Archive for March 15, 2009

The Forces of History

Posted in Uncategorized with tags , , , , on March 15, 2009 by telescoper

Sorting through my old books yesterday, I picked up my copy of Das Kapital, and had a quick browse through it for old times’ sake because I found the following passage on the BBC website:

Owners of capital will stimulate the working class to buy more and more expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the state will have to take the road which will lead eventually to communism.

How’s that for a prediction of the Credit Crunch?


The words were written in London by Karl Marx in 1867 and appears in the first volume of his mammoth book Das Kapital; the second and third volumes were edited by his friend Engels and published after Marx’s death. In case you didn’t know, Karl Marx is buried in London, in Highgate cemetery. His memorial, a very popular tourist attraction, is shown on the left.

Of course the word “communism” now has irredeemable connotations of totalitarian excess, stemming not only from Stalin’s Russia but other attempts to impose communist rule around the world. In the United States of America in particular, communism is now a dirty word that right-wingers use to describe any aspect of government interference in economic affairs. As a matter of fact, American politics is so far to the right that even the word “liberal” is a term of abuse in some quarters.

While not in any way wanting to defend the various tyrannies that emerged as distorted manifestations of some of the ideas in his book, I think Marx’s analysis of the way capitalist economies work remains as valid today as it was in the 19th Century. It may be a little dated now, and class relationships are undoubtedly more complex now than the simple model he proposed to describe industrialised economies, but I think Marx is to political economy what Newton was to physics: much of his work has been superceded, but basically it’s right.

Ask me if I’m a Marxist and I’ll say that’s like asking a physicist if they are a Newtonian…

Marx argued that increasingly severe crises would inevitably punctuate the cycle of growth and recession owing to the inherent instability of the system. In the long term the capitalist class tends to invest more in new technologies rather than in labour. Marx believed that the source of all profit was the “surplus value” generated by waged labour, who also buy the goods that are created. As economies grow, the rate at which this profit accrues inevitably falls, leading to recession. The laws governing this behaviour are just as unavoidable as the laws of physics, Marx argued.

Reading the news today about the recent G20 summit, it struck me as quite surprising how many people seem to think that a bit of tinkering with market regulation is going to bring the world rapidly out of this current recession.

I don’t share this optimism at all. It seems to me that the global financial system is completely broken in the way that the quotation describes. The recent economic growth that western economies have enjoyed has virtually all been founded on credit tied to ridiculous over-valuations of the value of property. It is no surprise that the stock markets have been in free fall for over a year: the proper value of our economy is much much lower than we’ve all been deluding ourselves into thinking. I would say that the last ten years of growth has been completely fictitious in a well-defined sense, and the markets will probably bottom out at the value they had about a decade ago. The problem is that in these circumstances many debts will go bad, salaries are all way too high for the labour market to sustain, unemployment rises catastrophically, and the only way out is to print money leading to wholesale inflation and the consequent devaluation of the economy. The British Treasury has only recently grasped the scale of the issue and started a modest bit of “quantitative easing“. I think there’s going to be a lot of this over the next year or two.

I don’t believe that stimulus measures will work, since the resources of governments are dwarfed by the levels of bad debt, nor do I believe that pensioners and taxpayers should pay for the excesses of the prodigal banking sector. I can’t predict what will happen over the next few years, but I think we’re heading for a depression as deep as the 1930s and, unless something drastic is done, all the social unrest and political instability during and after the Great Depression will accompany this one too.

And it seems to me that the only way out of it is for the full-scale nationalisation (or even internationalisation) of the banking system so that money can be directed towards where it is needed rather than into the pockets of a few unscrupulous bastards.

But that would lead to communism, and communism is a dirty word…