Brief Theory of the Present Crisis

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rief Theory of the Present Crisis

— Hillel Ticktin

THIS ARTICLE IS is a summary and development of the arument that I have!een "ritin in the #ournal Criti$ue% !oth in the Criti$ue &otes and a num!er of

articles' I have left out t"o issues discussed in Criti$ue% that of the case aainst

the fallin rate of pro(t as the only or fundamental cause and "hy the rulin

class has opted for austerity')*+

The ,ar-ist theory of crisis has lanuished in the post./orld /ar II period%

larely !ecause there "as no real crisis until no"' As ,ar- famously put it0 1The

"orld trade crises must !e rearded as the real concentration and forci!le

ad#ustment of all the contradictions of !oureois economy'2)3+

Today there is a real structural crisis of the system itself% not #ust a particularcyclical do"nturn4upturn' The latter have occurred a num!er of times in the

post"ar period% most recently and nota!ly in *56*.7 and *565.58 follo"ed !y

the so.called dot'com crash in ,arch 3999'

The last of these% ho"ever% "as di:erent in that recovery "as very limited% and

reatly a:ected !y 54** and the "ars that have follo"ed' The crisis of 399; is

e:ectively its continuation' <ut the di:erence !et"een previous do"nturns and

that of ,arch 39994399; is not #ust in the lenth of recovery% the depth of the

do"nturn% and the lo!al reach of the do"nturn'

,ore fundamentally% the di:erence lies in the lonterm chane in classrelations "ith very hih levels of lonterm unemployment% com!ined "ith

direct forms of attack on the standard of livin of the "orkin class "hether

throuh housin% ta-es% "aes or !ene(ts' In =reat <ritain the attack has !een

total' In Ireland and =reece it has not only !een total% !ut unremittinly vicious'

/e are indeed livin throuh a period in "hich the contradictions of the

!oureois economy are !ein released% after !ein mediated in the post"ar

period !y the Cold /ar and latterly throuh (nance capital'

Historically% capitalism since the late *5th century has successively used

imperialism4(nance capital% "ar% repression4fascism% then Stalinism4Cold /arcom!ined "ith the "elfare state — and (nally% a return to (nance capital — as

strateies for containment of the forces threatenin to supersede capitalism'

I "ill arue here that these forms have either ceased to e-ist or have imploded%

forcin the !oureoisie to return to the classical forms of capitalism'



<ackround0 The Turnin Point

The crucial turnin point came in the seventies "hen it !ecame clear that the

"elfare state4full employment made capitalism unsta!le' /orkers "ho are

iven lifetime tenure of employment "ith risin "aes demand control over

their "ork and over the society' Since "orkers are the ma#ority of society% even

the !oureoisie can see that they cannot !e held !ack under conditions "here

the fundamentals of capitalism are contained' Apart from force — "hich

normally remains in the !ackround until the system itself is directly

threatened — capital% as self.e-pandin value% uses the form of commodity

fetishism )1consumerism2+% !oth ideoloically and practically% as its preferred

direct means of control'

The increasin role in orani>ation of the economy !y overnments andcorporations has eroded the myth that (rms cannot !e consciously planned

rather than !ein run !y the omnipotent capitalist' At the same time% the pu!lic

sector and the "elfare state cannot !e run on the simple !asis of value )i'e'

pro(t.makin+ itself' The attempt to run education% health% prisons% etc' on the

!asis of value alone does not "ork' The fact that the !ureaucratic alternatives

are often poorly run does not alter this point'

The ?nited States has divered in havin less of a "elfare state and a smaller

pu!lic sector than /estern Europe% !ut the di:erence is one of deree' The roleof a hue military sector% "hich is in essence a nationali>ed division of the

economy outsourcin much of its production% toether "ith a !ureaucratic

health machine controlled !y insurance companies% performs much of the same

functions in addin to the consciously reulated capitalist economy'

The role of the @ederal Reserve <ank and the Treasury has !een underlined

since the do"nturn' The aner sho"n aainst !oth illustrates the "ay in "hich

capital cannot avoid !ein consciously tareted today'

&ot surprisinly% the !oureoisie has tried to turn the clock !ack "ith increased

marketi>ation' The second form used to control "orkers% then% is that of the

reserve army of la!or% "hich had !een e:ectively a!olished in /estern Europe

in the post"ar years' The restoration of mass unemployment has !een more

dicult% althouh essential to the restoration of capitalist sta!ility'



<y the *5B9s and the ;9s% to return to the initial point% the "orkin class "as

demandin !oth concessions and reater control over corporations and the

economy' In country after country there "ere strikes and demonstrations "hich

led the capitalist class to reassess its post"ar stratey' Capitalim adopted a

series of measures% "hich have !ecome "ell.kno"n as neoli!eralism !ut are

!etter understood as the conse$uences of the turn to (nance capital'

The Analysis

,ar-s references to the contradictions of the capitalist economy and society

provide the real startin point of any analysis of the do"nturn% !ut are

particularly relevant at the present time' It "as Trotsky "ho arued that "e all

live in a transitional period !et"een capitalism and socialism' That does not

mean that "e have socialist forms% !ut it does mean that the capitalist formsare underoin rapid and uncontrolla!le chane% "hich the capitalist class is

doin its !est to roll !ack'

Put another "ay% the com!ined ro"th of overnmental orani>ation of the

economy4society% lare corporations% monopoly% and the increasin role of

!ureaucracies of insurance companies% lare corporations% and the pu!lic

sector reDect the increasin sociali>ation of the economy4society% !ut in a

fracturin capitalist frame"ork'

The e:ect is that the dominance of value )a pro(t.driven 1free market2+ is

limited in its scope% and decision.makin often more important% !ut the

capitalist class has !een tryin to roll !ack history' It talks ad in(nitum a!out

S,Es )small and medium si>e enterprises+ and the so.called middle class' It

tries to privati>e everythin possi!le and impossi!le' The pro!lem is that these

measures do not have the desired and e-pected e:ect0 The middle class is

increasinly s$uee>ed and proletariani>ed% small !usiness is controlled !y !i

!usiness and its independence is illusory% and privati>ation is limited !y

overnmental reulation'

@rom this point of vie"% the s"itch to the dominance of (nance capital took the

apparent form of a series of !u!!les% follo"ed !y a hue !u!!le "hich

imploded' The reality "as that the !u!!le "as a delayin tactic to avoid the

inevita!le do"nturn' Alan =reenspan "as neither mistaken nor an idiot% as he



kne" that raisin interest rates prematurely "ould have a!orted the upturn in

the *559s and durin the early years of the ne" century'

Capital "as transferred out of the value.creatin sectors to (nance capital'

Some of it "as e-ported% leadin in a particular instance to the Asian !u!!le of

*55;% !ut most of it "as used for speculation' Leverae !uyouts morphed into

private e$uity% and mortaes "ere re.sold as CFs )1collaterali>ed de!t

o!liations2+ "hile reater risk "as o:set !y CSs )1credit default s"aps2+'

Translated into value% these so.called 1derivatives2 amounted to a transfer of

value from industry and from "aes4salaries'

All crises end up "ith a !ankin crisis% since the inde!ted capitalist or "orker

tries to et increased loans that ultimately they cannot repay' Raisin interest

rates at this point !ursts the !u!!le'

Causation <ehind the Crisis

Some ,ar-ists attri!ute the crisis to underconsumption and others to the

fallin rate of pro(t% and yet others to disproportionality )im!alances "hich

constrict the paths for productive investment+' A fourth vie" puts particular

stress on the (nancial failure as the fundamental cause' A (fth vie" com!ines

all four' All crises% in my vie"% com!ine all these elements !ut there is al"ays a

trier and a dominant or crucial cause'

This does not% ho"ever% end the discussion as it is $uite o!vious that

overnments have played a central role in crises in modern times' It is pro!a!ly

more correct to talk of the rulin class% and the various overnments% !ein

central to the crisis' In this respect it is clear that the rulin class has deployed

a particular stratey at this time% "hich has spectacularly failed — that of

(nance capital% "hich involved a particular politics and a particular relationship

to the "orkin class'

Loically% the diculty in placin investment points to disproportionality as the

technical issue% at the present time% "ithin a conte-t "here the end of the Cold

/ar removed the !asic sta!ility of the system' /e cannot look at crises simply

in terms of the innate contradictions of capitalism' /e also have to understand



the response of the !oureoisie and of overnments in order to understand the

nature of this particular crisis'

In other "ords% "e have a series of elements of the present crisis that also

make up the form of e-traction of the surplus product or surplus value' The

form itself reDects the decline of capitalism as a system' There are t"o aspects

to this declineG one is (nance capital and the other is the direct intervention of

the rulin class% as a class% "hether throuh overnments or throuh other

means'

Reardin the latter0 As the society approaches its supersession% forms of the

future sho" themselves !ut in a hihly distorted form — in this instance

throuh conscious control of the capitalist economy' The 1invadin socialist

society2 noted !y @riedrich Enels has !een turned to the advantae of capital%so far as that is possi!le' Rudolf Hilferdin )the early 39th century theorist of

1(nance capital2+ "as riht to point to the "ay (nance capital provides an

orani>ational form for the rulin class' It does not a!olish competition% !ut the

collective interest of the rulin class can e-press itself "hen it needs to%

particularly "hen it is threatened'

urin the Cold /ar% such e-pression sho"ed itself throuh the actions of the

?nited States as the dominant imperial po"er% "hich e:ectively coordinated

the rulin class throuh a series of institutions' The end of the Cold /ar and thedecline of the ?nited States has created pro!lems for the rulin class in this

respect'

In reard to the (rst point% (nance capital "as e:ectively the stratey adopted

from the late seventies on"ards and it has no" unravelled'

The pro!lem% at the point of the crisis !reakin out% "as that capital is self.

e-pandin value and an e-pression of la!or time e-pended% !ut the hue

alomerations of capital that had !uilt up could not !e reinvested e-cept as

(ctitious capital% in the form of various kinds of loans and their derivatives'

,oney cannot produce more money in itself% or produce value "ithout the

intervention of productive la!or' ,oney% "ithout oin !ack to la!or% cannot

complete the circuit to produce more capital'



Concretely% the !oureoisie "as not a!le to invest !ecause there "ere

insucient outlets in "hich to invest% so they poured money into (nance

capital itself — derivatives% stock e-chane% real estate% commercial real

estate' A vast asset inDation ensued'

The !oureois economic arument is that the Chinese and other Asians

ac$uired and e-panded an e-ternal surplus correspondin to the ?'S' de(cit'

Perversely the Chinese refused to spend their money on raisin the standard of

livin of their o"n population' This arument is du!ious — or more correctly% it

is nonsense'

There "as and still is a hue pile.up of money held in (nancial institutions !y"ealthy depositors — in 399; it came to *6 trillion dollars% nine times the level

of the Chinese e-ternal holdins' There "as somethin like **9 trillion dollars

held !y (nancial institutions like pension funds% insurance companies% private

e$uity etc "hich had )and has+ to !e invested' The rate of industrial ro"th in

the /est is too lo" to a!sor! this money' The result has !een a series of

!u!!les — (rst the East Asian !u!!le% then the implosion of Lon Term Capital

,anaement% follo"ed !y the dot'com !ust'

The recent "ars provided a !rief relief for the system until it (nally collapsed',oney has Do"ed to the third "orld% particularly to China% !ut it remains !elo"

its potential' Capital remains "ary of investin money in countries over "hich it

has limited control' The nations of Asia% Africa and Latin America are no loner

colonies% and can and have nationali>ed property or )e'' Arentina+ refused to

pay their de!ts'

The Situation Today

The situation has not !asically chaned' Hence money is Do"in to the so.

called emerin economies% "here interest rates are relatively hih% as in the

case of South Africa% "here interest rates are at 6' In fact% corporations have

done e-ceptionally "ell in the last year !ecause they had a licence to dismiss

"orkers and lo"er "aes% so raisin productivity and pro(ts'



The recent additional e-pansion of the money supply in the ?nited States —

called 1$uantitative easin2 or E3 — is technically superDuous iven the fact

that companies have surplus funds' F!viously% the reason "hy the @ederal

Reserve <ank is issuin the money lies in the fact that they kno" that the

corporations are not spendin the money and hope that E3 "ill provide an

additional push to the money supply' Ho"ever% unless some!ody actuallyinvests or spends the money productively it "ill not serve the necessary

purpose'

Critics arue that the issuin of money "ill cause lo!al inDation' Some% on the

left as "ell as on the riht% accept the arument' There is% ho"ever% no !asis to

it' The money Do"in to the underdeveloped countries from the developed

"orld oes very larely into portfolio investment or overnment !onds rather

than into direct investment' Interest rates are hih in those countries and "e

may e-pect that the money "ill Do" !ack as the interest rates are reduced'Fther"ise it is oin into speculative investment in commodities' In e:ect%

there is a ne" !u!!le in the pricin of ra" materials and food% "hich is certain

to !urst'

/hy is there capital "hich is not capital — that is% "hy is the rulin class not

investinJ An editorial in the @inancial Times put it like this0 1At the same time%

corporations are in (ne fettle' They are Dush "ith cash% havin used the

recession to stock up on cheap li$uidity and rationalise their !usiness models

— !y (rin "orkers or improvin their productivity0 hence *6 months of ro"thand pro(ts% !ut no ne" #o!s'2

So "hy are they not usin their money to increase their capitalJ The @T then

says0 1<usiness uncertainty feeds on itself0 the more corporations postpone

investments so that they can (rst see demand return% the loner they must

"ait for demand to materialise' In economics as else"here% the reatest thin

to fear is fear itself'

1There are reasons to hope that ?S !usinesses may aain !e snin at

risk'2)8+

So the pro!lem% accordin to the Leader "riters of the @inancial Times% is that

!usinessmen are afraid to risk their capital' The 1uncertainty2 is too reat' Ff



course !oureois economics a!surdly arues that pro(ts are the re"ard of risk'

So the capitalist class% accordin to them% are afraid to risk their capital% even

thouh that is the function of capital itself' In reality% capitalisms reduce their

risk to the a!solute minimum% rather than lose their capital or potential pro(t'

So "hat are they afraid ofJ

The @T seems to imply that it is an issue of the moment and only this moment%

!ut in fact it "as this very issue "hich led to the do"nturn' Looked at

super(cially% of course% !anks "ere doin their !est to lend to all and sundry%

"hich is not #ust risky !ut foolish' So the ocial story is that !anks "ere reedy

and not #ust reedy !ut stupidly reedy' They "ent for hih risks !ecause the

re"ards "ere reat'

Even a *9.year.old can see that this is nonsense' The !anks did not invest inindustry !ut in mortaes and derivatives — or in other "ords in loans and loan

derivatives — and the economy had lo" levels of investment outside of

(nance' Fnce one removes (nance from the statistics% the rate of ro"th is

very lo"'

So "hy has the capitalist class in the /est preferred only to invest in the

unproductive sector and e-port its capital to the EastJ As mentioned a!ove%

Third /orld countries such as <ra>il are su:erin from a surfeit of /estern

capital oin into portfolio investment in their countries' As a result they aretakin steps to limit the inDo"'

There are t"o points to note here' @irst% it is clear that there are hue sums of

money "hich are lookin for an outlet% as there "ere !efore the do"nturnG and

secondly most% thouh not all% investors are not prepared to put their money

into direct investment% into real production companies'

The hue pool of capital is lookin for short term returns' The num!ers "ent

do"n durin the do"nturn !ut they are movin up aain' F!viously one "ay of

spendin money is to "aste it% as in the recent construction of the most

e-pensive apartment !uildin in the "orld at * Hyde S$uare in London% "here

one apartment cost some K399 million% or return to the !uildin of yachts'

The Concept of @inance Capital



So "hat is oin on in more theoretical termsJ Fne "ay of lookin at it is to

talk of a capital strike% as some left."in roups have done% !ut that implies it

is a short term action% "hen it is a lon term stratey' The concept of (nance

capital is crucial' It is a!stract capital )not tied to any particular productive

enterprise+% "hich is necessarily short.termist% unproductive and predatory%)+

!ut has succeeded in shiftin the terms of the class strule to"ards the

capitalist class'

In Europe and the ?SA% the loic of a Meynesian or popular solution to the

do"nturn "ould !e to"ards !oth monetary e-pansion and the ro"th of

nationali>ed industries' Net private enterprise (nds it dicult to o for lare.

scale investment over e-tended periods of time' =overned !y (nance capital% it

is necessarily short.termist'

&o leislation can alter the fact that the "ealthy investors% holdin the funds

re$uired% "ant immediate returns and are "ary of takin on the risks involved

in the research and development over lon periods% "ithout the overnment as

partner' Fn the other hand% the dominant section of capital is afraid of allo"in

overnment to play an increased role in the economy and afraid of reDatin the

economy at a hiher ro"th rate )i'e' 1stimulus2+'

The ideoloists arue that ro"th and innovation comes from small and

medium si>e companies% "hich have to !e promoted over 1planned2

investment !y the state' The arument has no merit% as truly independent

S,Es are of little importance'

The automo!ile industry% aeroplane industry% military industry% pharmaceutical

industries and chemical industries are typical in that they are dominated !y

lare companies such as =eneral ,otors% <oein% P(>er and the like% "hich

contract out a considera!le proportion of the "ork' These smaller companiesare e:ectively controlled !y their purchasers in almost every respect'

Such "indo".dressin serves the purpose of coverin up the real intentions

!ehind the permanent austerity proram' The meanin of the crisis is that the

(nance capital stratey itself has no" imploded% and the capitalist class has no



further stratey other than a return to classical capitalism% "ith mass

unemployment and a minimal "elfare state'

&otes

Hillel Ticktin% 2The Crisis and the Capitalist System Today%2 Criti$ue 78% 877.

8;*% repu!lished !y Routlede 39**% in Hillel Ticktin )ed+0 ,ar-ism and the

=lo!al @inancial Crisis' Hillel Ticktin% 1The Transitional Epoch% @inance Capital

and <ritain%2 Criti$ue *B% *568% 38.3 O Hillel Ticktin% 1To"ards a Theory of

@inance Capital%2 Criti$ue *;% *.*B% *56B' It is also discussed in the recent

issues on the crisis0 Hillel Ticktin% 1A ,ar-ist Theory of Capitalist Insta!ility and

the Current Crisis%2 Criti$ue ;% @e!ruary 3995% *8.89% and in the Criti$ue &otes

over the last t"o years'

!ack to te-t

Marl ,ar-% Theories of Surplus alue% ol' 3% La"rence and /ishart% London

*5B5% Proress Pu!lishers% ,osco" *5B6% 7*9'

!ack to te-t

1Somethin Stirrin in the ?S Economy'2 @inancial Times% Saturday 6th

Qanuary 39**% *9'

!ack to te-t

@or a discussion of @inance Capital see0 Hillel Ticktin% 1The Transitional Epoch%

@inance Capital and <ritain%2 and 1To"ards a Theory of @inance Capital%2 op' cit'

!ack to te-t

Quly4Auust 39**% ATC *78

Brief Theory of the Present Crisis

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