The current historic economic crisis, which nearly everyone now openly admits is on the scale of the Great Depression of 1929, has engendered anew the very old arguments between "free market" proponents and advocates of government regulation of capitalism. But back in the 1930s the public discourse included proponents of Karl Marx, who in the 19th century had pinpointed the source of periodic crises in the capitalist system itself.
Marx has long been banned from the discussion by the smug defenders of capitalism who have lectured us for decades that another 1929 was impossible, given what’s been learned since then and all the "safeguards" put in place by wise technocrats. But today we hear mainstream reporters like CNBC's Scott Cohn telling us on the NBC Nightly News (Sept. 20) that Congress faces "an unpleasant choice between mere disaster and a full-blown depression."
Those who argue that the current crisis is due to the fact that many of those safeguards have been dismantled in recent years really beg the question: Why did the two ruling parties agree to do that? It should be noted, as an example, that it was Democratic president Clinton who eagerly signed the repeal of the 1933 Glass-Steagall Act in 1999 in a bill sponsored by Republican Senator Phil Gramm, thereby setting the stage for the current crisis by erasing the "wall" between commercial and investment banks.
It is time to recall the actual prophetic words of Marx himself. Some of his most famous arguments are made in Capital Vol. III (published posthumously by Engels in 1894). In Part III, "Law of the Tendency of the Rate of Profit to Fall," (chap. 15) Marx argues that "The real barrier of capitalist production is capital itself." [Italics in original, my bold type] The increased production of capital and its concentration leads to a decline in the rate of profit, and:
At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises.
The escalating crisis leads to the destruction of capital, including the collapse in the values of stocks and commodities, collapse of prices, collapse of the credit system—in short, "violent and acute crises," "sudden and forcible depreciations," and the "falling off of production":
But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist's interests and those of the capitalist class as a whole, then comes to the surface, just as previously the identity of these interests operated in practice through competition.
How is this conflict settled and the conditions restored which correspond to the "sound" operation of capitalist production? The mode of settlement is already indicated in the very emergence of the conflict whose settlement is under discussion. It implies the withdrawal and even the partial destruction of capital....
The main damage, and that of the most acute nature, would occur in respect to capital, and in so far as the latter possesses the characteristic of value it would occur in respect to the values of capitals. That portion of the value of a capital which exists only in the form of claims on prospective shares of surplus-value, i.e., profit, in fact in the form of promissory notes on production in various forms, is immediately depreciated by the reduction of the receipts on which it is calculated. A part of the gold and silver lies unused, i.e., does not function as capital. Part of the commodities on the market can complete their process of circulation and reproduction only through an immense contraction of their prices, hence through a depreciation of the capital which they represent. The elements of fixed capital are depreciated to a greater or lesser degree in just the same way. It must be added that definite, presupposed, price relations govern the process of reproduction, so that the latter is halted and thrown into confusion by a general drop in prices. This confusion and stagnation paralyses the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations. The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.
All this causes great suffering in the working class:
The stagnation of production would have laid off a part of the working-class and would thereby have placed the employed part in a situation, where it would have to submit to a reduction of wages even below the average.
At some point a new equilibrium is reached, and eventually "the cycle would run its course anew." The summary of the argument against capitalism is made by Marx:
The limitations of the capitalist mode of production come to the surface:
- In that the development of the productivity of labour creates out of the falling rate of profit a law which at a certain point comes into antagonistic conflict with this development and must be overcome constantly through crises.
- In that the expansion or contraction of production are determined by the appropriation of unpaid labour and the proportion of this unpaid labour to materialised labour in general, or, to speak the language of the capitalists, by profit and the proportion of this profit to the employed capital, thus by a definite rate of profit, rather than the relation of production to social requirements, i.e., to the requirements of' socially developed human beings. It is for this reason that the capitalist mode of production meets with barriers at a certain expanded stage of production which, if viewed from the other premise, would reversely have been altogether inadequate. It comes to a standstill at a point fixed by the production and realisation of profit, and not the satisfaction of requirements.
Sounds like this was written only a few days ago, doesn't it?