The Political Economy of the Current Crisis and the rebirth of Socialism in the 21st Century

The Political Economy of the Current Crisis
and the rebirth of Socialism in the 21st Century by Nickglais

Capitalist crisis is not new and has been around since the first general crisis of the capitalist system in Britain in 1825. This first general crisis of capitalism in Britain was a source of study by Marx and Engels and their study of capitalist crisis contributed to the creation of Marxism and a new political economy.

Already Engels wrote in 1877

"We have now since the year 1825, gone through this five times and at the present moment (1877) we are going throught it gain for the sixth time. (Crisies ocurred in 1825, 1836, 1847,1857, and 1866)

Engels - Socialism Utopian and Scientific

There have been numerous capitalist crisis ever since, some severe like the 1929/1930's and some milder, but our task today is to locate the origin of the current crisis to make some an estimate of its depth and impending severity and try to bring forth appropriate responses from working people that will lead to revolutionary transformation of the existing economic system of capitalism to socialism because the continuation of capitalism as a world system into the middle decades of the 21st Century has the very high probability of jepardizing human life on this planet has the economic crisis and the ecological merge into the same problem if they have not already sychronised and become the same.

Background to Current Crisis

At one level a capitalist crisis is a contradiction between the forces and relations of production but we need to go beyond the general level to explain the crisis of capitalist accumulation in a specific case like the current crisis and how the crisis of over accumulation has come about.

There is a debate about the rate of profit and its role in the real economy with many Marxist Economists stating that it has risen due to the neo liberal changes of last forty years, this is the position of Fred Moseley writing in International Socialism who sees this crisis as a Minsky ( neo Keynesian ) crisis or financial crisis rather than a Marxist crisis of the system as a whole.

I would like to draw your attention to the innovative work of Andrew Kliman (1) who demonstrates that those who have claimed a rise in profits have measured it in the wrong way and if Marx's method is followed there has been a long term decline in the rate of profit in the real economy which is why all the speculation of the last decades. Andrew Kliman see's the current crisis as systemic starting in the real economy and not localised to the financial sector.

One of the questions underlying this paper is it possible to postpone a crisis in profitability through credit and neoliberal trade policies ?

The immediate background to this crisis is that of the last major crisis of capitalism in the 1970's when the Post War Keynesian solution to capitalism's problems broke down.

The failure of Keynesian policies to deal with the simultaneous inflation and stagnation of the 1970s-stagflation- basically put an end to Keynesianism as theory, except among ideologues desperate for a progressive alternative to socialism.

Whilst many of us in the 1970's put forward socialism has an alternative to failed Keynesianism we did so in an environment where a crisis in Socialism was emerging consequent upon the rise of modern revisionism which started to use markets in a so called"technical manner" which undermined socialist planning via the route of so called market socialist economy and wrongly -applied the capitalist law of value to Socialist economies.

It was at this strategic moment of confusion in Socialism , that the well funded neo liberal think tanks swung into action to win over the political elites for their alternative to Keynesian and Socialist solutions to the capitalist crisis.

The post coup Chilean economy proved their laboratory read David Harvey and Naomi Klein for all the details in "Brief History of Neoliberalism" and "Disaster Capitalism" respectively..

Reaganism and Thatcherism combined the old Hayekian, Von Mises anti socialist political economy updated by the mathematics of Milton Friedman into mainstream politics from its oddball status of the 1950's and 1960's so that by the end of the 1970's and during the 1980's.it was the dominant economic ideology.

The new neo liberal solution allowed for the reconstitution of capitalist class power that had become eroded due to working class organisational strength and what followed was a massive expansion of the financial sector which was promoted by the state with industry migrating to developing countries in pursuit of higher profit in to what Immanuel Wallerstein calls the semi - periphery and periphery of the world capitalist economy. The new financialsation was to provide a credit underpining to a low wage or restrained wage policy in USA and UK and other countries soon emulated this so called free market model has if it did not depend on the capitalist state for its functioning - the invisible hand has always been the state fist.

Significant de-industrialisation occured in the core countries of the West but principally in the USA and UK

Financial services were seen has wealth creation in themselves according to revised neo liberal economic theory and not charges on productive economy has they has been seen by Ricardo and Marx in Classical Economics.

In fact one could read the whole of neo classical economics what Marx called vulgar apologetics as defence of rent, interest and profit has contributions to and not charges on the real economy has Ricardo and Marx vigourously argued they were..

Milton Friedmann is famous for saying that there were no free lunches in a market economy but his pseudo mathematical economics gave cover for more free lunches of the capitalist class in its entire history and continued neo classical Economics into the late 20th Century..

These financial markets spawned new financial instruments and products and a whole new futures and options industry was born ostensibily to hedge contracts and buy future contracts in commodities and theoretically the neo liberals said a little bit of speculation would provide liquidity for these markets.

Professors of Economics from Chicago to Shanghai and London signed up to this project for a nice fat fee to present papers jusifying the unreal world economics of paper wealth creation.

I can remember reading an article in the late 1980s in Fortune magazine which described these new financial instruments as the nuclear weapons of the capitalist system and Fortune magazine was proved right by Nick Leeson in Singapore who took out options on futures contracts and brought down the centuries old House of Baring Brothers overnight..

By the late 1990's another implosion came this time with Long Term Capital Management with its illustrious economics team including two Noble prize winners for economics - the best and brightest of capitalist economics discovered they were on another economic planet when the real world took its revenge on them and their speculative political economy failed and the US Government afraid of systemic failure came the rescue of LTCM.

However lessons were not learned and this new financial industry at the core of the new dynamic reconfigured capitalism of the 1970's went merrily on from minor to major disasters as regulations like those of Glass Steagal in the USA which separated commercial banking from investment banking were scrapped London of course followed suit or led with its relaxed regulatory regime of the Financial Services Authority and its own Big Bang earlier in the decade...

Now we arrive at the current crisis brought on by the famous credit default swap financial instrument or CDS where we discover a whole host of new derivatives in the credit industry married to the property and insurance markets enabling a fast tracking of crisis across the whole financial system.

The unravelling of the bubble in the property market exposed this link directly into the credit markets and in turn the insurance market making a systemic problem for capitalism in the financial sector of the economy.

There have been property crashes and bubbles before - some economsts foecast an 18 year property cycle but this time was different it was not a property crash alone but the whole financial sector came tumbling down because of the growth of the derivatives market and the new cross links in the financial sector between property,credit and insurance.

The World Bank was trying to understand what was gong on, the neo liberal IMF with its best and brightest were confounded but the Central Bankers Bank the Bank of International Settlements knew exactly what was going on and actually issued warning to banks about derivatives exposure - but to no avail - after all they were all making money !

Then finally they published the liabilities of the derivatives industry has a result of the mushrooming of financial instruments and they were staggering 600 trillion dollars by end 2007 and by 2009 they were a thousand trillion dollars. These claims were only backed by between 15 -25 trillion dollars of real assets, nobody knows for sure..

For the first time we source and discover the depth of the crisis

Against what can we measure this figure to get some perspective on these astronomical figures.

The size of the world economy annually is appoximately worth 60 trillion dollars.

By October 2008, the amount of losses in this international speculative, mortgage, banking and stock market crisis was already four hundred times higher than in the deepest world economic crisis up to now in 1929. according to Stephan Engel(2) of the MLPD in Germany.

This overproduction of capital by a capitalist system should come as no surprise to us and Marx himself noted it and saw the periodic crisis as a means of the purging of this fictitious capital - but what Marx nor Lenin forsee was the extreme to which it could go under late capitalism..

A comrade of mine Mike of Serve (3) The People Blog in Australia in an article which he recently wrote on the on the Bank of International Settlements derivatives figures published on my Political Economy Research Blog makes the following observations .

Lenin wrote, “It is characteristic of capitalism in general that the ownership of capital is separated from the application of capital to production, that money capital is separated from industrial or productive capital, and that the rentier who lives entirely on income obtained from money capital, is separated from the entrepreneur and from all who are directly concerned in the management of capital.

Imperialism, or the domination of finance capital, is that highest stage of capitalism in which this separation reaches vast proportions. The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially “powerful” states stand out among all the rest. The extent to which this process is going on may be judged from the statistics on emissions, i.e., the issue of all kinds of securities.”

In fact Lenin was only touching the surface of what would emerge from the creativity of the “best and brightest” of this financial oligarchy. He might never have guessed how limited and infantile his phrase “all kinds of securities” might appear from the vantage point of the 1970s and onwards.

To quote Stefan Engel of the MLPD again " The dimension of the present international speculative, financial, stock market and banking crisis is a new phenomenon unprecedented in the history of capitalism".

Solutions to rescue capitalism ?

Neo Keynesian Solutions : already we have people like Eric Hobsbawn heralding the reurn of Keynes and the left social democrats wants to resurrect this dead and discredited school of zombie political economy.

Here is what Andrew Kliman (4) writes about this school of capitalist thought

There’s an ideological return to Keynesianism, there has been for some time, among some on the left. They’ve given up on the possibility of socialism, so they desperately cling to the quasi-Keynesian notion of a “rising tide that lifts all boats” as something that can make people’s lives better within capitalism. I think the historical record speaks clearly here. Welfare-state capitalism failed miserably. Its supposed gains were unsustainable once the postwar boom ended. The failure of Keynesian policies to deal with the simultaneous inflation and stagnation of the 1970s-stagflation-basically put an end to Keynesianism as theory, except among ideologues desperate for a progressive alternative to socialism.

The quasi-Keynesian notion that, by raising wages, governments can stimulate spending and create such prosperity that even the capitalists will be pleased with the results-rather than triggering a flight of capital to the Third World and other low-wage regions-has been disproved in practice. It’s also far-fetched theoretically. Capitalists make more profit when they pay lower wages, not when they pay higher wages. To the extent that Keynesian policies were ever able to work at all, if they did indeed ever work, it is because, as Keynes himself recognized, we had “closed economies” shielded from international competition and international financial markets. But we live in different times.

Or mabe for a more succint statement about Keynesianism here is from our Indian comrades in the CPI Maoist in Peoples Truth .

But this Keynesian alternative is no real solution; it is a mere palliative to give immediate relief. The social democrats and the CPI/CPM type socialists may harp on these alternatives but they will have to explain the earlier failures of the Keynesian model of the 1960s resulting in the crisis which began in the 1970s, and still continues. Also they will have to explain the collapse of the Soviet Union (after capitalist restoration) and those of the then East European countries — all of which were built on a powerful state sector.

This Keynesian solution to the crisis has the greatest influence in the Labour and Liberal parties in the United Kingdom.

The New Right Solutions : These are the characters which encompass anarcho capitalists and the new right politics in USA exemplified by ex Presidential candidate Ron Paul they are sometimes called economic Populists and just like in the 1970's when we underestimated the Hayeks and Friedmanites because they were oddballs we are in danger of underestimating the right wing fight back of so called free market populists today.

These characters paint the corporate welfare system of Neo Liberalism has Socialism !

Here is David Morris(5) in Counterpunch ridiculing their ideology.

"The contradiction between the stated aims of deregulation and its real consequences couldn't be clearer. Deregulation leads to wild speculation in which financiers make big bucks and industries get destroyed, and then the public gets stuck with the bill.

Conservative Republicans have effectively cultivated and based their power on the mass delusion that every man is an island, reaping the rewards of his own hard labor.

But in reality, most of their primary constituents are corporate welfare kings, grown fat, lazy, and corrupt on risky bets, riding around in Cadillacs secure in the knowledge that a big-government safety net is there if anything goes wrong."

Why Joe the Pumber is a Socialist by David Morris in Counterpunch

Here is Ralph Nader (6) punching holes in the new right :

Indeed, the right-wing pundits and the revisionists in Congress are spending an inordinate amount of time falsely claiming that our nation’s current financial disaster stems from the Community Reinvestment Act, a law passed by Congress and signed into law by President Jimmy Carter in 1977. The primary purpose of this modest law is to require banks to report on where and to whom they are making loans.

Community organizations have used the data produced as a result of this law to determine if banks were meeting their lending obligations in the minority and lower-income communities in which they do business. Congress passed this law because too many lenders were discriminating against minority borrowers. “Redlining” was the name given to the practice by banks of literally drawing a red line around minority areas and then proceeding to deny people within the red border home loans – even if they were otherwise qualified.

The law has been in place for 30 years, but the right-wing fringe claims it somehow is responsible for predatory lending practices that date back just to the beginning of this decade.

Notice what these revisionists are not mentioning.

No “thank you” to former Senator Phil Gramm for pushing the repeal of the Glass-Steagall Act. This law was passed in the wake of the stock market crash of 1929 - and designed to separate banking from securities activities. In 1999, when Congress passed the Gramm-Leach-Bliley Act and in so doing repealed Glass-Steagall the banks strayed into rough waters by looking for fast money from risky investments in securities and derivatives.

As predatory lending mushroomed out of control, the regulators -- key among them, the Federal Reserve and the Office of Comptroller of Currency -- sat on their hands. The Federal Reserve took exactly three formal actions against subprime lenders from 2002 to 2007.

Bloomberg news service found that the Office of Comptroller of the Currency, which has authority over almost 1,800 banks, took three consumer-protection enforcement actions from 2004 to 2006.

No “tip of the hat” to the Bush Administration for preempting state regulators and Attorneys General from using state consumer laws to crack down on predatory and sub-prime lending by national banks.

I think Brendan M Cooney of Kapitalism101 on the Internet has the best summation of this right wing line of thought as follows :

"Surely, this is what was most fascinating about the Ron Paul phenomenon: how Ron Paul fused the libertarian and conspiracy causes.

If we take libertarianism to be the basic ideological distillation of modern economics isn’t it revealing how close the bourgeois theories of crisis coincide with the conspiratorial notion of an evil, outside force destroying the fabric of society- governments, the FED, jews, aliens.

Neither can see that capitalist crisis is indistinguishable from capitalism itself".

Has I have already stated because their right wing ideology may strike us as stupid it does not mean we should dismiss it. We have to take time out to systematically expose it has it has already found its way into Conservative Party ideology in the UK as well as informs some of the populist economics of the fascist British National Party.

Whatever eclectic mix Capitalism finds it can reconfigure itself again out of this crisis in the absence of a socialist alternative - at a political and social cost we may find has terrifying has they find the derivatives black hole at the centre of the capitalist financial universe.

The only Systemic solution to the problems of Capitalism is Socialism.

An economic system that periodically lays waste vast human and material resouces through devaluation of real and ficticious capital is no answer to the probems of the resource hungary 21st Century and we again reminded once again that real human labour value in the real economy is important and that the value theory prized by Ricardo and eliminated of its contradictions by Marx is a useful tool when examining the anatomy of capitalist crisis.Measuring the real wealth of production and the unreal paper wealth is the capitalist problem of the hour and we have the conceptual tools to do it

The fictional capital of today is the offspring of Neo Classical Economics which concerned itself primarily with prices ignoring or denying the validity of the underlying law of value as a deteminant in the economic process.Neo Classical Economics is as mechanistic as the grandfather clock in a world of dialectical contradiction.

The new political economy of socialism in the 21st century must go beyond the law of value of capitalism and accumulation for accumulations sake and never agan take the road of revisionist political economy as in the 20th century..

It should draw on the work of the Professor of Political,Economy at University of Utah the Marxist Leninist Maoist Minqi Li who outlines the necessity of the transformation of the world economy to Socialism in the 21st Century.Here he is addressing the the dematerialisation arguement for a sustainable capitalism based on service sector..

Minqi li (7) writes

"In the core states of the capitalist world economy so called services account for some two thirds of GDP. Some argue that has the economy moves towards services capitalism becomes increasingly dematerialised which would allow capital accumulation to take place without rising consumption of material resources.

In fact some services such as transportation and telecommunications are extentions of material production sectors and are highly capital intensive, some services like such as wholesale and retail , trade finance and real estate are non productive sectors in the sense that their income arise from the redistribution of surplus value from other sectors and cannot produce surplus value independently"

Thus the operation of these sectors require material inputs such as buildingss office equipment and office supplies and energy for business operations as well as material consumption for their work force.

The expansion of the service sectors cannot take place without the expansion of material production sectors moreover the dematerialisation in the core states reflects to a large extent the relocation of industry to the perifery and semi perifery and the redistribution of surplus value from the semi perifery and perifery to the core.

Therefore the drive for capitalist accumulation inevitably leads to rising consumption of energy and other material resources.

The Global capitalist economy currently depends heavily on non renewable resources for energy and raw materials and is clearly unsustainable

Our task is to make a popular proof that socialism is the only possible societal alternative by both criticising the alternatives and laying out a positive vision of socialism

I recommend you all read Minqi Li's Between the Realm of Necessity and the Realm of Freedom - Historical possibilties of the 21st Century for that positive vision of Socialism.

The British Economy in the World Capitalist System

The British Economy is currently in free fall and it shrank 1.9% in the first three months of 2009 and forecasts show a continuation of the contraction of the British Economy - with uncertainty as to when it will end.

What does the British Economy look like sector wise at this time :

6.3% agriculture
13% manufacturing
2.7% mining
1.6% electricity
31% financial and business services
18.2% Public administration and Education
14.4% Distribution
6.9% Transport
5.2% Other

Has a result of the neo Liberal policies of Thatcher and New Labour the manufacturing base of the United Kingdom underwent a massive decline and the financial sector rapid growth and this leaves Britain amongst the countries most exposed by the collapse in the financial markets and the current world economic crisis.What is particularly worrying is that the small UK industrial sector is also declining once again in this crisis has finance capital sucks industrial capital dry..

It is disingenious for Conservatives to blame New Labour for the dominant neo Liberal economics as they are its authors under Thatcher and if Thatcher was the mother then Brown was the father of this vulgar economics of the late 20th century.

The reconstituion of a socialist and communist movement in Britain and seizure of State power by working people would bring forth the possibility of an economic programme for a new Green Industrial Revolution with a National Recovery Authority to help plan and design ecologically sound industries for the new mid 21st Century world economic system of socialism.

If we fail this time capitalism will reconfigure itself out of the crisis by a massive concentration of financial and industrial corporations all reciepients of tax payer largess or corporate welfare while whole swathes of the population just like following the Thatcher years will never find full time employment again except this time because the crisis is bigger the pain inflicted on working people will be proportionately greater than we have yet experienced in our lifetimes..

Fightback - Lessons of the Past innovations of the Future.

We should have no illusions about the depth of this crisis and our current weakness to fight back

We are not in the 1930's with the Soviet Union and the Comintern and mass communist parties in some capitalist countries or even small communist parties as in Britain which managed to have considerable postive impact on the fight back during the Depression with the National Union of the Unemployed Workers under Wal Hannington's brilliant leadership.

Resistance in the 1930's took the form of tenants organisations which fought evictions today we need to address evictions of tenants and homeowners and need to identify which Banks or Building societies or Property companies are evicting the most people and target them for direct action.

With the Government attack on benefits and Welfare Reform we have a direct link to the attack on National Assistance that took place in the 1930's with the dreaded visit from the National Assitance officer to assess what benefit you could get or loose..

There must be a national campaign and direct action against Welfare Reform - Labour in the 1930's pushed more people off National Assistance than did the Tory Government - feeding people will also become part of the battle against Welfare Reform with exposure of Supermarket Price rip offs and Supermarket eat ins as recently started in France.

Of course these are only defensive economic measures but we need to revive culture so people can have a vision of socialism - the anarchists with their street theatre can teach us something here - cinema provided the capitalist vision in the 1930's we must provide an alternative media via the Internet or on the Street with DVD's.

Communists in the 1930's spend considerable effort in the Trade Union Movement fighting wage cuts and lay offs and with innovations like stay down strikes in Pits and Plant sit ins - we need to be just as innovative today to resist plant closures and loss of jobs.

We should also wary of merely being the hunting dogs in the Unions for Trade Union bureaucrats just providing bigger reformist Trade Unions we need to organise to end capitalism inside Trade Unions not be its labour lieutenants.

The process of building mass movements would be enormously aided by the creation of initially an organisation or as soon as practical a party based upon Marxism Leninism Maoism the summation of 20th century communist experience has the absence of such a party from the British scene which can organise and connect up mass struggles and initiate the struggle for State power is a weakness that cannot be tolerated any longer..


sources

(a) Engels : Socialism Utopian and Scientific

(1) On the Roots of the Current Economic Crisis and Some Proposed Solutions
by Andrew Kliman, Author of Reclaiming Marx’s “Capital“: A refutation of the myth of inconsistency
(2) "A new tactical starting situation" Interview given by Stefan Engel, chairman of the MLPD, to the "Red Flag" of the MLPD December 29, 2008

(3) Mike of Serve the People Blog - Derivatives and the Over Production of Capital

(4) Andrew Kliman on Keynes on Political Economy Research Blogspot.com

(5) David Morris in Counterpunch Joe the Plumber was a Socialist
(6) Ralph Nader leads the counter attack on new freemarket fundamentalists on Political Economy Research Blogspot.com
(7) Minqi Li - The Rise of China and the Demise of the World Capitalist Economy - Pluto Books