This article was written by one of my Professor's, August Nimtz from the University of Minnesota. It offers a different insight into the current economic crisis. Enjoy!
Marx on the Financial Crisis
Never has the fate of so many been impacted by the actions of so few. Such is what the collapse of the world's stock markets beginning in the second week of October 2008 demonstrated. While no one can say for certain where the current crisis is headed in the short run, what occurred was in fact a historic moment for world humanity. It revealed that our destinies are intertwined in ways that only a few were able to foresee. Until recently many in Europe thought that the crisis, which began apparently with the U.S. sub-prime mortgage boondoggle, was just an American problem. They like others throughout the world have learned the hard way what the young Karl Marx saw as early as 1848--that capital has no borders. In its insatiable need to penetrate every nook and cranny of the globe in quest of profits, capital unites all of humanity but without consciousness and, thus, plan.
While recognizing the dynamism of capitalism, its unprecedented productive capabilities, Marx and Engels, also in the Communist Manifesto, pointed to its inherently destabilizing character. The very prescient observation that with the new economic system came "everlasting uncertainty"--"all that is solid melts into air"--has resonance as never before.
Most striking about the crisis is that the individuals who actually packaged and sold the belatedly acknowledged toxic mortgage securities, along with, their "insurance," the so-called credit default swaps, probably number no more than a few thousand, if that. Squirreled away in the recesses and board rooms of investment houses like the now-defunct Lehman Brothers, this most exclusive club helped erect a house of cards whose collapse threatens the livelihoods of hundreds of millions.
As the layers surrounding the roots of the crisis are being peeled back, it's clear that the mortgage shell game was merely the outer face of the deeper and real problem. Nothing testifies better to this than the almost incomprehensible fact that the market value of all derivatives--basically, bets--of which credit default swaps are a major component, is somewhere in the neighborhood of five hundred trillion dollars! A half quadrillion dollars or, 35 times the size of the GNP of the U.S.! Marx had a name for such financial instruments, "fictitious capital".
What explains such disconnect with the "real economy"? Quite simply, capital always gravitates to where returns on investments are higher. Over time, the production of goods and services under capitalism, as Marx argued, is less remunerative--the tendency for the average rate of profits to decline. The massive flow of capital into speculation, be it sub-prime mortgages or whatever the fantasy du jour, and not the production of goods and services that could actually serve humanity, is the necessary response to this tendency. This is all the more true when such risky behavior is "insured"--what credit default swaps promised. The chickens have yet to come home to roost on that ruse.
But what is most instructive about the crisis is the inherently undemocratic nature of capitalism. The many did not and could not vote for the few whose decisions are so life-determinant. As long as capital is private property, the very foundation of capitalism, its owners are virtually free--what they mean by "freedom" and "liberty"--to do with it whatever they think is in their interests regardless of the consequences for the rest of us.
But what about those for whom the many can vote, the president who appoints the head of the Federal Reserve, the Treasury Secretary, the head of regulatory agencies like the Securities and Exchange Commission, or the members of congress? Aren't they supposed to represent the interests of the rest of us? I leave aside the fact that those living beyond U.S. borders but impacted by Washington don't have this right--a source of seething resentment.
If this crisis has taught working people a lesson they didn't already know, it's that the political system in place, not only in Washington, but elsewhere where capital reigns, is one of the rich, for the rich and by the rich. The still young American republic taught the young Marx in 1843, on his road to communist conclusions, that inequalities in wealth made for unequal political outcomes. Originally, it was government of the slave owners, followed later, after the Civil War, by government of the industrial capitalists. The seven-hundred billion dollar bailout simply confirms what has existed for more than three-quarters of a century--government of, specifically, finance capital. That both capitalist presidential candidates voted for the package--with Obama taking a more active role to ensure its passage--against the will of the majority simply registers this fact. Workers, therefore, won't be administering the properties, the banks and AIG, they unwillingly bought. Finance capital will do that--precisely why this isn't the nationalized property of workers.
Until the working class has its own political system, it will be forced to shoulder the crisis--the socialization of the costs of the bailout while the profits are privatized or, "socialism" for the rich. The stop-gap measures being put in place may slow the free fall in the stock exchanges that began in the second week of October, but they won't prevent what will be the deepest downturn in capitalist economies since the Great Depression and perhaps ever. A sober reminder: New Deal policies didn't end the collapse--the Second World War did. Fifty million dead and the New American Century! Plus ça change, plus c'est la mème chose.
(By the way, whoever claims to know where the crisis is headed should be asked the following question: what were you saying a year, two or even five years ago about the health of the economy? The only surprise for most who call themselves Marxists is that it has taken so long for the bubble to burst and trigger the real turmoil, on so-called "Main Street." Drawing on the two-decade old analysis by the U.S. Socialist Workers Party--the lessons of the 1987 stock market crash--I wrote in 2002, "it's not a question whether recession or depression will come to the shores of the United States but only when.")
History makes clear that only when the working class acts in its own interest, independent of capitalist parties--including, yes, the Democratic Party--can it make gains. Never should it be forgotten that it was in the midst of the Depression, a shrinking economy, when U.S. rulers, led by Franklin Delano Roosevelt, made concessions in the form of social security, unemployment insurance, and aid to families of dependent children (AFDC). Ruling elites saw the light because they felt the heat of mass working class protests in the streets of Minneapolis and elsewhere--actions they thought could challenge the system of capitalism itself. But such concessions are always tenuous as long as workers do not constitute the actual rulers of society. Witness the demise of AFDC at the hands of the Democratic Clinton administration in 1996.
Ninety miles off their southern shores U.S. workers are being offered another lesson. In the aftermath of hurricanes Gustav and Ike, in which Cubans lost a third of their food stuffs and tens of thousands of their homes, but only seven deaths, an organized effort is under way that ensures that no one starves and no one is homeless. That's possible because not only did Cubans challenge capitalism, but they replaced it with a socio-economic and political system--certainly a work in progress--that prioritizes the interests of workers and farmers.
As the economic crisis deepens in the U.S., that is, as the backs of working people are increasingly pushed against the wall and the inevitable resistance develops, the lesson Cuba offers will have--provided there are those willing to make the case--real currency. Like capital, as Marx and Engels declared, labor too has no borders. If Cuba, a society with far less resources, can meet the minimal needs of all its citizens--as well as those of other countries where its teachers and medical personnel serve--there is no excuse why the U.S. with so much more cannot do qualitatively better. The fundamental obstacle, I argue, is a political system, a state, that advances first and foremost the interests of the wealthy minority at the expense of the majority--what the Cuban revolution ended after 1959.
Little wonder that Washington, in the interest of its capitalist patrons, maintains an almost fifty year-old policy--which won't change with whoever won the presidency on November 4--that prevents U.S. workers travelling freely to the island to learn and make up their own minds about a working class alternative to, literally, business as usual.
August Nimtz, Professor of Political Science, University of Minnesota; animtz@tc.umn.edu. Last book: Marx, Tocqueville and Race in America: The 'Absolute Democracy' of 'Defiled Republic'.
Marx on the Financial Crisis
Never has the fate of so many been impacted by the actions of so few. Such is what the collapse of the world's stock markets beginning in the second week of October 2008 demonstrated. While no one can say for certain where the current crisis is headed in the short run, what occurred was in fact a historic moment for world humanity. It revealed that our destinies are intertwined in ways that only a few were able to foresee. Until recently many in Europe thought that the crisis, which began apparently with the U.S. sub-prime mortgage boondoggle, was just an American problem. They like others throughout the world have learned the hard way what the young Karl Marx saw as early as 1848--that capital has no borders. In its insatiable need to penetrate every nook and cranny of the globe in quest of profits, capital unites all of humanity but without consciousness and, thus, plan.
While recognizing the dynamism of capitalism, its unprecedented productive capabilities, Marx and Engels, also in the Communist Manifesto, pointed to its inherently destabilizing character. The very prescient observation that with the new economic system came "everlasting uncertainty"--"all that is solid melts into air"--has resonance as never before.
Most striking about the crisis is that the individuals who actually packaged and sold the belatedly acknowledged toxic mortgage securities, along with, their "insurance," the so-called credit default swaps, probably number no more than a few thousand, if that. Squirreled away in the recesses and board rooms of investment houses like the now-defunct Lehman Brothers, this most exclusive club helped erect a house of cards whose collapse threatens the livelihoods of hundreds of millions.
As the layers surrounding the roots of the crisis are being peeled back, it's clear that the mortgage shell game was merely the outer face of the deeper and real problem. Nothing testifies better to this than the almost incomprehensible fact that the market value of all derivatives--basically, bets--of which credit default swaps are a major component, is somewhere in the neighborhood of five hundred trillion dollars! A half quadrillion dollars or, 35 times the size of the GNP of the U.S.! Marx had a name for such financial instruments, "fictitious capital".
What explains such disconnect with the "real economy"? Quite simply, capital always gravitates to where returns on investments are higher. Over time, the production of goods and services under capitalism, as Marx argued, is less remunerative--the tendency for the average rate of profits to decline. The massive flow of capital into speculation, be it sub-prime mortgages or whatever the fantasy du jour, and not the production of goods and services that could actually serve humanity, is the necessary response to this tendency. This is all the more true when such risky behavior is "insured"--what credit default swaps promised. The chickens have yet to come home to roost on that ruse.
But what is most instructive about the crisis is the inherently undemocratic nature of capitalism. The many did not and could not vote for the few whose decisions are so life-determinant. As long as capital is private property, the very foundation of capitalism, its owners are virtually free--what they mean by "freedom" and "liberty"--to do with it whatever they think is in their interests regardless of the consequences for the rest of us.
But what about those for whom the many can vote, the president who appoints the head of the Federal Reserve, the Treasury Secretary, the head of regulatory agencies like the Securities and Exchange Commission, or the members of congress? Aren't they supposed to represent the interests of the rest of us? I leave aside the fact that those living beyond U.S. borders but impacted by Washington don't have this right--a source of seething resentment.
If this crisis has taught working people a lesson they didn't already know, it's that the political system in place, not only in Washington, but elsewhere where capital reigns, is one of the rich, for the rich and by the rich. The still young American republic taught the young Marx in 1843, on his road to communist conclusions, that inequalities in wealth made for unequal political outcomes. Originally, it was government of the slave owners, followed later, after the Civil War, by government of the industrial capitalists. The seven-hundred billion dollar bailout simply confirms what has existed for more than three-quarters of a century--government of, specifically, finance capital. That both capitalist presidential candidates voted for the package--with Obama taking a more active role to ensure its passage--against the will of the majority simply registers this fact. Workers, therefore, won't be administering the properties, the banks and AIG, they unwillingly bought. Finance capital will do that--precisely why this isn't the nationalized property of workers.
Until the working class has its own political system, it will be forced to shoulder the crisis--the socialization of the costs of the bailout while the profits are privatized or, "socialism" for the rich. The stop-gap measures being put in place may slow the free fall in the stock exchanges that began in the second week of October, but they won't prevent what will be the deepest downturn in capitalist economies since the Great Depression and perhaps ever. A sober reminder: New Deal policies didn't end the collapse--the Second World War did. Fifty million dead and the New American Century! Plus ça change, plus c'est la mème chose.
(By the way, whoever claims to know where the crisis is headed should be asked the following question: what were you saying a year, two or even five years ago about the health of the economy? The only surprise for most who call themselves Marxists is that it has taken so long for the bubble to burst and trigger the real turmoil, on so-called "Main Street." Drawing on the two-decade old analysis by the U.S. Socialist Workers Party--the lessons of the 1987 stock market crash--I wrote in 2002, "it's not a question whether recession or depression will come to the shores of the United States but only when.")
History makes clear that only when the working class acts in its own interest, independent of capitalist parties--including, yes, the Democratic Party--can it make gains. Never should it be forgotten that it was in the midst of the Depression, a shrinking economy, when U.S. rulers, led by Franklin Delano Roosevelt, made concessions in the form of social security, unemployment insurance, and aid to families of dependent children (AFDC). Ruling elites saw the light because they felt the heat of mass working class protests in the streets of Minneapolis and elsewhere--actions they thought could challenge the system of capitalism itself. But such concessions are always tenuous as long as workers do not constitute the actual rulers of society. Witness the demise of AFDC at the hands of the Democratic Clinton administration in 1996.
Ninety miles off their southern shores U.S. workers are being offered another lesson. In the aftermath of hurricanes Gustav and Ike, in which Cubans lost a third of their food stuffs and tens of thousands of their homes, but only seven deaths, an organized effort is under way that ensures that no one starves and no one is homeless. That's possible because not only did Cubans challenge capitalism, but they replaced it with a socio-economic and political system--certainly a work in progress--that prioritizes the interests of workers and farmers.
As the economic crisis deepens in the U.S., that is, as the backs of working people are increasingly pushed against the wall and the inevitable resistance develops, the lesson Cuba offers will have--provided there are those willing to make the case--real currency. Like capital, as Marx and Engels declared, labor too has no borders. If Cuba, a society with far less resources, can meet the minimal needs of all its citizens--as well as those of other countries where its teachers and medical personnel serve--there is no excuse why the U.S. with so much more cannot do qualitatively better. The fundamental obstacle, I argue, is a political system, a state, that advances first and foremost the interests of the wealthy minority at the expense of the majority--what the Cuban revolution ended after 1959.
Little wonder that Washington, in the interest of its capitalist patrons, maintains an almost fifty year-old policy--which won't change with whoever won the presidency on November 4--that prevents U.S. workers travelling freely to the island to learn and make up their own minds about a working class alternative to, literally, business as usual.
August Nimtz, Professor of Political Science, University of Minnesota; animtz@tc.umn.edu. Last book: Marx, Tocqueville and Race in America: The 'Absolute Democracy' of 'Defiled Republic'.
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