People's Voice - October 16-31, 2008

Bourgeois analysts say the global economic crisis is the result of the reckless lending that banks engaged in, which led to a boom and bust in the US housing market. On the basis of this view they advocate stronger banking regulation as the solution. This is a superficial view. It does not explain why the banks and other financial institutions behaved in the way they did.

“In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production.… The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”

Marx and Engels, Manifesto of the Communist Party, 1848

The reason that financial institutions and big capitalist corporations are relying more and more on speculation to keep their profit rates high is that they are unable to reap maximum profits from production. Production and sales are not expanding because the working class and people have become poorer. They are unable to keep spending on consumer goods, or keep borrowing to finance purchases of houses and other assets. Thus the root cause is to be found not in the sphere of finance, but in the sphere of production and consumption.

The fact of the matter is that capitalism is unable to overcome its inherent contradictions. The fundamental contradiction of capitalism is that between social production and private ownership of the means of production. It is a contradiction between ever expanding productive capacity and the limited capacity of the people to purchase what has been produced.

The fundamental contradiction of capitalism has been raised to a very high level at the present stage of monopoly capitalism. Private ownership has become highly concentrated. Larger sections of the population are becoming poorer every year.

Monopoly capitalist corporations are not satisfied with the average rate of profit; they want nothing less than maximum profit rates all the time. The merging of giant banks with industrial and trading monopolies has led to the rise and domination of finance capital. The speed with which finance capital can be shifted from one sphere to another has increased tremendously as a result of the IT revolution.

Marx’s analysis of capitalism pointed to the fact that as productive powers of social labour increase, the rate of profit in the economy as a whole will tend to fall. This is an objective law that follows from the law of value and law of surplus value. However, the capitalist monopolies cannot and will not tolerate any decline in their rate of profit. They do everything in their power to counteract the influence of the law of the tendency for the rate of profit to fall. Everything they do further aggravates the problem, creating new crises.

Through various methods, like extending the working hours and cutting down on benefits, the capitalist monopolies intensify the degree of exploitation of labour. And through various means, such as creating artificial shortages, boosting artificial demand through speculation, and futures trading, they try to keep selling prices of commodities above their value. They try to keep pocketing maximum profits at all times. However, the law of value, and the law of the tendency for the rate of profit to fall, catch up with them. They cannot violate these laws forever. Prices that soar to the sky sooner or later crash to the ground. So does the rate of profit. These violent ups and downs create havoc in people’s lives and drive entire nations to ruin.

Crises can be prevented only by resolving the fundamental contradiction between social production and private ownership of the means of production. This requires replacing private by social property as the basis of society. In such a society, banking and other branches of economy will no longer be driven by the motive of securing maximum private profits for an exploiting minority. On the contrary, they will be driven by the motive of securing maximum satisfaction of the constantly rising material and cultural needs of the whole of society.