By Allen Myers
Karl Marx's analysis of how capitalist economies operate has never been popular with newspaper owners, other capitalists or the politicians who serve them. This remains the case even when they have to make use of his insights, usually toned down and dressed up by academic economists.
After the collapse of the "communist" regimes in eastern Europe and the Soviet Union, triumphant capitalism declared Marxism as extinct as the dinosaurs. "Socialism doesn't work", declared capitalists, editorial writers and university lecturers nearly everywhere. The spectre of Karl Marx no longer haunted capital — or so they claimed.
In fact, the triumphalism began to be replaced by nervousness a year ago, as the "currency crisis" began spreading through east Asia.
And last week, the currency of the new free market Russia collapsed in a heap; the Russian government added injury to insult by defaulting on tens of billions of dollars in debts to western banks. It has become hard even for the most conservative newspapers to deny what millions of Russians have discovered: although what they had in the last years of the Soviet Union contained little socialism, it "worked" far better than its replacement.
'Meltdown'
"WORLD MELTDOWN", declared the front page of the Sydney Morning Herald in three-centimetre high letters on August 29. If that was a bit sensationalistic, still it was a day for setting records: an all-time low for the Australian dollar; an 18-year low for the price of gold; the Tokyo stock market at its lowest level since 1986; primary commodities at a 21-year low; and a drop of 357 points — the third greatest points fall ever — in the Dow Jones Wall Street stock index.
On the next trading day, Monday, August 31, the Dow Jones dropped 512 points, its second greatest points drop ever, larger even than during the October 1987 crash.
The Herald's lead article quoted David Corby, chief economist for National Mutual: "We think the world will have the biggest recession since the 1930s and will go negative [i.e., output will decline] for the first time since the Great Depression. For Australia that means we have to have a recession."
Marx's economics is back, with a vengeance. What can it tell us about the present situation?
Harmony and conflict
Before Marx, most economists regarded capitalism as a fundamentally harmonious system. In the words of Adam Smith, the market was like "an invisible hand", arranging things so that individuals, pursuing their own self-interest, contributed to the well-being of the whole society, without intending this result, or even being aware of it.
For Marx, Smith's view was a short-lived illusion, one that could be maintained only during a brief period of capitalism's youth, when it represented the general social interest against the preceding feudal order.
Far from being harmonious, capitalism is a system seething with conflict and contradiction — conflict between classes (in the first place, between workers and capitalists, but also involving, to varying degrees in different countries, other classes: landowners, peasants or farmers, petty bourgeoisie), and conflict within classes, especially the competition between capitalists.
One of the most fundamental contradictions of capitalism, Marx stressed, is that society's productive activities are not determined by what goods people need. Instead, decisions on production are made by capitalists, according to what they think will be profitable. This may meet some of the needs of some of the population, but it certainly doesn't tend towards meeting all the needs of the entire population.
Capitalism — contrary to Smith's assumption of general harmony — has winners and losers. The losers are a large and continually growing majority.
A second key point is that capitalism is, by its nature, unplanned. It can't be planned because it is based upon competition, between classes and within classes, to determine who the winners and losers are.
Boom and bust
Because of its unplanned and contradictory character, capitalist economy tends to proceed in zigs and zags, ups and downs, as competing forces act and react against each other.
In order to maximise profits, capitalists seek to produce the greatest value of product at the lowest possible price. This means that, in total, they tend to produce too much, as each capitalist firm tries to seize a larger share of the market.
The drive for profits — and therefore to keep wages low — also means that the purchasing power of the final consumers (mainly working people) constantly tends to lag behind the value of production.
These and other contradictions that cannot be explored here lead to the well-known "boom and bust" cycle of capitalism.
When profits are good and expected to continue, the economy may spiral upward: to make the most of the opportunity, capitalists reinvest their profits in expanding production; this results in more jobs, more consumer spending and hence more profits, which can lead to another round of expansion.
But at some point, this expanded production outruns the ability or willingness of the market to buy it. Then a reverse cycle sets in: capitalists reduce production, which involves sacking workers, which leads to a reduction of the market and requires further cuts in production. Because they have produced "too much" (more than capitalists can sell profitably), workers are deprived of jobs and the goods they have produced.
Particularly when failing companies owe large amounts of money to other capitalists (including banks), the reverse cycle can involve a sudden crash.
(This is why there is little comfort in the figures showing higher than expected growth in the Australian economy in the June quarter. If an international crunch hits, it will only mean that Australia has further to fall.)
'Fixing' the economy
For most of the 20th century, capitalist governments and economists have tried to find ways to convert the ups and downs of the business cycle into smooth, harmonious progress — or, failing that, to make the ups and downs less extreme.
That various schools continually follow each other in government favour — Keynesianism, monetarism, neo-liberalism and numerous other lesser isms — indicates their lack of fundamental success.
This failure is easily explained. The business cycle cannot be done away with except by doing away with capitalism — and that is not the intention of capitalist governments. Hence their economic programs are limited to attacking particular aspects of the business cycle.
Sometimes the measures selected are desirable in themselves — the dole or unemployment insurance to provide unemployed workers with some income, for example. They may even succeed partially, for a time, in their intended "macro-economic" effects: providing unemployed workers with some income may prevent overproduction being as great as it would otherwise be.
But fundamentally, government economists are in the position of doctors who are instructed to cure a patient, but are limited to applying heat when the patient's temperature drops and cool water when it rises, without being allowed to treat the causes of an illness, and without realising that some temperature fluctuations are perfectly normal in a healthy human being.
To the extent that governments "succeed" in modifying some unpleasant feature of the business cycle, they increase some other problem.
Keynesianism, for example, was regarded as a sure-fire recipe for preventing serious recessions. Yet in so far as it moderated recessions, it caused an increase of inflation, which, with the passage of time, itself began to cause the normal "boom" to be replaced by stagnation.
Monetarism became the new cure-all against inflation, but was discovered to cause longer and deeper recessions.
Speculation
The wild gyrations in currency exchange rates over the past year are a symptom of international chronic overproduction.
Because markets are oversupplied, capitalists have to find new areas in which to reinvest profits. So there are abrupt flows of investment that come close to gambling: building office blocks in Bangkok or breweries in China mainly in the hope that they can be sold before it becomes obvious that there is little real demand for them.
Large amounts of money flowing in and out of countries produce big swings in exchange rates, even when they are not directly engaged in currency speculation.
For the last few years, large amounts of international speculative capital have been flowing into Wall Street, driving a rise in the US stock market averaging around 20% a year — a rate well beyond increases in the profits of the firms whose stocks have been rising.
The US government has followed a policy of keeping the US dollar's exchange rate high in order draw in foreign funds to support the stock market.
The high level of Wall Street has encouraged consumption spending. While this initially reduces stocks of unsold goods, it may also have encouraged additional production, thus increasing overproduction in the longer term.
The sharp drops in the US share market on August 28 and 31, even if they do not lead to further falls, are a sign that the market cannot continue the rise of recent years.
If this change leads to a recession in the US, a worldwide recession would likely follow, since the Japanese economy is already stuck in its deepest slump in half a century.
Winners and losers
Competition and conflict exist at all times in capitalist economies, but in times of recession, they intensify. Capitalists everywhere are taking steps to ensure that they remain the winners in harsher times.
Austerity programs — involving big increases in the number of people living in poverty — are being imposed on Thailand, Indonesia, South Korea and other Third World countries whose currencies and economies are in decline. The aim is to ensure payment of debts to imperialist banks, while multinationals buy up local businesses at bargain prices.
"Rescue plans" for economies, whether in the Third World or in developed countries, are schemes for working people, through their taxes, to make good the losses of capitalists.
A good illustration of this is the current effort of the Japanese government to rescue the Long Term Credit Bank, which has massive "problem loans" — that is, it has loaned money to companies that now may not be able to pay. In the process of merging the LTCB with another bank, the government is preparing to give it more than $6 billion. "Some analysts", according to the Financial Review, say the eventual handout will have to be three times as large as that.
In Australia, the same goal, ensuring that capitalists remain the winners, is behind the attempted privatisation of profitable businesses like Telstra and state electric power industries, the shifting of taxes from rich to poor (with a GST, you can pay tax even when you no longer have a job) and legislation that restricts the ability of workers to organise to defend their interests.
The government of course claims that such measures are "good for the country". It also tells us that Adam Smith was right, that the "free market" harmonises everything for the good of all. And, for good measure, it tells us there won't be an international recession because John Howard says so.
However, real capitalism is the system described by Karl Marx, not by Adam Smith. If workers want to make themselves winners, they have to take on and defeat that system.