The bosses’ media has pointed fingers at various causes of the current economic crisis: seedy mortgage brokers, “deadbeat” homebuyers, “stupid” investment bankers, greedy and arrogant CEOs, Ponzi schemers like Madoff, and now AIG executive bonuses. They claim the root cause is the “subprime mortgage” fiasco, the housing market collapse, the financial industry crisis and the freezing of credit. Except for workers trying to keep and/or buy homes, all the above characters are part of the problem. And all of the above crises have contributed to what increasingly looks like a Depression,
But all these explanations don’t really explain what’s at the heart of this worldwide debacle for capitalism: fundamental laws governing the inner workings of the system itself. Over 140 years ago after decades of struggle by workers against capitalist exploitation, Karl Marx, in his work “Capital,” revealed important laws of capitalist development. In that and other important works, Marx described two: the tendency of the overall rate of profit to fall, and the occurrence of periodic crises of overproduction as the necessary result of a competitive and unplanned system of production. Communists say that only revolution to overthrow capitalism can end this system’s “boom-and-bust” nature.
Real Wages Falling Since ‘73
The rate of return on capitalist investment (rate of profit) in the “developed” economies (U.S., France, Britain, Germany, etc.) has been falling since the end of the 1960s (see interview with Robert Brenner in “Asia-Pacific Journal,” 2/7/09). This happened despite the fall in real wages since 1973, which should have caused the rate of profit to increase. The profit rate fell because emerging capitalist economies in Europe and Asia began producing “the same goods that were already being produced by the earlier developers, only cheaper.”
Bosses in the more developed economies tried to hold on to their dominant positions by pouring money into new technology. However, this only made the problem worse, for two reasons. Firstly, more high-tech upgrades led to even greater overcapacity in industry, with goods flooding the world market. Secondly, the higher the percentage of total capital invested in plant and machinery, the further the rate of return on capital investment tends to fall. Profit can only be made off of human labor power, not from machinery (see box).
As their economic position worsened, U.S. and Western European bosses cut real wages, increasing racist exploitation to attack ALL workers. They used their control of the government to cut back “social wages”, i.e. social service benefits for workers paid for from taxes. But these attacks on their income meant workers were less able afford the products that the bosses had to sell in order to realize their profits.
Fed’s Policy Led to Toxic Assets
The solution? The U.S. bosses’ state, particularly the Federal Reserve, encouraged the massive use of public and private credit. Government budget deficits increased dramatically in the 1970s and 1980s. In the 1990s, the Fed deliberately kept interest rates very low. This induced a huge increase in private borrowing and encouraged investment in financial assets like stocks, bonds and more exotic instruments like bundles of mortgages (see CHALLENGE, 12/08). Prices of these assets soared. In addition, workers bought more and different products using borrowed money, credit cards and refinanced mortgages.
A succession of asset “bubbles” — first the dot com/technology stock market “bubble” of the late 1990s, then the housing and credit “bubbles” of the 2000s — were basically speculation sanctioned by the government and Fed. But these bubbles only temporarily postponed the day of reckoning. Again, only labor creates actual value under capitalism, not writings on pieces of paper, or computer entries. The huge increase in speculative investment pulled U.S. and other “developed” capitalisms further away from the labor-created method of wealth accumulation.
Thus, the two laws of capitalism revealed by Marx interact with each other. Both contribute to the inevitability of crises as long as capitalism exists. It’s the anarchy of capitalist production and the system’s competitive nature that generate these built-in problems, which are always taken out on the backs of the working class. Communism, a planned, cooperative system of production based on our class’s needs, not bosses’ profits, would abolish these capitalist relations.
The above Brenner interview estimates that capitalism can solve the global economic crisis without major imperialist wars, including World War III. He argues that “[t]he world’s elites want more than anything to sustain the current globalizing order, and the U.S. is key to that.” The Russian revolutionary Lenin wrote that inevitably rival imperialist powers settle their economic competition by war. This is proven by the history of capitalism — one war after another, and now world wars.
Bosses’ Solution for Disputes: War
Thus, thinking the bosses can peacefully solve their disputes produces deadly consequences. Rising rivals of U.S. imperialism like Russia, China and their allies will not, and cannot, stop short of trying to take down the top dog. The fight to control oil and to use that control to keep or gain number-one status continues. Wider war plans are being prepared right now.
Meanwhile, the bosses are casting the weight of the economic crisis onto us. As we unite unemployed and employed to fight these attacks, remember: the bosses need our labor, but we don’t need the bosses or their crisis-ridden, exploitative system. The working class under the leadership of a mass PLP will put an end to this sordid chapter in the history of humanity.