Tuesday, 7 October 2008

Crisis Talk

Keele Socialist Students got together on a wind swept Tuesday evening to talk economics, Marx and the crisis. Due to a cock up it fell to me to provide some talking points for the discussion. As someone who hasn't opened my copy of Capital for some time nor has anything but a rudimentary knowledge of economics, I gave my advanced apologies for mangling basic Marxist concepts and my understanding of Neo-Classical economics and Keynesianism on crisis.

I began with the observation that bourgeois economics believes buying and selling tends toward an equilibrium. Take the relationship between profit rates and interest rates, for example. If investment falls, so does the demand for investment funds (i.e. loans), which drives down the cost of credit and makes investment an attractive option. It is therefore the job of monetary policy to stand guard over this balance. If it does become unbalanced and go into crisis, then some external event has upset it, which can either be government policy, the distorting effects of monopolies, "unscrupulous" individuals, etc. Keynes did not differ that much from the Neo-Classical position, except for him weak institutional arrangements cause disequilibria in markets, therefore all that is required is occasional nudges here and interventions there by the state to ensure things remain rosy.

Marxism has a different view of crisis. It rejects the neo-classical assumptions of economic behaviour, which treats its as an aggregate of individual buyers and sellers. Instead it analyses capitalism as a system, an interconnected totality that goes beyond the immediate buying and selling of the market place to the class relations of capitalist production that underpin it. Therefore crisis is a sytemic property of the type of society we live in.

For example, one Marxist approach to crisis - underconsumption - looks at the position of the working class in capitalist production. The working class, generally speaking, sells its labour power for a period of time to their employers (capitalists) in exchange for a wage. Legally speaking, this is a relationship freely entered into by both parties, which can be terminated by either at any time. It is an equal relation. But as far as Marx was concerned, the legal fiction of equality obscures the very unequal relationship between the two. This is because the worker is not paid the full value of their labour power. To illustrate, assume Brother S gets a factory job at the minimum wage working part time for 10 hours a week. In that time our comrade earns approximately £58 while producing commodities worth £174. Also assume £58 is enough to keep Brother S in green tea and ciggies for a week, in other words, an amount sufficient to reproduce himself as a worker. Therefore if Brother S was paid the full value of his labour, he would only need to work for around three hours and 20 minutes. But because he doesn't and works for ten hours, that's six hours and 40 minutes unnecessary surplus labour. The £116 surplus value accrues to the employer, who uses it to pay off loans, rent, bills, etc. The remainder minus other costs is profit. It follows that no matter how hard Brother S works for his employer, even doing overtime at time and a half, he will never be as wealthy as the firm nor will he be able to buy back all the commodities he's produced, only a proportion. If we extrapolate from Brother S to the working class at large, there comes a point where the disproportion of proletarian purchasing power and the realisation of surplus value by the capitalists become so great that the system is thrown into crisis, firms go to the wall and capital and commodities alike are destroyed.

Related to, but not entirely identical to this approach are Marxist theories of overproduction. This emphasises not the relation between labour and capital, but between rival capitals. In their competition with each other over market share they are compelled to make their operations more efficient and profitable by introducing new technique and intensifying the rate of exploitation. For example, Brother S may be required to work on a new machine that produces more, realising more surplus value; or he might have to work an extra hour for no additional pay or take on other tasks in conjunction with his basic duties. As competition intensifies between firms they are compelled to out produce their rivals or face going to the wall. Those that manage to develop some kind of edge, in terms of efficiency savings, technological advantage and/or superior market position will win out. The problem here is two-fold. The forces of production are developed without a direct relationship to markets, leading to a tendency to produce beyond actual demand and glutting them with cheap or unsaleable commodities. And the production arms race demands greater funds are sunk in the latest technique, leading to a diminishing proportion of surplus value that is realised as profit. Production becomes less profitable and the squeeze is put on wages, once again circumscribing proletarian purchase power, meaning the tendency to crisis is organic to the way capitalism operates.

There are ways of postponing capitalism's crisis tendencies. One is finding new markets, another is extending cheap credit, and, as we know, it is the faltering of the latter that has brought the present crisis upon our heads. Having a stab at explaining it, I suggested that if you look at Britain under the Neoliberal consensus disproportionality has come to a head. It has been boom time for big business and the super rich but real wages have stagnated, bumping along with the rate of inflation. But credit has been very cheap and has allowed millions - businesses and people - to live beyond their means. The paralysis in finance can be traced to the creeping fear that as wages have continued to stagnate, question marks over credit, loans and mortgage repayments. The banks have realised their financial position is quite precarious and are no longer inclined to lend out of fear of defaulting. Without this lending the financial system as a whole has frozen up, and those that needed loans to continue trading have either been nationalised, taken over, or met a sticky end.

It's not difficult to see the negative impacts on the "real" economy. Credit becomes more expensive, which threatens the profitability of business and hardship to millions as they struggle to meet mortgage and/or other credit repayments. And this is without factoring likely sharp increases in unemployment. Plus from a stock market point of view expectations of future earnings are depressed, which will wipe billions off the price of shares and shrink the value of pensions.

Social disaster is the epitaph history is chiselling on to Neoliberalism's grave stone.

The discussion was very wide ranging and took in a number of issues. For example, the plight of working class people who find themselves thrown onto an increasingly competitive labour market with "obsolete" skills; whether governments should at all be stepping in to save the financial system; and, in light of each country's panicky scramble to save their banks, if the European Union can author a collective response to the crisis.

There were a couple of points I found particularly interesting. First is the hunt for new markets. The invasion and occupation of Iraq and Afghanistan afforded new business opportunities to Western firms - will the demand for new markets realise itself in more acts of "humanitarian" imperialism? And what of conflict between the great powers? How will rivalry between the EU, USA and China play itself out in Africa, for instance? And while everyone is busy talking up the latter as a new global hegemon, what about the maturation of India's giant economy? Will there be renewed rivalry between it and its neighbour to the north east?

And what about the future of capitalism itself? No one is saying the system itself has collapsed, rather what has gone down the tubes is a particular way of organising capitalism. It is too early to tell what could replace it, though a number of participants flagged up the possibility of a more regulated capitalism, albeit it without the welfare and full employment commitments of post-war Keynesian capitalism. It's also likely that Neoliberalism will continue to cast its shadow. Nationalisation may have made an unwelcome comeback in the mainstream political lexicon, but there's no sign New Labour's creeping privatisation of the state assets remaining in the public domain is letting up. In fact the need for new markets may be such that the process could be sped up, with the state dangling a few sweeteners capital's way to entice it on board. That is unless an increase in class struggle prevents them from doing so.

Politically, there will be moments when the crisis will be an opportunity for socialists. But the same applies to the far right also. The situation is fluid, but, the meeting agreed, the way forward for socialist politics now is by rebuilding the trade unions, assisting in workers' struggles, rooting ourselves in our class and publicising the socialist message as far and as wide as we can.


Dave Riley said...

had to do the same last night. In my presentation I worked up a Powerpoint


which made the topic less dry. but in my coming together I found a great video site here:

Very useful.

Anonymous said...

One point I wld like to put forward.

1. What is the cost to the USA for the war in Iraq?

The US treasury has inputted $700bn
at a guess the cost of the war is $700bn.

Same question and same theory for all other Countries.

Is there a link to the breakdown of the banking system?

Anonymous said...

The problem with any Marxist economic analysis is that majors aspects of it, such as the surplus labour theory of value, has been so thoroughly debunked.

We won't know what this crisi means for a while, but I think it is likely, in the medium and long term, to strengthen capitalism, not weken it. It is capiatlism's greatest strengths that it is so good at adpating to crisis without collapse.

Anonymous said...

Christ on a bike. Apologies for typing the above with my thumbs.

ajohnstone said...

For a Marxian overview then i suppose you can't go too wrong with this SPGB article Marx and Financial crises


or on crises in general at


Yes i think Marx did say something somewhere about not fully understanding the exact cause of a slump except in retrospect .

While this crisis is still unfolding , it appears that it is now according to Robert Reich, former Labor Secretary under Bill Clinton ,this becomes a basic under consumptionist theory –
that Labour was unable to buy back its produce. In simpler terms, it
shows the basic failure of the sub-prime lending model. Lending to
labour when wages aren't rising meant the whole of that lending
relied on continually rising house prices, as soon as the rise
stopped, the pyramid scheme failed.
.... the present crisis has been precipitated by the supply of housing for sale outstripping paying demand for it. In other words, overproduction. But it's been aggravated by banking
practices that have grown up over the past 10-15 years.

...But we are not simply going to attribute the present crisis to overproduction in the US housing sector. A more rounded (dialectical?) analysis must include the use of the state by the capitalist class to protect their interests. This will of course give us the opportunity to highlight the necessary relationship between capital, the capitalist class and the state.

see the post at and the ensuing exchanges


Phil said...

Gary, if the US and UK weren't busying themselves in the Middle East they might have a bit more cash to splash around in their banking bail outs. But beyond this I don't think there is a relationship, beyond both adventures being a means of forcibly opening new markets for US and UK capital.

John, I don't think anyone's arguing capitalism is going to collapse. What I would suggest is this is part of a transition from one regime of accumulation, i.e. neoliberalism, to a more regulated capitalism. Whether a more openly interventionist state will go beyond the financial sector remains to be seen. In Britain's case, giving the government's willingness to let manufacturing go to the wall these last 30 years, I suspect not.

Btw, care to elaborate on the "debunking" of surplus labour and surplus value?

Anonymous said...

Phil, if there is no connection, then how come the connection is similar post WW1, Vietnam and Iraq?

A coincidence.

ps, love Johnstone's (above) comparison with a pyramid selling scheme.

Phil said...

I don't know for sure, Gary. I've got an open mind on the subject. But as fate would have it there's an economics day school taking place next week at Keele and one of the advertised papers looks at this issue. I'll be sure to write it up for the blog.

Derek Wall said...

take a look at this from my amigo Nick Hildyard very readable on esoteric finance

'A (Crumbling) Wall of Money: Financial Bricolage, Derivatives and Power'


Phil said...

Cheers for that, Derek. An opportune time for a second edition/sequel to Babylon and Beyond perhaps? ;)

Leftwing Criminologist said...

we're going to havce a discussion on the economy in a few weeks time - we can't fit it in at the moment because we are busy with this http://www.socialiststudents.org.uk/page.php?article=1266

Anonymous said...

CWIer in the Boston, USA here. I would suggest to the comrades finding a way to get an economic discussion on the agenda EVERY SINGLE WEEK. Even if it isn't the lead-off. Also, people will be inspired to stay at branch meetings longer now in order to discuss these things. I know yous are doing well over there and don't need too much advice from across the seas, but EVENTS, EVENTS and once more...EVENTS