By the early 21st century, it was common knowledge that income inequality had grown by leaps and bounds as a result of the neoliberal policies of the previous half-century. The United States was a case in point – in 2017 eight hyper-rich Americans owned as much as the entire bottom half of the nation's households – and that was no anomaly. Books such as Thomas Piketty’s Capital in the 21st Century and Walter Scheidel’s The Great Leveller attempted to explain such stupefying disparities. While the two world wars and the world depression of the first half of the 20th century had entailed a massive destruction of accumulated wealth which, however catastrophic, did reduce inequality, the postwar peace restored the advantages of the very wealthy. Piketty proposed a global tax on wealth and believed that a top income tax rate of 80 per cent would be optimal, but he recognized that such policies stood little chance of being enacted, let alone enforced.
Scheidel could only express despair: “Thousands of years of history boil down to a simple truth,” he wrote. 'Ever since the dawn of civilisation, ongoing advances in economic capacity and state-building favoured growing inequality but did little if anything to bring it under control.' He implied that inequality in the economic sphere would produce, other things being equal, a political advantage that only perpetuated the position of the elite by means of taxes, business regulations and labour laws. Inequality, in other words, led to oligarchy, which in turn reproduced and exacerbated inequality.
(Excerpted and paraphrased by Fred from Scott_Inequality-Violence.docx - 11/5/17)
Summary: 1. The Crash of 2008 – 2. Obama and the Jobless ‘Recovery’ of 2010 – 3. Blowing New Bubbles – 4. The Great Recession – 5. Could Capitalism Have Reformed? – 6. So Marx Was Wrong? – 7. Overproduction and the Decline in the Rate of Profit – 8. Historical and Geographical Limits to Capitalist Growth – 9. Why Hadn’t Capitalism, with its Alleged ‘Contradictions’ Already Collapsed? – 10. Military Keynesianism – 11. The Devil in the Zeros – 12. Advertising – 13. Death on the Installment Plan – 14. Capitalism’s ‘Final’ Crisis? – 15. What Next?
Looking back over history, young people raised in today's egalitarian societies where no one starves, no one is enslaved, no one dies of preventable diseases, no one lives haunted by the fear of destitution in case of illness or unemployment, and no super-rich oligarchs dominate the world's resources, often wonder in amazement that people in the past put up with such obvious injustices for so long.
Violence is only part of the answer. True, it took an orgy of violence for capitalism to take root in Europe, the Americas, and eventually the rest of the world beginning around 1492, with the looting of Central and South America by the Conquistadores and the forced expulsion by bailiffs of peasant farmers from their lands, expropriated and transformed into sheep pastures for the profitable international wool trade. And just as the early capitalists used violence to kidnap and enslave Africans and Native Americans to labor in the colonies, so in Britain legal violence was used not only to dispossess the family farmers of Britain and conquered Ireland, but also to force the disposessed (criminalized as 'vagrants') to labor in the factories, press them into the Navy and deport them as slaves (indentured servants) to the colonies under pain of prison or hanging. The capitalist states continued to use their superior weaponry to conquer, colonize or dominate the rest of the world by violence, while fighting increasingly violent and destructive wars among themselves – two world wars in the 20th century and generalized proxy-wars well into the 21st century. Moreover, as inequality grew states became more and more repressive within their own borders with the militarization of domestic police forces and hysteria over 'national security.'
Naturally, despite this massive violence, people everywhere continued to resist as much as they could, both in the colonized world and within the capitalist metropoles. These struggle went on from the 17th century English Diggers (who occupied the land to oppose enclosures) and Levelers (who rejected class inequalities) to the 21st century altermondialistas who opposed capitalist globalization and proclaimed “Another world is possible.”) These revolutionary movements were effective during moments of crisis in changing peoples' consciousness of injustice and in forcing the capitalist powers to adopt some cosmetic reforms, but they were never able to mobilise a majority, which continued, despite the blatant evidence of inequality around them, to give at least passive support to their unjust governments and economic systems. Why?
There were two main reasons for this. The first was the system's ideological hegemony, the accepted idea that the private capitalist state-system was the least bad of any possible system (particularly after the 1989 collapse of the totalitarian state-capitalist system that had usurped words “socialism” and “communism” to mask its own elite-dominated inequality). The second was the ability of the capitalist system, despite more and more frequent and destructive wars, crises, and ecological side-effects, to continue to to adapt, as well as to repress.
World capitalism's ideological hegemony was of course maintained by a constant barrage of propaganda, that is to say advertising and public relations, not just for particular competing brands, but for consumerism as a way of life and ultimately for the system itself. This to the exclusion of any serious discussion of alternate systems in the media and public discourse, whether enforced by censorship or cooptation. But even pervasive propaganda with the underlying threat of repression cannot preserve the political and social legitimacy on which the survival of a regime or system depends. This was proven when the so-called “Communist” system in Russia and East Europe, with its extensive propaganda and police-state security apparatus, collapsed like a house of cards in 1989.
According to 20th century world-systems theorist Immanuel Wallerstein, ultimately a system's legitimacy depends on its ability to convince the population of “those who seem to be doing poorly in the short run that they will do better, even much better, in some longer run, precisely because of the structure of the system, and that consequently they should support the continue functioning of the system and its decision-making process.” (Utopistics, 1998). Thus the myth that the workers in Russia and East Europe were “building socialism” and moving towards a new society of peace and plenty provided legitimacy for the “Communist” system – until it was no longer credible, and the system collapsed. Thus the “Horatio Alger” myth that any industrious person could become a millionaire captain of industry like Andrew Carnegie or Bill Gates continued to blind the masses of wage-earners to the increasingly severe inequality under capitalism until they were no longer able to keep such hopes alive, and the system lost its legitimacy.
The second reason for capitalism's 500-plus years of hegemony as the dominant world-system, despite periodic economic crises that plagued it from the beginning was it capacity for adaptation to new circumstance and above all to the fact that it still had new world's to conquer and pillage, so that fresh wealth kept pouring into the system from ever new corners of the planet in the form of basic materials like gold or petroleum, new reservoirs of cheap labor, and new market into which it could dump its ever-increasing over-production of goods. With the advent of full globalization at the end of the 20th century and the rise of previously under-developed China as the main industrial rival to the long-dominant United States, at the beginning of the 21st, this era of constant capitalist expansion came to an end, and capitalism's inner contradictions, long latent, rose to the surface and provoked the first truly world-wide financial crash and global depression, from which it was unable to recover.
This historical process was long invisible to contemporary observers, both among investors, who increasingly depended on financial bubbles to increase their share of the world's wealth, and among most Marxists, who failed to understand the abstract, long-term nature of Marx's analysis of capital and gave up waiting for what they imagined would be its imminent collapse. Since this process was complicated, let us look at it in detail…
According to the neo-liberal, free-market orthodoxy of the early 21th century, a crisis like the Crash of 2008 was theoretically impossible because capitalism had achieved equilibrium of un-ending growth. Erased from official memory were the financial shocks of 2001 (the dot-com bubble), 1994 (the Mexican debt crisis), 1989 (the Savings & Loan crisis), 1987 (the Black Monday stock market crash), 1973-74 (the oil crisis and stock market crash) and the Crash of 1929 (ancient history, irrelevant). Small wonder no one – outside of a handful of old-fashioned classical Marxists – saw the Crash of 2008 coming.
Yet ‘the only truly surprising thing about the 2008 financial meltdown is how easily the idea was accepted that its happening was unpredictable,’ remarked Slovenean philosopher Slovoj Zizek, who contended that although anti-capitalist, anti-IMF globalization protesters had been denouncing the banks and warning of an impending crash for over a decade, only to be met by ridicule, tear-gas and mass arrests, in the last analysis ‘the police were used to literally stifle the truth,’
Indeed, during the 2008 crash, global capitalism’s entire financial edifice appeared to be collapsing into a bottomless pit of self-destruction – although this only happened decades later. The bursting of the housing bubble in 2007 had already exposed the financial markets as a vast pyramid scheme built on a foundation of leveraged debt and fictitious capital. Within months, credit evaporated and trillions of dollars in securities began melting down. By October 2008, prominent financiers, economists and statesmen in the U.S. and Europe were using expressions like ‘an economic Pearl Harbor’ (financier Warren Buffet), ‘the edge of the abyss’ (economist Paul Krugman), ‘an approaching tsunami’ (Jacques Attali, former President of the European Bank for Reconstruction and Development), and a ‘financial September 11’ (Laurence Parisot, head of the French business association). That month Alan Greenspan, the revered neo-liberal guru who ran the Federal Reserve Bank for 18 years, was hauled before Congress and forced to confess that had been “mistaken” in his faith in self-regulating free markets and “wrong” to have encouraged the housing and financial bubbles by lowering the interest rates and lending billions of freshly-printed U.S. dollars to the big banks. According to The New Yorker Wall Street traders were talking about “nuclear winter” in the credit markets: “nothing moves or grows.” So great was the shock of the Crash of 2008 that TV pundits openly began questioning the system, and Newsweek famously headlined ‘We Are All Socialists.’
Desperate, the Bush Administration, supported by both Presidential candidates Obama and McCain, pushed through a seven hundred billion dollar bailout to save the high-rolling Wall Street bankers, financiers, traders and hedge-fund operators: the very speculators who in their greed and recklessness had piled up unsecured debt and gambled with other peoples’ money, provoking the market collapse. Moreover, there were no regulatory strings attached to the bailout funds: an open invitation for the big profiteers to go back to doing what they were doing before: speculating, buying up smaller banks, and paying themselves huge bonuses. Less noted at the time was Treasury Secretary Paulson’s announcement of what amounted to an open-ended drawing account to continue re-floating troubled banks with fresh-printed Treasury notes running, the former Goldman-Sachs CEO admitted, into the ‘trillions.’ And that was only the beginning, as one bailout followed another.
Yet even despite this humongous infusion of taxpayer cash, by March 2009 the DOW industrial average had declined to half its October 2007 value. Standard and Poor’s Index, adjusted for inflation, was down about 50% for the 10-year period from Feb. 17, 1999 to Feb. 17, 2009 – matching the worst 10 years of the Depression – and the prestigious OECD (Organization for Economic Co-operation and Development) was referring to the economic crisis as ‘the worst in human memory.’ Eventually, massive transfusions of cash revived the swooning financial sector. Securities began to rise again and ‘recovery’ was officially declared. And soon all was forgotten. Until it happened again, only on a vastly greater scale.
Bailing out the billionaires temporarily saved the economy In 2008, Wall Street’s representatives basically took over the White House and used the power of the government and re-inflated the financial balloon at taxpayer expense – without even patching up the holes caused by deregulation. As a result, Goldman-Sachs, Smith-Barney and the other investment banks were able to resume paying their traders million-dollar bonuses, and ‘recovery’ was declared. ‘Jobless recovery’ to be sure. How long could this new bubble last? If the immediate cause of the 2008 financial melt-down was speculation based on excessive borrowing, it was hard to see how borrowing even more money could do more than compound the problem by pushing it into the future. Indeed, new balloons soon began looming on the horizon, among them precious metals, sovereign debt, emerging markets and a newly-created market for trading permits to keep pumping carbon into the atmosphere.
Concerning the billionaire banker bailouts (or BBBs), the trillions of dollars of future debt they represented were not repaid by the speculators who caused the problem, but by the victims of their greed – working middle-class taxpayers and our descendants over the next decades! The BBBs quite simply represented a government-imposed redistribution of wealth upward from the struggling many to the plutocratic few. Moreover, since employee retirement savings and pensions plans had shrunk to as little as half their pre-Crash value, many had to keep working – and paying taxes – long into their 60s and 70s to pay this debt off. (Didn’t Marx say that the only part of the nation the working people actually owned was the national debt?) Indeed, when the markets crashed in 2008, middle-aged working taxpayers were still paying off the Chrysler and Savings-and-Loan bailouts of the ‘80s and ‘90s!
The terms of the Bush-Obama BBB’s were ‘heads I win/tails you lose’ as far as the Billionaires were concerned. John Q. Public got to bankroll Mr. Too-Big-To-Fail who, still unregulated, went right back to the casino and resumed gambling. It was too good a deal. When bank profits went up, the brokers and speculators got to keep the profits. Otherwise, John Q. got to pay the tab. No wonder some bailout recipients reportedly went pheasant hunting the day after they got their first payments! According to economist John Kenneth Gailbraith, the true name of the ‘free enterprise system’ was ‘socialism for the rich’ – privatized profit and socialized debt.
After his stunning victory in the 2008 elections, there were great expectations that Obama, the first African-American president, would pay his dues to the voters who elected him in an historic moment of unity among the working people of all so-called ‘races’ in the race-besotted United States. Liberal hopes were high that he would perhaps ‘do a Roosevelt,’ that is to say save capitalism for the capitalists by regulating their excesses and staving off mass revolt through populist reforms. But times had changed, and Obama was dependant on his Wall St. backers. He couldn’t afford to turn on his backers and ‘bite the hand that feeds him.’ Quite the opposite: as President, Obama’s hope was to square the circle by convincing the public that Summers, Geithner and the other financial sharks he was swimming along with were vegetarians – all the while throwing them huge chunks of red meat in the hope of appeasing them.
Of course the financial sharks, being sharks, turned on him, loudly complaining about a few paper ‘restrictions’ on their arcane speculative activities, insisting on maintaining tax cuts for the top brackets, and spending millions of the bailout dollars campaigning against him! This well-financed right-wing campaign has been so successful that according to polls, nearly half of American thought Obama was a ‘socialist’! Yet according to another poll more than a third of Americans prefered ‘socialism’ to capitalism!
Despite candidate Obama’s popular appeal, his true loyalties were already clear during the final weeks of the 2008 Election campaign, when reports from Congressional offices indicated constituents’ calls running ‘roughly one hundred to one’ against Bush’s no-strings Billionaire Bailouts. One might have thought that such an overwhelming demonstration of voter opinion less than three weeks before a crucial Presidential election would have galvanized the two campaigns – normally ultra- sensitive to the slightest ripple in the polls. But Republican candidate McCain steadfastly ignored the Crash, and Obama, the Great White Hope of the liberals and progressives, not only went along with Bush’s three hundred billion dollar boondoggle, he openly opposed throwing in a few goodies for the working people, “kneecap[ing] the efforts of progressives [in the Democratic Party] to force much-needed provisions like reform of bankruptcy law, publicly stating that this (minor) concession shouldn’t be in the law.”
One recalls that in November 2008, Obama’s coattails (combined with public revulsion against Bush and the Republicans) had swept a solid Democratic majority of Representatives and Senators into office. The financial crisis was it its height, and their constituents, who had just pulled off an astounding electoral victory, were feeling the hurt. The political capital for reform was there. Even cynics expected a Democratic administration to appear ‘even-handed’ by giving some minimal relief to foreclosed homeowners on Main Street while continuing to bail out giant Wall Street speculators like Goldman Sachs and Smith-Barney/CityBank.
However, Obama showed his hand immediately after his overwhelming popular victory at the polls by choosing to reassure his Wall Street backers rather than his electorate. The then President-elect declared there could be ‘only one president’ and wove what he called a ‘seamless transition’ during which he acquiesced to more BBB’s and nominated staunch friends of Wall Street to run the economy, including the two men most responsible for the Crash of 2008: Larry Summers (whose great achievement was passing the law that deregulated derivatives, these risky securities that led to the downfall of AIG, costing $180 billion) and Tim Geithner (who as head of the New York Federal Reserve Board failed to oversee New York’s banks). ‘He who pays the piper calls the tune.’ You can’t say that Mr. Obama – whose primary campaign had received more Wall Street money than Hilary Clinton’s and whose election war chest far surpassed McCain’s – wasn’t loyal to his campaign contributors.
Thus the banks and brokerage houses, still unregulated, were re-inflated with tax-payer money, and securities prices rose from the dead, like a latter-day Lazarus galvanized by an injection of capital liquidity. What did the banks do with all the public’s hard-earned billions? One thing for certain: they didn’t reinvested it in the working economy. In order to stimulate investment, the Fed began lending money to the banks at record low rates around 1%, but ordinary people found it impossible to get a small business loan! ‘Cheap Debt for Corporations Fails to Spur Economy’ was the lead in the Times Business Section on Oct. 9, 2010. Apparently, most of those freshly-printed billions the Fed turned over to the banks and brokerage houses went into to speculation, much of it overseas. January 2010 saw the rise of new speculative ‘bubbles’ in Chinese real estate and commodities like pork and copper (whose price went from $2,800 a ton in Dec. 2008 to $7,500 on Jan. 21, 2010). And according to an October 14, 2010 N.Y. Times Editorial entitled ‘The Next Bubble,’ emerging economies like Brazil are next on the speculators’ hit-and-run list with potentially highly-disruptive results.
There was, of course, a real difference between capitalist ‘investment’ and ‘speculation.’ Financial bubbles, like chain letters (‘send a dollar to the top names on this list and you will receive $3000 in the next month) and scams like Amway, were essentially ‘pyramid schemes’ (also known as ‘Ponzi schemes’ after the eponomous Boston swindler.) As long as more and more people keep buying in at the bottom of the pyramid, those at the top keep getting richer (and the insiders at Goldman-Sachs are always at the top of the pyramid). Investment, on the other hand, can be defined as follows: ‘investing your money (saved or borrowed) means buying raw materials, hiring workers, leasing machinery and renting space in order to produce goods or services for sale on the market in the hope of recouping your expenses and making a profit’. Bonds, stocks (shares in corporations) and other financial products can be bought for the purposes of either investment (to earn long term interest or dividends) or speculation. Traditional investment counselors had considered that a the value of the total shares in a company should not exceed the value of its total working capital by a factor of more than five or six. Marxists also distinguished between ‘working capital’ (invested in industrial plant and wages) and ‘fictitious capital’ (highly leveraged financial products with little or no collatoral behind them). By 2007, stocks whose price represented twenty or thirty times the value of the companies of which they were shares were considered good buys!
Of course it was the nature of speculative bubbles to burst, like the 2007 housing bubble and the 2001 dot.com bubble before it. It all goes back to Amsterdam in 1637, when a speculative craze drove the price of tulip bulbs to fantastic heights before it collapsed, ruining thousands of investors. As prize-winning economist Paul Krugman frankly admitted in 2008 at the time of Bernie Madoff’s pyramid scandal, there was no essential difference between the financial markets and such fraudulent Ponzi scheme: everyone keeps winning as long as new investors keep enlarging the base of the pyramid. Yet a generation later, when the global markets all crashed and the planet was throw into a world-wide Depression, it once again came as a “surprise.”
A particularly sinister innovation in the re-inflated financial markets came in March 2010 with the news that the newest target of speculative capital was the outstanding debt of the weaker European economies, like Greece, Portugal and Spain. Apparently big investment banks like Goldman Sachs were betting against the price of the sovereign debt of these countries, thus undermining confidence in their ability to pay. Remember that if buying copper futures can actually create an upward trend, so attacking a foreign currency or sovereign debt can undermine that nation’s credit, accelerating a downward trend. The targets of these ghoulish speculators are the nations hit hardest by the recession, those who naturally have the highest debt to income ratio. Mediterranean countries like Greece were already suffering poverty and high unemployment. Default provoked by speculative attacks developed into a social catastrophe: the bankrupting of all the social services that made life possible for poor and working class people. For under capitalism, the poor naturally bore the burden of the financial irresponsibility of the rich. The cream of the jest was that at in 2007 Goldman Sachs (among others) were selling great bundles subprime-tainted mortgage-backed securities to these very countries (while secretly betting against their own mortgage-backs on the re-insurance market as a hedge!)
Meanwhile, as the markets revived and speculative profits again began to sore, with markets hitting new highs, the Great Recession continued to paralyze the economy, which kept shedding jobs while bankers remained shy of lending to businesses that want to make productive investments. And so un-working capital piled up in the banks, inflating ever new bubbles which keep expanding until they inevitably popped. Capitalism’s non-viability was already evident when it emerged that betting on the bankruptcy of Greece – the cradle of Western Civilization – was the best use the bankers couls find for their capital. And so the unforeseen and too-soon-forgotten Great Crash of 2008 left in its wake a twilight spectacle of ghoulish speculative capital destroying whole economies so as to feast on their corpses.
So although the financial crisis temporarily stabilized, the economic crisis had only just begun to bore its way into the real economy. Although official unemployment in the U.S. eventually fell to 5 or 6%, most of these new jobs were low-paid service jobs, and real unemployment remained closer to 17% (the figure in many European countries) when ‘discouraged’ workers and part-timers were counted in. Yet every month tens of thousands more employees were laid off as businesses cut back. As a result, millions of Americans – including one child in five – sank into poverty. According to the September 2010 U.S. Census report: ‘With the country in its worst economic crisis since the Great Depression, four million additional Americans found themselves in poverty in 2009, with the total reaching 44 million, or one in seven residents. Millions more were surviving only because of expanded unemployment insurance and other assistance.’ Ten percent of white Americans were officially poor, while the percentage rises to 25% for Hispanics and African-Americans, who had been in a depression for a generation. One should also add another 2 or 3% to the unemployment rate to account for the nearly seven million mostly poor, mostly black and Hispanic Americans who were rotting in prison – many for the non-violent crime trading small quantities contraband substances like marijuana, opium and cocaine.
Hunger such as the U.S. had not known since the ‘30s became widespread. Charitable food pantries were overwhelmed, and one American in seven was dependant on food stamps. Let us note that to qualify for food stamps your income had to fall below the official ‘poverty threshold’ of about $11, 000 (or $210 a week) if you are single. A couple had fall below $14, 000 (or $270 a week – the government apparently figured that ‘two can live as cheaply as one’) and a family of four had fall under $22, 000 ($423 a week) to qualify for food assistance. With rents skyrocketing and millions of homes foreclosed, there was no way people at that level of income could pay for housing and food. (Indeed, the government’s method of calculating the official poverty threshold was changed to reflect only on the price of food, having been ‘reformed’ to exclude housing.) Small wonder that millions, including full-time minimum wage workers, experienced homelessness and that countless more are jammed in with relatives or living four to a room like the slum-dwellers of the 19th and early 20th Centuries. A whole blighted generation of young men and women (the hardest hit by the new poverty) now lacked the privacy to experience normal sexual relationships, and their lives continued to get worse, not better, since historically poverty tends to linger even after employment revives. These young Americans are experienced what a generation of Japanese had been living through since the late 1980s and early ‘90s when the Tokyo stock market and real estate bubbles crashed and Japan fell into a slow but relentless decline that neither enormous budget deficits nor a flood of easy money could reverse. As the N.Y. Times noted in 2010, ‘For nearly a generation now, the (Japanese) nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy. Now, as the United States and other Western nations struggle to recover from a debt and property bubble of their own, a growing number of economists are pointing to Japan as a dark vision of the future.’
Instead of putting regulatory patches on the re-inflated speculative balloon, the Obama Administration, turned over its finances to the gentlemen from Goldman Sachs, who showed little interest in regulating bankers, traders and insurance companies (or for that matter energy, drug or arms companies). Nonetheless, re-regulation and a watered-down version of New Deal Keynesian deficit spending remained the remedies favored by serious economists like Josept Stieglitz and Paul Krugman as well as by the unions and by many self-designated Marxists and socialists. They all seemed to believe in ‘state intervention’ as an effective remedy to capitalism’s current crisis. This reformist Left forgot, in its yearning for a solution, that neo-Keynesian state-intervention, designed to save capitalism during the Depression of the 1930’s, arguably didn’t actually succeed, since it took war production to actually end the Depression.
Certainly ‘Green Jobs’ were something to fight for, but such Keynesian remedies were not even on the radar, much less on the agenda of the neo-liberal governments of the time, whether of the ‘left’ (Obama), ‘right’ (Sarkosy) or ‘center’ (Merkel). In the words of Nobel economist Joseph Steglitz: ‘there was a moment after Lehman Brothers fell, the world came together. We were all Keynesians. That is to say, we all knew that what the economy needed was each country had to stimulate their economy. That moment of global consensus soon vanished. In any case, if the U.S. (or any other G20 government like Britain or Brazil) suddenly turned Leftwards and actually attempteds to regulate the out-of-control securities markets, that government would have been subject to huge fines and penalties from the World Trade Organization. Likewise, massive deficit spending to rebuild infrastructure, even if it had been politically possible, would also have violated international norms and been subject to IMF ‘discipline.’ In any case, after 2016, with the election of Trump, Brexit, and the rise of nationalist, right-wing populism and crony capitalism around the world, from Russia and Turkey to the Phillipines, such reformist and neo-Keynsean proposals became academic.
Yet much of the traditional Left had not yet understood that under globalized capitalism, the only permissible form of state intervention was when governments – or supra-governmental organizations like the International Monetary Fund (IMF), World Trade Organization (WTO) and the World Bank – use state power to ‘open closed markets’ and enforce ‘free trade.’ In practice state-sponsored ‘free trade’ meant enforcing monopoly control over local economies by multinationals like Montsano; it means the appropriation by international capital of the last vestiges of the natural environment and the natural economies (peasants, forest peoples, artisans, small producers) as well as privatizing the remains of public services and social welfare structures.
Far from reverting to Rooseveltean remedies, the capitalist medicine of choice in the post-2008 era was a policy of austerity so severe it made the much-maligned Herbert Hoover’s look good. For example the bitter pill the bankers made the Greeks swallow (after selling them tainted bonds!) Moreover, short of being forced to create Green Jobs by a powerful mass movement (including global boycotts and workplace occupations), the bankers who dominated the politicians continued to veto such New Dealish initiatives and kept the world addicted to petroleum, coal and nukes. This veto even included desperately-needed infrastructures, like the proposed railroad tunnel between New York City (the financial capital of the world) and New Jersey (from which most Wall St. employees commute) which the Governor of New Jersey vetoed.
Keynesian state intervention, whether or not it worked in the ‘30s, became part of ‘history,’ and what actual history tells us is that during the Twenties and Thirties, private capitalism, faced with the first truly international economic crisis following WWI, used state intervention to transmute itself into various forms of bureaucratic state capitalism – extreme totalitarian forms in the case of Fascist Italy, Nazi Germany, Imperial Japan and Stalinist Russia, as well as mild democratic forms in Pop Front France and New Deal America. All these national governments disciplined their markets in order to impose the more general and long-term interests of their respective national capitals. Back then, the state was not afraid to take power over the economy and bend the bankers and industrialists to its will – albeit in their own interests. However, in the first half of the 21st Century, it was the bankers themselves who took power in the state, which they controlled more or less directly through representatives in high office, through the massive corruption of elected officials via legal and illegal contributions, and through near-monopoly control of the mass media.
Thus, to escape from the Great Depression of the 30s, strong governments of all political persuasions – from Fascist Rightf to Stalinist Left – adopted state-capitalist policies so as to subordinate the immediate interests of individual capitalists and interest groups to the long term interests of their nation’s capital taken as a whole. In the 21st century, the situation was reversed: the various corporate lobbies (energy, finance, agrobiz, military-industrial-security complex) manipulated the state to protect or promote their short-term interests (maximizing quarterly profits) at whatever cost to the national interest – indeed to the interests of the system itself. In this topsy-turvy brave new world, billionaire U.S. corporations enjoyed unlimited ‘freedom of speech’ to buy elections, while peaceful citizens who attempt to demonstrate in the public square were spied upon by the FBI, shuttled off to distant ‘free speech areas’ and routinely arrested as potential ‘terrorists.’ To summarize: instead of subjecting the ‘anarchy of the market’ to the rationality of the state, the financial markets subjected the state to its anarchy, arming its very irrationality with the force of law. So much for economic ‘reform.’
Thus, the consensus of business analysts and economists, both academic and governmental, was nearly unanimous: generalized economic crises were theoretically impossible because ‘free markets’ (meaning monopolistic corporations and unregulated financial markets) had the capacity to automatically adjust themselves. The only danger to unending prosperity was well-intentioned but misconceived ‘government interference’ in the marketplace, for example the laws banning usury and the financial regulations put in place by the New Deal to prevent another 1929 by prohibiting banks from speculating with depositors’ money and by forcing them to keep a minimum amount of capital on deposit in case of a panic. Once the last of these constraints on the freedom of capital were abolished under Clinton, the neo-liberal consensus was unanimous: capitalist markets had entered an age of equilibrium and un-ending growth. Of course economists, pundits and stock market analysts were saying precisely the same thing in early 1929, but nobody in 2007 seemed to remember.
Indeed, before 2008, even the few surviving neo-Keynesians who still believed in the need for a minimum of government regulation (like Nobel Prize economist and N.Y. Times columnist Paul Krugman) agreed that the world economic system was ‘fundamentally sound.’ With rare exceptions even avowed Marxists and socialists were no longer expecting the return of the type of generalized capitalist crisis that Marx and Engels had analyzed in the 19th Century and that the 1929 Crash had seemed to confirm. On a few handfuls of die-hard classical classical Marxists saw the Crash of 2008 coming. How come they were right when almost everyone else was wrong?
Today, looking back over many decades since the final collapse of the capitalist world-system and its replacement with a planetary cooperative commonwealth, the collective blindness of the economists of an early epoch seems in hindsight like a kind of magical belief. Or perhaps a collective state of denial about impending economic catastrophe (as was the case with the impending climate catastrophe).
No one among the 1%ers and their dependants could face the fact the underlying cause of capitalism’s crises (the boom-and-bust business cycle) was systemic. They employed were thousands of professional economists working complicated mathematical models on their computers in the brokerage houses, the Fed, the business media, the universities and the think tanks. Somehow, all of whom agreed that the bubble could only get bigger. Blinded by self-interested optimism of the professionals needed to convince themselves and everyone else to keep believing in the endless growth of that vast financial pyramid known as the securities market.
Marx wasn’t just being funny when he called the official economists of Victorian Britain ‘paid prize-fighters for the bourgeoisie’ (after they ‘proved,’ for the benefit of the Manchester factory owners, that the Bill to shorten the working day from 12 to 10 hours would destroy the economy, as all the profit came in ‘the 11th hour’). As we have seen, Bull Markets depend on continuing public confidence, and nay-sayers are not likely to get promoted. Adolph Berle’s classic economics textbook defined stocks as ‘a bundle of expectations’ and as long as everybody expected stock or housing prices to rise, as they apparently did – until the bubbles burst.
Moreover, for many reasons Marx’s ideas were considered anathema during most of the long 20th century (although they had sudden surges of popularity after each catastrophic crash). First, Marx was held responsible for the development of Stalinist state-capitalist totalitarianism in Russia, and later E. Europe and China. These governments continued to use the words ‘socialism’ and ‘commiunism’ in their propaganda as justifications for the dictatorship over the workers and peasant by a priviledged bureaucratic cast of government, military and party leaders. This propaganda was aimed at mystifying the workers at home and at seducinging the many workers abroad who believed in the ideals of socialism and communism, whose unions and parties could then be manipulated to the advantage of Russia.
Second, Marx’s unfinished Capital was a complex work describing the interaction of many economic, political and historic elments, and thus difficult to understand much less to simplify. Nonetheless, Marx’s analysis of capitalism’s contradictions was interpreted by his followers as ‘predicting’ the imminant fall of the system, and when this predicted final collapse failed to materialise in the century and a half since he published Capital, they got discouraged and revised it or simply gave up on it. What they were unable to understand, and what is clear to us today in hindsight, is that Marx saw capitalism as a self-expanding world-system whose eventually trajectory would be to impose commodity-production on the entire planet. Theoretically, its internal contradictions would eventually undermine it, but as long as it was still expanding into non-capitalist areas, these contradictions would remain as tendencies which could be conteracted by other tendencies, as we shall see.
This is not the place to summarize the complexities of the three volumes of Marx’s Capital. To simplify, let’s say that the fundamental contradiction in capitalism is in its contradictory relationship with its source of value, labor power, represented by the workers. The bosses are in a classic ‘bad relationship’ with their employees: “they can’t live with ‘em and they can’t live without ‘em.” Capitalist profits derive from surplus value: the difference between what they pay out in wages and materials (themselves products of labor) and the market price of their products. So they use every method they can to cut labor costs by getting rid of the very workers on whom they depend, the employees who by their labor who add value to the capitalists’ products.
Thus corporations make their money by paying salaried and waged workers as little as possible, extracting from us the maximum in effort, and then selling them back the resultant products and services at a profit. In the short run it’s a great deal (for the capitalists), but obviously such closed cycle can’t go on indefinitely. On the one hand, the capitalists can’t make a profit if they pay their workers enough to actually ‘buy back’ what they produce as employees. Quite the contrary: employers are always speeding up production, automating, off-shoring, downsizing and laying off to keep down their labor costs. But with fewer and fewer workers getting paid less and less for making more and more products, the inevitable long-term results are overproduction (glutted markets) on the one hand and on the other under-consumption (masses of poor and unemployed workers). This leads to a vicious cycle.
On Main Street small businesses close their doors as their downsized customers tighten their belts. On Wall Street paper profits pile up in the form of fictitious capital – pieces paper called ‘options,’ ‘mortgage-backed securities,’ or ‘credit-default swaps’ with little or no actual wealth backing them up. Eventually these financial bubbles burst, and suddenly credit evaporates. According to this theory, the resulting depression becomes generalized and the whole economy lies fallow until a new investment cycle begins or a war revives it, as in the late ‘30s.
With respect to unemployment, capitalism differs fundamentally from all previous economic systems under which unemployment was unknown. For example, under the slave system masters normally provided at least minimum subsistence for their slaves or other domestic animals they exploited. A rational master would no sooner let his slave or serf starve or fall ill than he would his horse. For a corporation however, individual employees are like drops water from a tap, to be turned on only when needed and only when it’s profitable to do so. Otherwise workers are free to live on air. Or go to jail for stealing. The capitalist free market treats ‘labor’ abstractly as one element of production, the other being ‘materials’ (the Earth). The market is utterly indifferent to the fate of either (considered as ‘externals’ to be thrown away). Thus the actual laborers being ‘free’ (unlike serfs or slaves) are effectively free to starve if we are unable to find a capitalist who can make a profit by employing them.
Indeed according to Marx, unemployment itself – the availability of a supply of idle, needy men, women and children obliged to sell their labor-power to survive from day to day – was a necessary pre-condition for capital to perform its profitable miracles. And globalized capitalism, by driving the peasantry of the Third World off the land and into mega-slums, created millions of new unemployed every year. Marx called this the maintenance of this ‘reserve army’ of unemployed workers capitalism’s ‘iron law.’ And the more the supply of labor (unemployed workers) exceeds demand (jobs), the cheaper becomes the price of labor-power. For example, an Indonesian seamstress, interviewed by Naomi Klein, must sell ten hours of sweated labor for two dollars a day, during which she stitches dozens of anoraks that sell in stores for a hundred dollars. The problem for capitalism is that as wages fall and joblessness rises and credit-cards max out, fewer and fewer people are able to pay for $100 anoraks even in the ‘rich’ countries. So why hire anyone to stitch them? Capital itself becomes a glut on the market. Hence the growth of speculative bubbles examined above.
From this obvious contradiction in the profit system, Marx derived his famous theory of the tendency for the rate of profit to decline – a theory which academic economists laughed at when the economy was growing and the mass of profits was rising. To be sure, the professional economists were apparently ‘right’ and the Marxists were ‘wrong’ during the extraordinary post-WWII period of economic growth. During those Thirty Glorious Years, the tendency for the rate of profit to decline remained just that, a tendency, invisible in the market place where the mass of profits was accumulating at an accelerated rate. But since the 1970s, increasing capitalist global competition has been led to lower and lower prices of manufactured goods, and the rate of profit, based on the amount of labor value added to each product, has been getting lower and lower. Moreover, according to Andrew Kliman, the academic economists who thought they had disproved empirically Marx’s theory of the ‘decline in the rate of profit’ made a fundamental methodological error in their calculations. They forgot to account for the slow decline in the value of a capitalist’s initial capital investment (factories, machines) through wear and obsolescence over a given production cycle, say a fiscal year.
Of course, Marx’s ‘decline in the rate of profit’ was only theorized as a general abstract tendency. In practice, manufacturers historically compensated for this hidden decline through economies of scale and through an every-increasing the volume of sales. The mass of profits kept growing even though the profit margins kept getting smaller. Take for example the prices of today’s more and more powerful new computers which quickly became obsolete and were discounted in stores and on the Internet after only a year or so on the market. In 2017, a $500 computer gave its purchaser twenty times the power she got ten years earlier with a $5000 computer. And with less and less money in consumers’ pockets and computer sales declining, the value of obsolete inventory kept shrinking and outlets and manufacturers were shutting down or laying off salespeople in a diminishing cycle that kept repeating itself as wages declined and unemployment grew due to automation and the globalized ‘race to the bottom’ toward emerging countries with cheap labor power.
So much for Marxist theory. But if the system was fundamentally contradictory from the start, how come it worked so well for all these years? In other words, why didn’t capitalism collapse earlier, as had been hoped by generations of socialists?
To begin with, in the 19th Century, there were frequent and prolonged crises, with as many years of bust as there were boom years. Moreover, the world economy actually did collapse following the crash of 1929, and most economists today are agreed that it was not Roosevelt’s New Deal but WWII arms production that got the U.S. out of the last Depression. Capitalism thrives on war, and WWII destroyed vast amounts of previously existing wealth. As the result of this ‘creative destruction,’ the endemic plagues of over-production and excess capital were not a problem during capital’s ‘glorious’ thirty-year post-War recovery.
But by the late 1960s, the defeated Axis powers, Japan and Germany, having rebuilt their industries using the latest technology, were once again serious capitalist competitors for U.S. manufacturers, and the race to the bottom began again, leading to major recessions in 1973 and 1981. Capital’s response in the ‘80s was to squeeze more value out of its employees in order to keep up the rate of profit. Thatcher and Reagan tore up the post-war social contract, declared class war on labor unions, shredded the social safety net, and privatized everything in sight. As a result, wages stagnated for the next 25 years, while corporate salaries and profits soared. Yet recession struck again in 1989-90 and 2001. Meanwhile, capitalist competition had become truly global with the arrival in the market place of the Asian Tigers and a 900-pound gorilla named China spewing out mass quantities of ever-cheaper manufactured goods and scouring the globe for new markets and new sources of raw materials.
For this newly globalised capitalism to thrive, the aggregate mass of profits had to keep growing, whatever the human or ecological cost. One solution was to appropriate new values from outside the system. Through outright government intervention (under IFM and World Bank pressure) profit-hungry banks and multinational corporations were able to expropriate and or privatize much of the world’s wealth which still held in common by indigenous communities in the Third World, by so-called socialist collectives in the ex-Communist Second World and by public institutions in the First. Through these ‘new enclosures’ everything held in common from forests and oceans to ideas, transportation and healthcare, cultural practices and the genetic codes of life itself was transformed into merchandise to be bought and sold for profit. Bourgeois civilization, once the bearer of enlightenment, regressed to barbarism. Africa was stripped of its gold, diamonds, oil and precious ores leaving its peoples in a chaos of famine, rape and civil war. Huge fortunes were made, yet markets still remained unstable with currency crashes, regional crises and major countries like Argentina going bankrupt.
By the turn of the 21st century, according to world-systems theorist Immanuel Wallerstein, who studied the economic ‘long waves’ of history at the Braudel Institute, capitalism had finally reached its global limits after a life-cycle of 500 years. From the time of its birth in Europe – roughly since 1492 and the discovery of gold and silver in the Americas – capitalism had kept itself profitable over the centuries by expanding into the non-capitalist areas of the planet, enclosing what was previously held in common and searching out new markets and new sources of cheap labor. Yet after the globalization of the 90’s, even these new world markets were becoming more and more saturated. Capital itself had become a glut, and there were no new continents to exploit or new forms of natural wealth to be profitably extracted from the half-ruined global environment. Capitalism had expanded to the earth’s limits and industrialized to the point where one of the 20th century’s poorest and most backward country, China, became the principal competitor to the U.S, the world’s richest and most modern. Thus, less wealth was coming into the world capitalist market from outside the system; hence the 21st century feeding frenzy to gobble up the last surviving stands of rain forest, the last surviving schools of ocean fish, the last reserves of fossil fuels without regard to the obvious environmental consequences.
Let us recall that the 19th century, the period of capitalism’s greatest growth, was also a period of relative international peace. But by the 1890s, competition among British, French and late-blooming German capitalism for new colonies and markets had become fierce, precipitating an imperialist World War of unprecedented duration (1914-1918) and savagery which signaled the end of capitalism’s progressive era. ‘We now know that civilizations are mortal,’ wrote French poet Paul Valéry. ‘Socialism or Barbarism,’ wrote the revolutionary Rosa Luxemburg. During 1917-1919 a wave revolutions spread from Russia across Germany and Hungary and threatened capitalism’s world hegemony. But the new industrial giants, America and Japan, saved the day for international capitalism and turned back the red tide, leaving economically backward Soviet Russia to degenerate in isolation. This impasse set the stage for the Great Depression, the rise of fascism and the outbreak of another imperialist World War – this one truly global and even more barbarous than the First. In turn, the destruction by massive aeriel bombardment of huge amounts of productive capital during WWII paved the way for the postwar ‘economic miracle’ led by the defeated Axis powers Germany and Japan. Economically speaking, the losers were the winners.
As we have seen, growthmanship – the competition-driven race for increased economic growth – leads mathematically to global overproduction and eventually to global conflict, up to and including war. The perennial problem for capitalist corporations is how to stimulate what bourgeois economists call ‘effective demand.’ In other words, how to find people with money in their pockets to buy, and more importantly, to pay for all the unnecessary shit they manufacture with the single purpose of making a profit ? In Marxist terms, the problem is defined as how to ‘realize’ (i.e. cash in on) the ‘surplus value’ (unpaid labor) embodied in the surplus products constantly thrown onto the world market.
The classic capitalist solution to this problem had been expansion into the non-capitalist world, but with the globalization of the ‘90s this expansionism reached it geographical limits with China and India transformed from prey into capitalist tigers, and no place left for expansion and growth other than outer space. So how did capitalism solve the problem of ‘effective demand’ in order to ‘realize’ the surplus value embodied in commodities and make it profitable ? Post-war capitalism came up with three main ways to get us consumers and taxpayers to pay for all this stuff we don’t need and can’t afford: war production, advertising and credit.
Let’s start with war production, also known as ‘military Keynesianism’ – an ironic reference to the progressive 1930s economist who advocated major government spending on public works like bridges and highways as a solution to recession. As early as 1960, outgoing Republican President and former WWII Allied Commander Dwight Eisenhower, no peacenik he, sounded a solemn warning that a ‘military-industrial complex’ (MIC) was taking over the government and the economy. Under Obama, the official military budget – not including the un-counted pieces of it stashed among other agencies like Homeland Security, the CIA, the Energy Department, and the State Department – amounted to nearly a quarter of federal expenditures, more like a third if we include the interest on the debt produced by the ‘Three Trillion Dollar War’ in Iraq (also not included in the official military budget presented to Congress). After 2016, with bellicose America-firster Trump in the White house surrounded by generals, these profits increased expotentially as did the influence of the MIC and the global petroleum interests it defended.
From a capitalist viewpoint government-financed war production is a great business for the corporations like Grumman, Boeing, and Halliburton. They benefited from ‘cost-plus contracts’ and massive ‘cost over-runs.’ In Marxist terms, the ‘means of destruction’ (tanks, guns planes, etc) are ideal commodities for realizing surplus value. No matter how many bombs the weapons corporations manufactured, there was no problem of ‘overproduction’ because the market was virtually limitless. Surplus arms could also be exported and sold to U.S.-friendly kings and dictators who needed them to repress their subjects or invade their neighbors. The U.S. lavished ‘foreign aid’ (at tax-payer expense) on these despots, and most of the money came right back to the U.S. in arms purchases. Once sold, the weapons either went ‘bang’ or beco-ame obsolete; in either case, they had to be replaced. Even foreign competition (the arms race) was a boon, rather than a threat, because it justified constant increases in peacetime military spending. In any case, the military contractors had a revolving-door relationship with the brass in the Pentagon, who allowed them to overcharge shamelessly and further boost their rate of profit. To be sure, in 1989 the end of the forty-year Cold War arms race with the Soviet superpower did pose a small problem for the military lobby. (There was the promise of a ‘peace dividend’ earmarked for increased spending on public goods). But new ‘threats’ like drugs and terrorism were soon mobilized to replace the threat of Communism and justify endless profitable wars.
Bush II’s Iraqi War alone cost us tax-payers an estimated three trillion dollars. How much of that mind-boggling sum ended up as profits for the stockholders of Halliburton, Blackwater, Brown & Root, MacDonnell-Douglas and the rest of the war-profiteering cost-overrun contractors? A trillion? No wonder there was no money left for body armor for the troops or veterans’ benefits for the wounded. The pubic, outraged, Mr. Obama, who promised withdraw our troops – many of them reservists serving their second, third or even fourth tour of duty – from the Iraqi quagmire. Only later did votes realize that he was sending them into an even deeper quagmire in Afghanistan. Under Trump, things went from bad to worse with the U.S. engaged in endess wars in Africa and military contractors thriving.
One reason the public lets the military-industrial complex got away with this boondoggle is that most people’s eyes fogged over when they saw all those zeros. The sums involved are literally mind-boggling. Did three trillion 2017 dollars mean $3, 000, 000, 000, 000? Or merely $3, 000, 000, 000? The devil was in all those zeros, and the difference between millions, billions and trillions can confuse you, as it did the taxpaper of the early 21st century. Here’s how to keep them straight. According to a math-for-dummies book entitled Innumeracy, a million seconds in time add up to about 12 days. A billion seconds, on the other hand, equal nearly 32 years or half a lifetime. As for a trillion seconds, that makes 32 thousand years, which would take us back to the early Stone Age (or to 27 thousand years before the Creation if you don’t believe in Evolution). If the three trillion dollars spent on the Iraqi war were seconds, they would stretch back in time to before the emergence of the first modern humans.
Now let’s review: A million=12 days; a billion=32 years; a trillion= Back to the Stone Age. It was hard for the public to remember these differences of scale as the latest budget figures flickered over their TV screens.
A word about taxes. By the early 21st century, the once ‘graduated’ income tax had been stood on its head. Thanks to loopholes, massive tax cuts for the super-rich, off-shore tax-havens, and ‘corporate welfare’ in the form of government incentives and bailouts, many corporations and wealthy individuals payed zero net taxes. Moreover, IRS investigative and enforcement personnel have been drastically cut back, and the remaining inspectors are too busy to mount elaborate cases against the complicated tax-dodges of billion-dollar corporations. Trillions of corporate taxes went uncollected, while inspectors concentrated on individual taxpayers’ ‘do-able’ cases like tracking down waitress’ unreported tips and teachers’ home office exemptions.
As a result, what they used to call the ‘working middle class’ (and the Marxists called ‘the proletariat’) with its small and shrinking share of the national wealth, payed an astounding 85% of the nation’s taxes in 2009. This figure increased in 2017 after the major cuts in corporate taxes under Trump. Thus, in macro-economic terms, military spending was an indirect transfer of wealth from the poor (employees) to the rich (owners) via government intervention. Another miracle of the American free enterprise system! Moreover, as we have seen the enormous portion of the total national capital invested in government-financed military production was sheltered from the normal capitalist plague of overproduction and shrinking markets. Its rate of profit was correspondingly high, which helped raise the overall capitalist average. Moreover, military products were not only profitable, they were useful in defending corporate interests abroad and for putting down the rabble at home when they finally got wise to the corporate scam and started fighting back. Thus, for nearly a century, military Keynesianism helped stave off capitalist collapse by absorbing a huge share of the nation’s excess industrial production at taxpayer expense, in effect transferring wealth from the bottom of the economic pyramid to the top. And military spending was only the first of capitalism’s post-WWII world war tricks, which also included advertising, consumer glut and credit.
We now look at how advertising helped prolong capitalism’s continuing vampire after-life. Conceived by the most subtle psychologists and sociologists, designed and produced by the most talented and highest paid writers and artists, incessantly beamed at the public through media that celebrate consumerism, modern advertising created a culture in which people’s sense of status depended less on what they really were than on the commodities they wore, ate, drank, or drove. Although it is based on competition between rival brands, all advertising is objectively ‘capitalist propaganda’ – that is to say propaganda in favor of consumer capitalism. This is not a ‘crude Marxist caricature.’ ‘Propaganda’ was the precise word used in 1928 by Edward Bernays, the genius of modern advertising, who considered it ‘necessary in a democratic society’ and invented a new name for it: ‘public relations.’
Old-style Russian Communist propaganda was easy enough to recognize (from the outside). It glorified the state, presented an heroic picture of happy workers, and blared its message out of tinny loudspeakers on nearly every corner. Capitalist propaganda was even more pervasive and harder to recognize (from the inside). Yet every day the capitalist message – ‘buy!’ – blares out at us through high-tech speakers of TVs and car radios. With product placement, the medium is the message. Standardized commercial entertainments are everywhere replacing participatory activities like dancing, bowling, music-making, amateur sport, story-telling, reading and conversation, leaving a cultural void to be filled through consumption.
Basically, advertising aimed at making people feel insecure unless they bought more disposable objects than we could afford or even use. More than 50% of U.S. consumer production ended up as garbage within one year of its purchase. Indeed, in that throwaway economy, waste products became the leading U.S. export – second only to armaments. It turned out there was more surplus value embodied in the throwaway plastic container than there was in the sandwich inside, and that’s where the corporate profit came from. Garbage glut was another of post-war capitalism’s ruses for avoiding the consequences of overproduction.
Postwar advertising and marketing in the U.S. were successful in creating new internal markets up through the ‘70s. They got lots of people wanting to buy things they never knew they couldn’t do without. But with downsizing, union-busting, automation, rising prices and stagnating wages, people no longer had the cash. No problem: capitalism had an answer. ‘Can’t afford that new car? Don’t worry. You don’t have to pay for it … now. Step right over to our Credit Department. That smiley gentleman in the sharkskin suit is waiting to take care of you. What our brilliantly creative advertising department has cleverly seduced you into buying, Mr. Loanshark in our friendly credit department will cheerfully help you pay over time for a small monthly fee. No need to read all that teensy little fine print at the bottom where it says ‘interest annualizes at an average of 31.6%. . . .’
All through the roaring ‘80s and beyond, financialized U.S. capital gorged on double-dip profits, making people work for less and loaning them money at interest to keep consuming. Thanks to Our Mr. Loanshark it was another win/win situation for the capitalists, who convinced themselves that this debt-fueled economy could go on forever and that ‘overproduction’ was a Marxist myth. So let’s take look at credit, or rather at its dark twin, debt. It’s a subject that makes everybody cringe, so let’s start with a simple definition: under capitalism ‘debt’ means ‘bank profits’. The more the banks lend, the richer they get. And thanks to the ‘miracle of compound interest,’ bank profits pile up quickly and soon overtake ‘principle’ (the original amount people need to borrow). If they had trouble paying, Mr. Loanshark would happily offer them new loans to ‘consolidate’ their previous obligations and spread them over time, thus multiplying their debt obligation. As long as the payments keep coming in, and ballooning, the loansharks and mega-banks didn’t care if they ever got their principle back. (The same principle applied to the IMF/World Bank-imposed debts of the so-called developing nations).
In 2010, in order to close any possible escape for small debtors, Congress, while bailing out the speculators, ‘reformed’ personal bankruptcy. This meant that the finance companies could now attach peoples’ salary indefinitely so that they actually ended up working for them. This practice used to be known as ‘debt peonage,’ and was illegal in many states. As economist Joseph Steiglitz explained, if you go broke the lenders can garnish 25% of your salary, while still charging you 30% interest so that you never get out of debt. On the global scale, many ‘developing’ nations ended up in debt peonage, paying out more than half their annual GNP year after year in debt service to international banks. As for the national debt in the U.S., the first five and a half months of the annual taxes deducted from ordinary salaried workers’ paychecks went directly into paying off the interest. In other words, bank profits account for all peoples’ taxes from January to mid-June, after which they started paying for such ‘extras’ as the Army, the government and a few social services. So whenever you hear the word ‘debt,’ just keep reciting this mantra: ‘debt means bank profits, debt means bank profits, debt means bank profits. . .’
Thus, while for the wealthy the Millenium was a Gilded Age, the little people down below were all working harder and harder (those who hadn’t already been downsized) to support the banking, insurance and finance industry (billionaire speculators and institutional loan sharks). These financial wizards kept the mass of profits artificially high by lending out the same money several times over, piling risk upon risk through derivatives. Their gamut of slick financial products ran from common credit card debt (stimulating consumption while piling up vastly profitable interest) to homeowner debt, bank debt, student debt, leveraged buyout debt, corporate debt, ‘sovereign’ (government) debt and to opaque financial products like toxic mortgage-backed securities and credit-default swaps.
By 2007, the U.S. financial sector had grown to 1.8 times the size of the manufacturing sector. The economy was like an inverted pyramid of debt (keep thinking ‘bank profits’) precariously balanced on a narrowing tip of actual productive economic activity. Every leveraged buyout meant that a company’s employees had to produce not just a regular annual profit of 5% or 10% for the original stockholders, but another 5% or 10% on top of that to pay off the financial corporations who had become the new owners. Imagine a tiny worker ant struggling to drag food back to the nest with a big fat drone of a banker-ant riding on its back.
In 2008, the credit bubble popped, leaving millions of Americans high and dry with half-empty retirement funds, homes worth less than the outstanding mortgage, shuttered businesses and no jobs. As we have seen, the principal effect of the Great Bailout was to transform accumulated capitalist debt into taxpayer debt. Debts to be repaid by all those little people who used to have productive jobs. And since the ‘reform’ of personal bankruptcy laws, debtors will had to keep paying installments indefinitely on their educations, cars and houses, even after they have been forced to sell them at a loss. Apparently the Crash of 2008 was caused by their fecklessness. According to the Times in 2008: “A growing chorus in conservative circles is trying to shift the blame for the current crisis to the poor and advocates for the poor.” In any case, having been reliquidified at public expense in order to get them lending again, the big banks have raised interest on consumer credit cards to new heights – up to 33% annualized. Even Barak Obama ‘the Banker’s Friend’ has been obliged to sternly scold them (if not actually to regulate them).
As we have seen, by capitalism, vigorous and progressive in the 19th Century, was already decadent by the early 20th. It was already financialized, monopolized, and dependant on colonial expansion in 1914, when its imperialist rivalries exploded into the first of two World Wars whose barbarism – applying capitalist mass production methods to the destruction of civilian facilities and populations – arguably surpassed that of Attila the Hun. Between the two global holocausts, capitalism engendered the first true world-wide depression, which hit Europe long before it affected the U.S. and engendered state-capitalist ‘solutions’ as varied as Roosevelt’s New Deal, Stalin’s Five Year Plan and Hitler’s Thousand-Year Reich.
Capitalism sprung back to life during the glorious thirty-year period of post-WWII reconstruction with its social contract with labor, but faltered again in the early ‘70s with low growth, stagflation and oil shocks. In the ‘80s, neo-liberal capitalism began successfully waging a one-sided class war against labor, tearing up the social contract, downsizing, and outsourcing to the Third World producing a net up-flow of wealth in the form of increased inequality both between rich and poor nations and rich and poor within each nation. If the official Left and most workers no longer talked about ‘class consciousness,’ the capitalists had no such qualms. When it came to breaking unions or eliminating social services they know which side they were on. ‘The unacknowledged Marxism of the enemies of Marxism,’ Victor Serge called it. Thus, despite increasingly frequent financial shocks, neo-liberal capitalism was able to overcome the underlying tendency for the rate of profit to decline by increasing the mass of profits thanks to continued automation, penetration of new markets (globalization), military spending, advertising-driven consumerism, credit, and speculation. But all such expedients had their limit. To use a bit of slang from the period, ‘the shit hit the fan’ in 2008.
For a century and a half Marxists and socialists had closely followed capitalism’s boom and bust cycles while dreaming of capitalism’s ‘final’ collapse – a debacle which they supposed would usher in the New Society – a commonwealth organized for mutual aide and cooperation as opposed to competition and profit. From the 1860’s on Marx’s friend and collaborator Friedrich Engels fondly imagined a revolution arising every time the London stock exchange went bust, he and would get himself ready to man the barricades as he had during the Revolution of 1848. But these were revolutionary pipe dreams. In his major work Capital Vol. I, Marx made it very clear that his theoretical model was meant to apply only to a ‘single,’ ‘closed’ capitalist society, abstracted from international trade. It followed that British and European capitalism were in no danger of internal collapse as long as they could keep expanding into Africa, Asia and the Americas and as long as they continued to reap imperialist super-profits through unequal treaties, dumping of excess production or outright plunder abroad.
Only when capitalism was fully developed on the world scale, that is to say only when globalized capitalism could be treated as a ‘single’ or ‘closed capitalist society,’ would Marx’s internal crisis theory actually apply. Heretofore, overproduction, mass unemployment and the resultant decline in the rate of profit had only been tendencies. They could be and were countered by other tendenies: the constant increase in the mass of profits through colonial expansion and imperial plunder. By 2017, with China, India and Brazil looming as major capitalist competitors that day arrived. For the first time in history, world capitalism’s ultimate collapse had become theoretically possible from a strict Marxist perspective.
Henceforth, neither bailouts nor re-regulation nor even nationalization of banks and industries in themselves were able to bring recovery since the problem was systemic. Even in the 20th centjury, neither Roosevelt’s New Deal nor France’s state-managed economy were able to overcome capitalism’s contradictions. Bureaucratic state capitalism was tried for 70 years in the U.S.S.R. under the name of ‘Communism’ and ultimately failed. Despite totalitarian political controls, the Russian command economy, destabilized by inefficiency and undermined by class conflicts, eventually collapsed. Nationalization was beside the point because the systemic cause of capitalism’s crisis is not lack of government regulations but, as we have seen, global economic inequality, and that kept increasing. By the Millenium, hitherto unheard of wealth was piling up in the world’s financial centers while the ‘industrial reserve army’ of unemployed (that Marx considered the hallmark of capitalism as opposed to earlier systems of exploitation) was now estimated at two billion around the planet living on a dollar or less. Billions vs. billionaires, what could be simpler?
Meanwhile, global capitalism, although teetering on the brink, continued to outlive itself thanks to the expedients that kept it profitable since the 1950’s: global expansion (now at a limit), war production, wasteful consumerism, speculation, and debt (say it one more time, kids: ‘bank profits’). The latest innovation in this field, as we have seen, is ghoulish speculation on the debt of whole national economies teetering on the brink of bankruptcy. There were even ‘Vulture Capitalists’ who buy up the already forgiven debt certificates of countries like Liberia, Greece or Puerto Rico for pennies and then successfully sue for payment in U.S. courts and end up with millions. Capitalism, decadent and destructive since 1914, reeked with the stench of death. How could such inner rot not lead to collapse? Even the capitalists themselves were betting on their own destruction. By then, capitalist society was definitely sick, indeed moribund. Capitalist imperialism was addicted to oil, addicted to gambling (dependence on speculative bubbles to keep up its rate of profit) and addicted to violence (domination by the military-industrial-prison complex). It was like a senile miser who is in denial of his own death and who piles up hordes of riches, marries ever-younger bimbos, and disinherits his children. Capitalism was knowingly destroying the planet’s environment in a last orgy of plunder. If the system was not overthrown in time, the children of the 21st century Billionaires would have inherited a climate holocaust. Since by then there was clearly no cure for global ecoside under capitalism, existentially speaking capitalism’s terminal crisis had already begun. Metaphorically, decadant, over-ripe capitalism was like a cancer which has metasticized. Financially, it was eating off itself in an uncontrolled multiplication of paper profits. Materially, capitalism’s cancer was rapidly spreading through the body of its host, the earth, replacing its healthy tissue with lifeless commodities, devouring the biosphere, snuffing out its life. If capitalism were a literal cancer, the oncologists would not have hesitated to prognosticate its terminal crisis. The ruling class had no collective vision. Global capitalism’s leaders – the likes of Trump, Putin, and FRENCH – were grotesque clowns compared to 20th century statesmen like Roosevelt, Churchill, Stalin, De Gaulle. According Immanuel Wallerstein, global capitalism has apparently reached the end of its 500-year historical cycle of birth (1492), growth and death. Having reached its limits as a global productive system, 21st Century capitalism was returning to its 1492 methods of ‘primitive accumulation:’ plunder, debt slavery, usury and other regressive forms of appropriating wealth. More than ever, the alternatives were socialism or barbarism – high-tech, market-driven barbarism, a mechanical monster without a heart that kills at a distance via drones and toxic mudslides. It took a global mass movement of ‘billions’ against ‘billionaires’ to overthrow it from within and replace it with a saner, more peaceful, cooperative, earth-friendly society.
In 2008, scientists began reporting that the arctic glaciers and frozen tundra were rapidly melting, releasing mega-tons of methane – a greenhouse gas twenty times more dangerous than CO2. Worse still, all that brilliant white ice and snow that used to reflect the sun’s heat back into space was melting, exposing brown and green earth that absorbs solar heat – thus raising the earth’s temperature and causing more ice and snow to melt melting – a classic vicious cycle. Another accelerating vicious cycle is caused by an overheated atmosphere warming the very oceans that normally cool it. Obviously, these vicious cycles reinforced and accelerated each other in horrific synergy.
Yet capitalism’s only solution to the climate crisis was to bail out the auto industry (rather than build mass transit), burn more allegedly ‘clean’ coal (rather than going solar), to build new nuclear generators (as the old ones explode) and to institute pro-business ‘cap and trade’ credits which financed fiscal flummery (rather than effecting controls). The failure of the December 2009 Copenhagen and the 2017 Paris climate summitd indicated that none of the major capitalist governments had the slightest intention of damaging its competitive economic advantage by enforcing even the mildest limits on CO2 emissions. It was said in 1914 that the only choices left for humanity were ‘socialism’ or ‘barbarism.’ A century later, after two world wars and countless massacres, the choices were ‘ecosocialism’ or ‘eco-suicide.’
Humanity thus entered a phase of titanic social struggles – akin to the ‘final conflict’ evoked in the chorus of the traditional workers anthem, the Internationale. The first rumblings were already heard in food riots in Asia, Left governments and popular movements in Latin America, youth uprisings in Greece, a general strike in Guadaloupe and Martinique, organized resistance to plant closings and foreclosure evictions in the U.S., a new global Climate Justice movement in the wake of the Copenhagen and Paris fiascos, rolling rebellions of the Arab youth, women and workers. By demanding justice and equality, these class struggles carried within them the only true solution to capitalism’s endemic crisis of boom and bust, overproduction and unemployment, obscene wealth and desperate poverty.
Capitalism had long been ripe for replacement. What made the difference was this: the growing consciousness that to succeed, future struggles would have to be international. There was no other way to beat the globalized capitalist banks and multi-national corporations. People linked up in world-wide networks and learned to act locally, but think globally. The multinationals were past masters at pitting one group of workers against another and delocalising to avoid paying a decent wage, at playing ‘race’ against ‘race’ and nationality against nationality. For the employee class, it was either global unity or the race to the bottom. The worker socialist movement had a long tradition of international solidarity. It began in 1848 with the slogan ‘working people of all countries unite,’ but this unity was not possible to coordinate in practice and every where local revolts were isolated and overwhelmed. In the 21st century, with modern communications technology (Internet), working people were finally able organize global strikes and boycotts against corporations like Monsanto in real time and bring capitalism to its knees. The century-and-a-half-old dream thus become a practical reality.