Stock Market & Economic Crisis

Following on from this post, which clearly galvanised a massive response on libcom ...

I found this in the Independant today: "Poor Americans struggling to keep up their mortgage payments will be offered new loans with more relaxed rules, in an effort to head off a wave of repossessions."

The article also mentions the possibility of a government bail-out which, of course, is simply another means of recycling credit.

This shows, more than ever, that in response to the debt crisis handing out more credit is the only response capital has to give. The constant diversion of financial resource into credit represents a diversion from production to consumption i.e. away from accumulation. Essentially, at the global level, capitalism is more and more paying for its own products making real profit production more and more problematic. It also means that more and more pressure is placed on the working class, which has to work harder to pay not only their bourgeois' immediate costs but their debt interest too. Each worker is driven harder to carry around an ever growing legion of parasites on his back, as well as having to take out loans to buy products to keep the sorry mess limping along.

In Britain, we have the sudden spectre of interest rate rises on the horizon which will undoubtedly batter overly-leveraged consumers. According to an IFS report, total government debt when stripped of all the tricks used to hide it (PFI, etc.) is now at 87% of GDP!!

The question is does the strategy that the bourgeoisie have used for the last 15 years or so - that of Ponzi Economics - have any life left in it? Or can the credit bubble still be refinanced and spread to other areas? If so, the bourgeoisie might avoid outright recession for the moment but only at the price of increasing financial instability and an increasing potential for outright economic collapse.

At a general level, economic crises have always been the bane of the bourgeosie, they have a nasty tendency to make them go bankrupt. In the early stages of capitalism, though, the damage wrought by crises was always quickly repaired and certainly never threatened their class rule. Nor did they see the necessity to develop massive forms of state intervention to prop up the economy.

Once in the 20th century, though, whether you want to call it "decadence" or not something has changed. The 30s depression - which began as a stock market crash - was a disaster for capitalism at every level and in response they have since produced a series of economic theories in an effort to understand the crisis with aim of overcoming it, such as Keynesian economics, Friedmanism, etc. This has been accompanied by more and more powerful and sophisticated forms of state intervention. This is not an accident because, not content with setting up instruments in individual countries, the bourgeoisie has collaborated at a global scale to create international instruments such as COMECON, the World Bank, IMF, G7, etc. to co-ordinate responses to economic crisis. The abandonment of Bretton Woods was not a shift to finance capital for the sake of it: it was actually a desperate, unilateral response by the Nixon government caused by massive speculative attacks on the dollar, driven by the inability of Uncle Sam to cut budget and trade deficits.

The shift to finance capital which accompanied Bretton Woods was not a sign of strength, but was driven by economic weakness brought on by a remerging economic crisis. It had the consequence of undermining the very basis of money as a regulator of economic activity, although at the time this acted as a stimulus to the economy by freeing the hand of nation states so they could more easily contract debt. This resulted in the boom of 72-73 which was quickly followed by new recession and galloping inflation. It was also during this period that the infamous "third world debt" systems were established (essentially lending them money to buy Western and Russian-bloc goods, often weapons) which have today become intolerable burdens for those countries and a massive drag on the world economy.

Although the shift to speculation does make it easier to manage economic crisis (that was the whole point of it, after all), the policy has definite limits and instability that appears in the financial system is a demonstration of its fragility. These periodic crises present a profound challenge to the dominant ideology: that with hard work, the system works for everyone. A ruling class unable to convince the majority of society that the system it represents is not in the interests of the majority is a dead ruling class, and the bourgeoisie know it.

This is why, apart from the expedient need to save their own skins, they have made as much effort as possible to cushion the impact of the crisis on the working class most especially in Europe where the proletariat is the most experienced and most dangerous. This has taken two main forms:

- since the 60s, they've used debt mechanisms as described above to deflect the worst effects of the economic crisis onto the least developed countries where the proletariat is weaker and its struggles, however violent, have less consequence for the system as a whole. In contradistinction to the 30s, where the main economic powers (US and Europe) were hardest hit, this time round massive resources have been used to defend them;

- they've maintained as far as possible (and in the 70s expanded massively where possible) social welfare spending in the form of unemployment benefits, etc.

Over time, these policies have also run up against their limits. They have not been able to completely prevent recession knocking on the door of the industrialised countries, but so far they've been able to stave off veritable collapses of the type seen in Russia, Latin America, and the Far East.

In the 80s, they also began the slow but systematic dismantling of the welfare system simply because they couldn't afford it anymore and this was accompanied by a similar strategy in attacking wages and working conditions. By doing this carefully over time with occasional reversals, they've managed to normalise the reduction in living standards. When you look at the human misery this has created over the years, you might laugh and say "but the bastards are cutting back everything"! But if they had a truly free hand, there would be no welfare state whatsoever. instead, in spite of all the cuts over the past decades, they are still pumping trillions into the welfare state because the social explosion caused by simply allowing (for example) the unemployed to starve would threaten their rule.

Unfortunately, for them (and us), their capacity to carry on with this slowly but surely policy is evaporating under the pressure of the crisis. This is why in the current phase they're accelerating the attacks on the working class, even though they know it will have the effect of radicalising the class. Each bourgeoisie has different levels of competence in carrying this out ranging from the sheer brilliance of New Labour and the Clinton administration, to the clumsiness of Bush, to the outright incompetence of the French right. Nonetheless, the underlying perspective is the same: a doomed, step-by-step resistance to the crisis while limiting as far as possible the social tensions this causes.

My English degree permanently damaged me.

a) My dentist is bourgeois and she knows no such thing, b) The “ruling class” doesn’t have to explicitly convince anybody of anything in order to survive, we convince ourselves of their superiority, and c) There is widespread acceptance of the idea that capitalism (whatever that means nowadays) is against “the interests of the majority” alongside the notion that such an arrangement is necessary for any viable economy that doesn’t bore us all half to death through a constant mass mobilisation and a lack of frivolity.

A very interesting article about the UK housing market appeared in today's Guardian.

Highlights include mention of a paper from investment bank, ABN AMRO, which says that the housing market is over-valued by 50%! If true, this would mean a crash would wipe off half the value off a home for those buying at the peak of the market (i.e. now). The negative equity from such a scenario would be horrendous!

Another choice item is the impact that a rise in interest rates to 6% (which the pundits deem inevitable, they're only arguing about how many stages it will take), would add £125 to the monthly bill of someone with a £200,000 interest only mortgage. For most workers that type of increase would be disastrous.

But the most startling item is the tracking of the price of a particular property since 1901:

This seems to demonstrate, if only annecdotally, the way that capitalism has shifted its onus away from actual real production into frenzied speculation, a "casino economy", particularly since the early 80s.

Straw man
The "collapse of capitalism" is not an overnight event. As Luxemburg put in 1913, it's the opening of an epoch of catastrophe, a prediction fully confirmed by the nightmares of the century that followed. Neither does the fact that capitalism is a fetter on the productive forces mean that the productive forces cease to grow, even within the envelope of capitalist social relations.
Demogorgon's posts have given ample evidence of the fragile, diseased basis on which this growth takes place.

so decadence theory is just the belief that communism will be more productive?

Your telling me its not overnight, if I'd been born in 1913 I'd be 93 now and still waiting.

But frankly this silliness is a prime example of a theory that has crawled up its own arse so far it can no longer see daylight. It may have some lovely internal consistency to its devotees but to the outside world it has no resemblance to a reality that has seen a massive expansion of capitalism both in terms of productivity and global reach since 1913. If anything this growth has accelerated in later decades in comparison with the earlier ones. And importantly its not that periodic crisis have not happened - its just that in themselves they proved no threat to capitalism as a system - indeed often they are an opportunity to impose restructuring on the working class. These days crisis seem to hardly cause any problems whatsoever for capital beyond the short term effects of whatever collapse we are talking of.

I can actually tell you the exact moment when I stopped believing in this sort of silly determinism, just after 9pm, August 8th, 1997 as I tried to convince some Italians that the Celtic Tiger was fake and really a product of fancy book keeping and realised I was talking shite.

Couple of comments from an ICC sympathiser.

Joe Black 2 wrote:

Capitalism certainly did appear to ‘collapse’ from 1929 to mid-1930s, but (unlike 1917-1923) there was no revolution around the corner (the widespread movement of the unemployed in the early 30s US and the Spanish events being the most blatant attempts at proletarian self-defence in this period).

Conclusion? Political, social and economic crisis are the necessary preconditions for proletarian revolution, but not every crisis involving these elements will give rise to widespread proletarian revolt.

Why? Because it’s not just the “materialist” conditions that are vital: it is the “subjective” conditions, the question of consciousness in the proletariat, which is also a pivotal factor.

Something that’s missing so far in this discussion of capitalism’s “great leaps forward” over the past 100 years has been the question of war: the global nature of 2 major conflicts(which is why they were called World Wars); the global struggles between the US and Russian “blocs” from 1945 to 1989; and the carnage that has unfolded since.

If nothing else, this global propensity to destruction has to be put in the scales when we are talking of “capitalism’s progress”.

Also, as Alf mentioned earlier, the notion of decadence does not imply that capitalism fails to grow, nor that the productive forces don’t develop: it’s the context, the straightjacket, in which they evolve once the world market has been established that’s important.

In other words, it’s not the undeniable leaps in technology that’s under scrutiny here – it’s what humanity could have achieved with these if it wasn’t constrained by the social relations of capital – profit, competition, exploitation, war, etc).

And before Lazy says that it’s this very competion that gives rise to such developments (as if humanity hasn’t been constantly inventive, as if it never bothered to feed itself better and with less effort without the profit motive), I wonder why it still hurts to go to the dentist.

I've not bothered listing the negatives of capitalism so far because with the possible exception of LR (whom I don't understand) I think its safe to assume we'd all agree on them.

Frankly I think your watering down 'decadence theory' so much to fit the facts that it now amounts to no more than what anyone on the left would say - 'life would be better without capitalism'. This is pretty typical of rubbish theories those attached to them switch from hard to ultra soft versions of them depending on who they are talking to. Such theories are useless as they have no explanatory value at all and only serve as a rubbish litmus test for one sect to distinguish itself from another.

Decadence theory in its hard (and honest) form is a variation of the collapism and milllenerism that has always been around on radical politics. Some day soon something will happen (crisis, peak oil, a new ice age, global warming) that will bring the man down. Its a real block on developing a politics capable of winning communism as it encourages beard stroking by those in the know as they wait for the glorious day when all their predictions will be proven correct and they can descend from the the mountain to assume their rightful place at the head of the now enlightened masses

yes and no. exploitation is a priori a bad thing if you don't agree to it (and we'd need to debate how wide the range of choices has to be to render "agree to it" meaningful). but the exploitation is anterior to capitalism. i detest alienation as well as the next man but people use whatever socio-economic forms are available to get their desires. co-operation is better, but some people are just type-A.

Joe Black 2: I don't understand your criticism of 'soft' v 'hard' versions of decadence. The point is that despite 100 years of evolution of the productive forces, the vast majority of the world's population are worse off than they were 100 years ago (assertion I know, but..); that over 120 million people have died in wars that are the direct result of this mode of production's blockages; that, contray to the 18th and 19th century, our species is now threatened in many ways with extinction.
I'm not particularly interested in being 'different' from 'anyone on the left': just attempting to elaborate a well-established marxist theory which goes some way to explain why we are where we are and 'what is to be done' in response.
I suspect, from previous engagements, that where we really differ is in that response: I don't see anyone individual, party or country (ie Chavez in Venezuela) offering us a way out: correct me if I'm wrong, but you do.

Lazy wrote:

You suppose, I suppose.

Absolutes? No, I agree with you. But what is the general tendency? I 'suppose' I would argue that my competitive instinct for survival compels me to cooperate. And beyond instinct, there is consciousness....

This is (as always with you, Lazy) an interesting (and I agree) fundamental discussion, but one a little of topic with that raised by Demogorgon who is using certain tremors in the financial/economic system to point out that all may not be well with the smooth functioning of capital. So perhaps another time, another thread?

It is in the interests of any ruling class to centralise power.
As regards to the IMF etc it depends upon whether you believe that a collapse is inevitable and apocalyptic or whether you think capital is capable of absorbing these shocks.
Personally I think capital has still got some legs on it (and that's not just because I got talked into putting a grand into a stock market ISA)

There is still some confusion as to what the bourgeoisie are. The bourgeoisie is not a homogenous, co-ordinated self-aware class. The biggest victims of recession are often the petty bourgeoisie, they cannot absorb the shocks as easily. It was small businessmen that topped themselves in 1929, none of the big boys came down from what I can remember. Obviously institutions like the IMF are designed to protect the interests of the ruling classes , but again they are not always consistent.

I'm not sure I understood quite why collapse is inevitable, I'd appreciate a link if there is one. I don't agree with decadence theory but I'd like to learn a little more.

Crisis theory as expressed so far here seems to posit the 'economy' as a separate category external to the working class and acting upon it. Thus the crisis evolves independently of, and from causes other than, class struggle . The crisis appears as a threat to and/or an opportunity for the working class but not of its doing.

Whilst it is possible to separate aspects of capitalist social relations for the purpose of analysis, since both competition between separately organised capitals and class struggle between organised capital and workers takes place at the same time and in relation to each other, the source of crisis in capitalism cannot be located simply in either one of these areas.

Decadence does not seem a particularly useful term to describe the way that capitalism has changed since Marx's day, especially if that term is thought of primarily in terms of quantitive productive capacity. Certainly any decadence theory which relies on some supposed 'objective' working out of a purely 'economic' contradiction, with the working class simply expected to respond in the right way, fails to reflect reality.

Understanding how capitalism has evolved, and continues to evolve, through various stages from the formal to the real subsumption of labour, from a reliance on absolute to relative extraction of surpus value is perhaps a better starting point from a Marxist perspective, but does not lead to a neat and tidy '1914' type watershed for determining capitalisms supposed 'ascendent' and 'decadent' phases. It does provide a useful basis for understanding how capitalist social relations, starting from the narrow confines of the 'economy', have started to invade every aspect of life in the modern world thus transforming, in the process, capitalist crisis from being essentially 'economic' into social crisis. It does mean that whilst modern capitalism clearly dominates the lives of everyone in the world, not everyone, everywhere, is integrated to the same degree into modern capitalist social relations. Thus forms of struggle and their impact on the development of capitalism's social crisis will vary in different parts of the world and even, to a degree, between different groups of workers in the same parts of the world.

Got to go now - its my 'Early Doors' Day - end of the working week.