s day, the normal cycle was about ten years, although there is no definite rule about the regularity of the economic cycle, which can vary for considerable periods.
However, in addition to the normal boom-slump cycle, it is possible to detect broader tendencies that characterise different periods. This is true not only for capitalism but also for other socio-economic formations. The study of Roman history falls into two clearly distinguishable halves, divided by the turbulent period of class struggle that announced the end of the Republic and the beginnings of the Empire. Essentially this change reflected the beginnings of the end of the slave economy.
The period of the decline of slavery lasted for more than three centuries. During this long period of decline there were moments of recovery, even of brilliance, but the general line was downwards, leading eventually to collapse, the barbarian invasions and what we call the Dark Ages. The end result was the rise of a new socio-economic system we know as feudalism.
In the two centuries or so in which capitalism has existed, there was an initial period characterised by an explosive development of the productive forces. History has never known such a tremendous revolution in industry, agriculture, science and technology. This was precisely the material basis for the confidence of the bourgeoisie and its ideologists. The confidence of the bourgeoisie in the period of its ascent was only partly dented by the periodic crises of overproduction that commenced in the first half of the 19th century. Each crisis was followed by a new and even more tempestuous growth of trade and industry.
Today many tourists visiting London marvel at the spectacle of Tower Bridge, a mighty structure built over a century ago, which combines the aspect of a Gothic cathedral with the massive structures of the Industrial Revolution built with solid British iron, nuts and bolts. This is not just a bridge across a river. It is a statement, a manifesto, by which the British bourgeoisie declared to the rest of the world: “We are great. We are rich. We can do anything we want. And our power will endure for a thousand years.”
Before the First World War there was a long period of economic upswing. This permitted the bourgeoisie to give certain concessions to the working class, which began to realise its strength by forming mass trade unions and political organizations (the Social Democracy). In theory the mass parties of the Second (Socialist) International were based on Marxism (with the exception of the British Labour Party). But the practice of the European Social Democracy was increasingly reformist.
With the exception of Russia, in most European countries the class struggle was blunted by a long period of economic prosperity. This was the material basis for the rise of bureaucracy and reformism. In words, the leaders of the Social Democracy stood for class struggle and socialist revolution. But their whole psychology was shaped by decades of social peace and parliamentary activity. They shared the optimistic outlook of the Liberal bourgeoisie: today better than yesterday, tomorrow better than today.
All these peaceful, gradualist illusions were destroyed in the summer of 1914. The First World War marked the beginning of an entirely different period. The Russian Revolution of 1917 ushered in a period of colossal political and social instability. The inter-war years were of an entirely different character to the period before 1914. The speculative boom of the 1920s led to the biggest collapse in history. The 1929 Crash ended in the Great Depression of the 1930s that only ended with the Second World War.
This was a turbulent period of revolution and counterrevolution that placed a question mark over the existence of capitalism. But history shows that capitalism can get out of even the deepest crisis. As early as 1920, Lenin had explained to the ultra-lefts that there was no such thing as a “final crisis of capitalism.” Unless and until the proletariat overthrows it, the bourgeoisie can always find a way out. At what price for humanity is another question.
The post-war period
For reasons we have explained elsewhere (See Ted Grant, Will there be a Slump?), the period following the Second World War was different to the inter-war period. Contrary to what Trotsky had expected, capitalism succeeded in re-establishing a new equilibrium after the War.
From 1947 to 1973, there was an upswing in world capitalism. In this period the economic cycle was shorter, reflecting changing patterns of investment, but the recessions then were shallower and short and were barely perceptible. In the advanced capitalist countries (the so-called Third World was entirely different) there was full employment and rising living standards. For a whole period the class struggle in the USA and Europe was blunted. Even so, we must never forget that at the height of the post-war upswing, there was the biggest general strike in history, in France 1968.
This period came to an end with the first deep recession in 1973-74. The 1970s was a very different period to the 1950s and 1960s. Once again, revolution was on the order of the day in Portugal, Spain, Greece and Italy and big movements of the workers and youth in France, Britain and other European countries. On the other side of the world we had the revolutionary movement of the masses in Pakistan and Bangladesh. But these promising movements were in every case derailed by the leadership and ended in defeat.
The 1980s marked a new turn in the situation. The ruling class took advantage of the downturn in the movement to pass onto the counteroffensive. Under the banner of Monetarism, Thatcherism and Reaganism, the bourgeoisie reacted against the previous policies of Keynesianism. They wished to go back to the good old days of “laissez faire” capitalism, reducing state involvement to a minimum, and making everything dependent on “free market economics”.
The fall of the USSR and its satellites and the integration of China into the world market further encouraged this reactionary tendency. The entry of over 1,000 million people into the global capitalist economy provided new markets and highly profitable investments. The illusion was created that “all was for the best in the best of all worlds”. The engines of the world economy were roaring on all cylinders. Speculation soared to new and dizzying heights. The optimism of the bourgeois now experienced a miraculous rebirth. They even wrote about the “end of history”.
But like every other boom in history, it all ended in tears. The slump of 2008 was the most serious economic crisis, certainly since the Great Depression, and perhaps in the entire history of capitalism. Overnight the confidence of the bourgeois collapsed. The economists and politicians were obliged to swallow their words. The very same governments that had insisted that market forces alone should decide everything, now rushed with indecent haste to bail out the banks with trillions of dollars of public money.
The growing alarm of the ruling class was reflected in the succession of panic measures adopted by governments and central banks, which were no longer aimed at preventing recession but only of blunting its effects. But despite all these measures, the crisis is deepening and spreading all the time.
What we said
As in every real capitalist crisis the central problem is overproduction. This is expressed today as excess global capacity. To use an expression invented by the utopian socialist Fourier, we are faced with a crisis of plethora. There is too much steel, too much cement, too many cars, too many empty offices, too much oil…
Unless and until the excess production is liquidated, there is no possibility of a genuine recovery of the world economy. The bourgeois economists have no solution to the problem. They have engaged in the most astonishing somersaults. After decades of pursuing the Holy Grail of “supply-side economics”, they have suddenly reverted to the voodoo economics of Keynesianism.
The very same people who used to ritually denounce the evils of Keynesian deficit now advocate throwing billions at the banks. The only result has been to run up vast deficits that will take a whole generation to work off. None of these policies can solve the crisis. The policies of Brown and Bush were born out of desperation. They amounted to an attempt to reflate the bubble that caused the present mess in the first place.
In 2008 we wrote the following:
“The unprecedented expansion of credit in the last period served to maintain high levels of demand in the USA and other countries. But now this has reached its limits. The whole process is thrown into reverse. Now nobody wants to lend money and few wish to borrow. Society is seized with a parsimonious and miserly mood.
“The masses have no money to spend – only debts to repay. Those who previously lent money cheerfully are now calling in their debts. Those who took out mortgages to buy homes are unable to pay and find themselves evicted. Since the price of their homes has fallen, they are saddled with huge debts, which unlike house prices, do not fall.
“The bankers, who yesterday were anxious to lend money to anyone, are now anxious to hoard money and not to part with a cent. This miserly and distrustful attitude applies not only to private house owners and small businesses, but also to other banks. They are not prepared to lend money to other banks because they are not sure the money will ever be returned.
“Since credit is the life-blood of the capitalist system, the interruption of the supply of credit means that not only “bad” businesses will be made bankrupt but “good” ones also. The drying up of credit threatens the whole productive process of society with slow strangulation.
“[…] In effect the bourgeois are trapped. Whatever they do now will be wrong. If they do not intervene to pump money into the banks and failing businesses there will be a deep slump with massive unemployment as in the 1930s. But if they resort to Keynesian methods of deficit financing, they will create huge debts that will undermine any future recovery and act as a tremendous drag on productive investment, creating the conditions for a long period of cuts and austerity”.
Two years later we have no reason to change a single word of this.
Crisis in the USA
What happens to the US economy is the decisive question for the future of the entire world. The USA is the richest countries in the world. But it has used up all its resources in an attempt to halt the slide into recession. Unlike Europe, the American economy has moved away from austerity. Just before Christmas, Congress agreed to Obama’s deal with the Republicans in Congress that extends Bush’s tax cuts for the wealthy in return for more stimulus spending. The agreement not only extended the tax breaks for two years, but it also added more than 2% of GDP in new breaks for 2011. This means more profits for the rich in exchange for yet more empty promises.
The economists predict that American output will grow by as much as 4% this year. But America’s politicians are following a very risky strategy. In effect, they are attempting to reflate the bubble. But the long-term budget outlook is catastrophic, and Obama and the Republicans have no idea of how to fix the deficit. The Federal Reserve is responsible for the soundness of the world’s main reserve currency. Thus far, the markets have turned a blind eye to the dodgy activities of the US monetary authorities. America is still seen as a safe haven for capital. They have “Confidence”. But how long will confidence last when it is contradicted by the economic facts?
Trillions of dollars of public money have been handed over to the banks in the hope that they would begin to lend again. They have not. The bankers are not prepared to lend under the present circumstances and no amount of interest cuts or state subsidies will make any difference. Unemployment in the USA remains stubbornly high, hanging like a dead weight on the American economy and the economy of the whole world. As a result, huge and unprecedented budget deficits threaten the stability of the world financial system.
In a desperate measure to reflate the economy, the Federal Reserve is continuing to buy American bonds. This is the equivalent of a drug addict injecting himself with another dose of stimulus steroids. With every injection, a bigger dose of the drug is required until the patient finally enters into a coma. The subsequent “cold turkey” treatment will be extremely painful.
Some may see faster growth on the way; but a growing number are worried about the size of America’s gaping deficit. If those worries turn into a panic, the United States could even see a bond-market crisis in 2011. Whenever it occurs, sooner or later the markets will conclude that the dollar is not so strong after all. Once the panic starts it will not stop until the entire world financial order has been turned upside down. The consequences for America and the whole world are incalculable.
The American ruling class is suffering from acute schizophrenia. On the one hand they advocate plundering the public finances to save the banks; on the other hand, they wail and gnash their teeth over the runaway debts of the state. Thus the Republicans threaten to stonewall Obama’s proposals in Congress.
The split in the US ruling class is expressed in the bitter conflict between the White House and the Republicans. This conflict exposes deep contradictions at all levels of US society. The recent attempt on the life of a Democratic congresswoman by a crazed gunman was undoubtedly a reflection of the extreme polarization in American political life and society generally. The assassin was clearly mentally unbalanced but the leaders of the right wing Republicans are also somewhat unbalanced. The fact that a hysterical petty bourgeois like Sarah Palin could be seriously put forward as the potential leader of the most powerful nation on earth is sufficient proof of this.
In reality, neither Democrats nor Republicans have any solutions. Barack Obama has been quickly exposed as an empty phrasemonger. He is impotent to solve any of the serious problems of the American people. The Republicans, sensing his impotence, are baying for blood. The most crazed and reactionary sections are mobilized in the so-called Tea Party movement – a heterogeneous movement that exploits a whole series of grievances of different layers of US society, and an amorphous desire for “change” – the same amorphous desire that was previously expressed in the movement for Obama.
The workers of the USA had to pass through the painful school of Obama in order to learn a bitter lesson. Neither Democrats nor Republicans can offer anything to the people of the USA under present circumstances. Today the demagogy of Obama stands exposed. Tomorrow it will be the turn of the Republicans.