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Morning Star Monday February 19 2018
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AMANTHA and David Cameron (remember him?) have a sign in their country home which reads: “Calm down dear, it’s only a recession.” For them, economic crisis is a joke — they’re insulated from the realities of austerity, which their party, and the capitalist interests that they represent, says is an inevitable and necessary requirement to regenerate the economy “in the interests of everyone.” But the sad joke also hides an implicit acknowledgement that crises are endemic to the system that they champion. The purpose of austerity is to cut the social wage, enhance profits and “rebalance” power relations in society in favour of the ruling class. “Orthodox” economists believe in cycles. Indeed, most see them not only as inevitable but even desirable. The “business cycle” is an acknowledged stock in trade of financiers and mainstream economists alike. Arguments revolve around their occurrence (and why sometimes they appear to be synchronised across multiple market sectors) and their causes. The supply for a particular commodity, from food to phones, falls below the aggregate demand, so prices — and profits — are inflated. Other producers therefore flock to produce that commodity and at some point supply exceeds demand; prices and profits fall. Firms move to other products, innovate to reduce costs, or they go bust. The cycle of underconsumption and overproduction continues. According to orthodox theory, problems only occur when firms make errors of judgement in their profit expectations, leading to a downturn in investment. When the downturn is extended across the whole economy, the first explanation — on the part of professional economists and media pundits alike — is to blame external causes: overregulation (“red tape”), labour militancy, “unreasonable” wage demands, restrictive practices or “natural” causes (bad harvests, resource depletion) and (more recently) unwarranted expectations of innovations (such as the dot-com “bubble”). When a downturn becomes unusually acute and prolonged it gets labelled a “recession,” a crisis, and an appeal is made to “special” factors. So in the Great Depression of the 1930s, liberal economists argued that its scale and protracted length were mainly attributable to the long-term effects of the first world war — high state expenditure, government debt, inflation and the stronger bargaining position of labour as a result of wartime full employment. These all (they argued) prevented a “normal” market equilibrium. The solution was for the state to back out of the market, cut
Full Marx
core concepts explained
Why is there always an economic crisis of some sort? Unlike liberal economists, Marxists explore the primary role of internal contradictions within the capitalist economy. The MARX MEMORIAL LIBRARY explains why expenditure and allow the market to work “normally.” It didn’t work, of course. The crisis played out differently in different countries (the development of capitalism had by that time meant that recessions were generalised across Europe) and rather different “explanations” were given in each. For example, in Germany Hitler blamed the inter-war depression on reparations following the Versailles treaty, the loss of previously captive markets and sources of raw materials, and US financiers calling in their loans to the Weimar Republic following the
collapse of the New York Stock Exchange in 1929. The “solution” led to fascism — and war. The first major post-war recession of the early 1970s was blamed on the Arab oil embargo which quadrupled energy prices. In fact the downturn had already started before this. The financial crash of 2007 was blamed on “irresponsible” lending by the banks. And as the current crisis deepens, Brexit is already being blamed. Brexit may — or may not — prove to be “disastrous” for the British economy. But it is not the cause of crisis. In every “downturn” specific
factors are important. But modern neoliberal economics has no satisfactory explanation for crises and their periodic recurrence. Keynesian economics simply attributes them to psychological factors — “business confidence” or the lack of it. Marxists, in contrast, would emphasise the primary role of internal contradictions within the capitalist economy. Individual firms invest and innovate to cut wage costs (as a proportion of total) and expand sales, but collectively such activity causes overproduction and a reduction in aggregate demand despite falling prices.
Profits fall and the incentive to is related to major structural invest is reduced. changes in capitalism. This process occurs uneToday, with the globalisavenly across the economy and tion of production in a world at the peak of the crisis dis- dominated by finance capital, rupts exchange relationships automation is being invoked as between capitalists. Because the “explanation” for the next the only way capitalists can big crisis. get a “fair” share of the surplus In December last year the is by selling their commodi- (left-leaning) Institute for Pubties, those that don’t innovate lic Policy Research (IPPR) sugwill get a disproportionately gested that some 44 per cent reduced share and have to cut of all British jobs, (involving or halt production when they almost 14 million workers) are no longer able to cover could be automated, “hollowcosts. ing out” middle-income occuHence, booms, as capitalists pations in industry and the compete to innovate and service sector. overproduce, will be In January followed by the another think The third periodic downtank, the in a series of four turns in ecor ig ht-w i ng classes delivered by nomic activInstitute for Professor Mary Davis on ity. These Fiscal StudTrade Unions, Class and crises tend ies (IFS), Power will be held at the to reduce all argued that Marx Memorial Library on prices back the “rising down to their m i n i mu m February 27. See mstar. actual value. wage” will link/MMLcourses for The law lead to jobs details of value, Marx being lost in declared, “asserts what it calls the itself like an overriding most “routine” occulaw of nature. The law of grav- pations — such as checkout ity thus asserts itself when a operators — which can be most house falls about our ears.” easily automated. Crises also make it easier And yet another think tank, for the ruling class to reverse the Centre for Cities, predicted the gains that labour may have that a fifth of jobs in British made during periods of growth cities were likely to be lost by and high demand. 2030 with northern towns the Marx also distinguished worst hit, losing 40 per cent or between short-term and more of their jobs though autolonger-term cycles. The latter mation of relocation overseas. in particular continue to be a The causes of, and responses focus for research, for example to, crisis are a matter for analyrelating to geographical shifts sis rather than doctrinal genin the location of raw materi- eralisation. als, the development of new For example, Marx saw a fallmarkets and the relationship ing rate of profit as central to between core “mature” capital- the capitalist system, but one ist economies and the so-called that could be offset by a variety “developing” countries of the of factors including: technical Third World. innovation, market expansion, Particularly important is the colonial exploitation and the “bunching” of technologies — imposition of labour discipline the industrial revolution of the (including an assault on pay, on late 18th century; steam power the “social wage,” and on trade and railways in the 1830s; steel union and workers’ rights; priand heavy engineering in the vatisation, outsourcing and job late 19th century; electricity, insecurity). oil and the automobile from the It is clear that the first and 1900s; telecommunications and last of these are key strategies IT from the 1970s. Each of these of capital today.