Categories and decline
Hillel Ticktin bases his prognosis on fundamental categories such as value, money and capital. The system faces a crisis deeper than anything seen since 1929
Replying to Bill Jefferies is a hard task, because I do not think I agreed with a single word that he said.
He places particular stress on the rising organic composition of capital and the falling rate of profit which follows from it. There is no question that, if you adhere to the labour theory of value, as we must, the rate of profit will fall over time. But its exact role in a crisis is dubious.
The statistics he produced in terms of the rate of profit have nothing to do with value. It is just not possible to add up value in those terms. In order to do that government statistics - which are not based on value, despite what some people argue - are useless. Remember, surplus value does not just consist of reported profits, nor just of interest and rent. There are many things which nobody adds up and are not even reported. We are talking about productive and unproductive labour and capital here. Once you start to add all this up, you get a completely different picture as to what the real rate of profit actually is.
Let us look at the classical discussion of the question of the falling rate of profit in relation to crisis. Do you see it in Trotsky? Not one word in Trotsky. In Lenin? Not one word. The classical discussion leaves out the falling rate of profit as the cause of crisis. That the falling rate of profit plays some role we know, but exactly how is another matter. Of course, Luxemburg actually rules it out completely.
It is actually a sophisticated, detailed and difficult argument. The kind of dogmatic emphasis on the falling rate of profit is a fetishised way of understanding the economy. You have to look at such categories together with the class struggle and intertwine them in order to get some understanding of reality. If you do not do that, you get a mechanical and really peculiar view of what is happening.
It is really very odd that anyone should contend we are not in a recession or depression. Just look at what Sam Brittan of the Financial Times said a few days ago. Although the credit crunch was first discerned last August, no major area has yet recorded a downturn in activity (which, of course, is the point that is raised by comrade Bill Jeffereys). However, this suggests not that the crisis is coming to an end, but that it is slow-burning. I think that that is now the general bourgeois viewpoint.
Financial crises usually come first and you can understand why that would be the case. First there is an extended period of lending by banks because profits are turning down, sales are not being made and companies are not doing well. Individuals face similar problems. You would expect that the actual downturn would occur simultaneously but that its full development would come later, and that is what is happening.
The credit crunch itself is not independent of the downturn, nor, as the Wall Street Journal has pointed out, is it restricted merely to the sub-prime lending crisis. The economic downturn began a year, perhaps two years, ago. I am not defining it, as some bourgeois commentators do, in terms of negative quarterly growth over two quarters. If you are going to use GDP statistics, there is really no difference between one percent and two percent in real terms because nobody can calculate to that level of accuracy.
What you have to look at is the overall tendency. There is no question that the shift of income towards the capitalist class from the working class in the United States is probably the greatest since 1925. This is not something you can explain in terms of a falling rate of profit. It has to do with the class struggle and with the overall state of capitalism and obviously the relationship between the class and the strategies which have been adopted by capital.
Its fundamental strategies for survival since 1917 have been, on the one hand, the welfare state and, on the other hand, Stalinism. Capitalism is not a self-correcting mechanism. It was overthrown in 1917.
Much was said by Bill Jeffereys about Russia and China. Let us begin with Russia. How on earth do you include Russia in the world capitalist economy in the sense of incorporating capital there? What capital? We know that after 1992 there was a massive decline in the USSR and a very large percentage of production just ceased to exist as production. It certainly was not capital. It was just empty factories. It is not at all clear that one can simply say that Russia is now capitalist. People who are not leftwing and are examining Russia today have to say that if it is capitalist, then it is capitalist with Russian characteristics. In other words, it is not fully capitalist. What kind of capitalism is it which, rather than relying on a market, uses guns? Force is still crucial, whether it is the force of the state, or of the secret police or gangsters.
The idea that world capitalism can simply appropriate what exists in Russia is nonsense. There was no way that the Soviet elite was going to allow the west to incorporate what exists. The Soviet Union did not actually collapse. What happened was that the Soviet elite decided to turn to the market, to capitalism. It was a conscious decision. But there was no way of actually doing so successfully. They were in one sense successful for themselves in that they exported their capital. Even today, however, they are scared that they can be re-expropriated. Today the Russian elite has consciously decided that the west cannot buy into a whole series of sectors, 42 of which are wholly or partially excluded from foreign investment.
As regards China, although firms may be quoted on the stock exchange, the state plays an important, often controlling, role. It is not an accident that US capital went to China to invest. It was not just a matter of low wages - the Chinese Communist Party often included free land and free factories. This was one of the reasons why so much US investment went to China rather than India. The second reason is the nature of the Communist Party itself. The party was absolutely crucial in seeing to it that there were de facto no unions, and that people worked 13-14 hours a day. In other words, there is a very high rate of exploitation.
Again, this is not classical capitalism, but something else. As in the case of Russia, simply to appropriate what exists in China and include it into one undifferentiated world system, as it were, does not make sense as a means of understanding crisis.
To return to the credit crunch, why was there such a huge agglomeration of credit? $585 trillion in derivatives - of which the underlying amount is apparently $10-12 trillion. That this would cause an explosion was obvious. Warren Buffet said in 2003 that derivatives are “weapons of mass destruction”.
But why did things develop in this way? There has never before been a level of gambling on this scale. For example, it is generally agreed that the rising price of oil is to a large extent the result of speculation. What is going on? At the height of the crisis, when Bear Stearns was effectively nationalised, the US stock market began to crash. As the Wall Street Journal put it, “People are selling anything and everything”. By that they meant that the speculators were selling off. That is the nature of capitalism at the present time. You cannot avoid the fact that there has not been anything like this since 1929.
Commentators have asked the question, what would have happened if Bear Stearns had not been taken over in a deal whereby the government guaranteed $30 billion as part of the deal with JP Morgan Chase to rescue Bear Stearns, thus in a sense nationalising it? The answer that all have given is: a crash worse than 1929.
The idea that anybody on the left can think that the current crisis is just a matter of the same old cycle is beyond belief. But I can understand how such a viewpoint arose - after 1960 or so, much of the left reversed its previous position. For instance, Ernst Mandel and Tony Cliff stopped expecting a crash - it was not going to happen at all, ever. So I am not surprised that the left says that the current crisis is just a regular downturn, that capitalism can always solve its problems, because the left has been saying that all along.
Today there is $585 trillion of outstanding debt, a situation that can never be controlled by any central bank. And another indication of capitalist decline, because the market no longer rules. The very fact that governments are forced to intervene more and more shows the nature of present-day capitalism. But because of government intervention one cannot actually predict how bad things will get, what mistakes governments will make and so on.
Why was there such massive speculation? The same reason as why the dot-com boom and subsequent crash occurred. Why was there a crash in the east in 1997, with the collapse of the Long Term Capital Management fund? The answer is that there is a huge wall of capital which cannot find an investment outlet. That is why there is such a level of speculation and the consequent rise of asset prices across the board. That is also why there has been a further development of finance capital through private equity, which itself has become cannibalistic.
In part all this is one of the results of 1968. It became clear to the bourgeoisie that the working class could no longer be held back in the old way. Previously there had been fascism and world war, and Stalinism was of course crucial as well. This control was breaking down. Full employment was no longer sustainable. The logic therefore was to end the welfare state and switch to finance capital. That is what occurred from the middle to late 1970s - the extraction of profits from the industrial sector and the building up of finance capital. However, the result has been an enormous growth of surplus capital and hence the difficulty in finding places to invest it.
The cold war had been absolutely crucial in maintaining capitalism. Marxism concludes that capitalism cannot over time contain its own contradictions. So what we need to locate is not the contradictions themselves so much as the mediations whereby capitalism has managed to survive.
Imperialism was essential in maintaining capitalism at the end of the 19th and the beginning of the 20th centuries and then war continued that role - the whole structure of war economy is ideal as a mediation. It has its obvious limits, though - how far people are prepared to tolerate a war (for example, Vietnam) and obviously the fact that in the end it has to be paid for. The financial limits depend on the degree of control over the workers - for example, in World War II workers were prepared to live on almost nothing, so that a very high rate of extraction of surplus value was achieved.
The cold war should be seen in this light. The levels of expenditure on war as a percentage of the economy as a whole is difficult to work out in value terms, but it could account for about a third of the economy. The point, however, really is not about totals, but rather about the way in which the mediations actually work. War expenditure has been crucial because it helps mediate all three aspects of capitalist crisis - disproportionality, rate of profit and underconsumption. But the cold war came to an end. War expenditure actually peaked in 1986. It has never got near even half that level since.
Without this mode of mediation, investment opportunities become scarce. The state usually pays a lot more for arms production than it would for some other kind of production. We all know the example revealed in the US Congress of $1,500 being paid for a screwdriver. So what war, or the threat of it, produces is a rising rate of profit - no question about that. That is why the cold war was absolutely fundamental to modern capitalism, but now it has gone. Expenditure on the Iraq war brought on a boom after 2003, which lifted the economy out of the previous downturn. That expenditure is still there, but it is being called into question.
All this means that the position today is very similar to 1929 - I do not think there is any question about that. In addition, previous means of exercising control over the working class, such as Stalinism, have gone. Gone too are social democracy and the welfare state.
It is an end of the old politics, an end of the old economy. It is a completely new situation, in which another 1929 would be entirely possible if it were not for the fact that we do not live in a laissez faire world: the capitalist class has accepted the essential role of the state, as we have seen with the bailing out of Bear Stearns and Northern Rock.
The only difference between the UK and USA is that here we have a group of converts in government who are so stupid that they actually believe in the capitalist message! Back in the major downturn of the 1980s the US government actually nationalised all the building societies - there was no problem with that. The same today: in the United States the necessity of intervening is understood. In that sense there will not be another 1929.
But the fact of a fundamental change in the political economy remains - and that means we are going into a major downturn.