Economic stagnation & the revolutionary perspective [Sam Marcy]

Capitalist economic stagnation and the revolutionary perspective [1975]

I. The real nature of the current crisis

NEW YORK, August 1 — Beneath the official optimism exuded by the Ford administration, there is also a deep-seated and profound pessimism that recent indications of an upturn in the economy are of a purely ephemeral character and that the country and the capitalist world in general face a long and protracted period of economic stagnation, fraught with violent political convulsions and fateful class conflicts.

The very social system which sustains the possessing classes may once again, as in the thirties, be at stake — indeed, it already is in many parts of the capitalist world, especially in Southern Europe and most of all in Portugal, Spain, Greece, and Italy.

Even the richest capitalist countries, such as West Germany and France, are desperately trying to find ways and means of banding together in some way to ward off the deepening crisis. Japan, too, formerly the showplace of capitalist prosperity in Asia, is in its own way once again trying to ally itself more securely with the U.S. as one way of mitigating the ravaging effects of the economic crisis which has engulfed her.

This does not at all impede the U.S. monopolies from continuing to undercut Japan by commercial, economic, and monetary measures. The havoc Nixon brought to the Japanese economy in 1971 with the devaluation of the dollar and the ensuing trade offensive against her has by no means been overcome, even though 3 years have passed since that blow was delivered!

Each capitalist country is seeking new ground and new allies to save itself from the disastrous effects of the world capitalist crisis. But at the same time they are all pursuing anew the worn-out reactionary schemes of the thirties, with exhortations for so-called "national self-sufficiency" and cries of economic protectionism, all of which brought on the virulent nationalist and jingoist propaganda of that day. The U.S. is today the primary leader of this trend.

As in the thirties, "Buy German," "Buy French," "Buy Italian," "Buy Japanese," "Buy U.S.," are being pushed with ever greater vigor. Yet all vigorously affirm that the world is economically interdependent and needs a new peaceful world order for mutual salvation — provided each capitalist power gets its "just" share of world markets, of the robbery of the poor and undeveloped parts of the world. And all entertain the deepest hostility to the economic successes of the socialist countries and more than ever see them as the greatest threat to their existence.

Decline — and 'recovery' but not for the workers

But to return. Let us not be accused of saying there will not be an upturn in the capitalist economy. There already may be some signs of it at the present time, even amidst the frightful rise in unemployment and the spectre of yet another spiral of galloping inflation.

The government's index of leading indicators of the economy (released July 29, 1975) is said to show a significant rise for the fourth consecutive month. So claims the Commerce Department.

This index is supposed to foretell economic trends. Assuming it to be accurate, it is still worthy of notice that the one leading indicator that is usually regarded as a bellwether for the economy — that is, contracts and orders for plants and equipment registered a decline!

However, contesting the government's ever increasing flow of inspired and tendentious press releases and surveys demonstrating "that the recession is bottoming out" is a fruitless task and leads us nowhere.

Marxists view the nature of each capitalist crisis as already containing the seeds of its own destruction — recovery. In Marxist economics, the crisis is invariably the starting point of a new cycle of capitalist development. According to Marx, the capitalist cycle of development goes successively through the phases of crisis, depression, recovery, and capitalist boom.

Thereafter, of course, a new crisis inevitably starts all over again, the last generally being more devastating and destructive than the prior one — always taking in its train an enormous toll in human as well as material resources.

The problem today, however, is not whether there will be an eventual recovery. The problem now is how to estimate its character and duration along with the entire current capitalist cycle. To a worker, recovery means recovering his or her job. It means the end of unemployment and an improvement in the conditions of his or her life. Even Meany, in answer to a reporter's question as to "when the recession will be over," answered, "When everybody goes back to work."

That is not the way the capitalists see it.

Cure by speed-up!

The capitalist class views the matter in an altogether different light. Layoffs, cutbacks, "rationalization of industry," or increased productivity (speedup), and the introduction of labor-saving devices — that's their cure for the economic crisis. They have been acting upon it feverishly and with a vengeance. This can be seen not only in the staggering number of unemployed, but also in the steep rise in productivity for the second quarter of this year (according to Labor Department statistics released late in July). What it means is that output per worker rose in that period after a lag of almost 2 years. It indicates not only that labor-saving devices have been introduced, but that speedup in the plants has vastly increased. It signifies a sharp intensification of labor and an increase in the rate of exploitation.

However, the question persists — when will everybody go back to work?

As though to half-heartedly answer this question, the Wall Street Journal of July 31 said, "If you've hung on to your job thus far, you will probably make it through the rest of the recession without being laid off. But if you are among the thousands [Thousands? — Is it not millions! -SM] already furloughed, you may have to wait longer." Had this organ of high finance and industry been really frank, it might have added, "much, much longer! And if you have hung on to your job the probability is for more and more layoffs!"

That, indeed, is a far more sobering forecast of the course of the economic crisis. It is once again, as in the thirties, idle workers, idle plants, and idle funds stacked high in the vaults of the giant banks.

A favorite bourgeois solution to get the recovery going is to mount a campaign — not to get unemployed workers back to the idle plants and start to operate them — but to once again start the tried and utterly bankrupt process of getting the government to lower interest rates for big business which in turn will lure the industrial capitalist to borrow money on low-cost terms and in that way start the capitalist cycle functioning once more. It's the old "trickle down theory." First they get the government to give away money to the big industrial capitalists, either in the form of large tax rebates or guaranteed low interest-rate loans, to start functioning once more. Eventually they will rehire more and more workers (but not all) and in that way some benefits will "trickle down" to the mass of the people.

The class character of these schemes should be obvious to any one but they persist through every capitalist crisis.

A working class solution is to first get all the workers back to work and also guarantee an income to all who cannot go back to work (regardless of what is involved in the fortunes of the capitalist class so far as profits go). Of course, that is not a solution which capitalist politicians and social-democratic reformers will easily accept except under the most severe pressure and threats of revolutionary struggle.

The material basis of bourgeois pessimism

Of course, for the plants and the workers to be totally idle has its drawbacks for the capitalists as well. Without exploitation of the workers, without appropriating the unpaid labor of the workers over and above that which is needed for them to barely sustain themselves — in other words, without the extraction of surplus labor from the workers, there is no profit in the long run for the capitalist class either. As Trotsky aptly remarked, "Where there is no work done, there even Rockefeller can get nothing."

The deep-seated pessimism of the bourgeoisie to which we referred earlier is based on more comprehensive and more authoritative surveys and rests on the fundamental premise that the current crisis which the capitalist world is undergoing is not the kind of cyclic crisis which it has experienced over the last 30 years. It is different, more like the 1930s. But the bourgeois economists won't say it quite like that. However, we do.

For instance, the Organization for Economic Cooperation and Development (OECD) in its last survey (in its "Outlook") forecast a rather gloomy outlook. The OECD comprises the 24 so-called richest capitalist countries. While its surveys are made by representatives of their respective governments, it is nevertheless of necessity more objective than the press releases that these respective governments issue, which are destined for home consumption to dupe the masses.

Its survey is not only gloomy, but, in the words of the London Economist (July 26), it forecasts "that economic growth over the next ten (!!) years would be slower than the world is accustomed to. " This is a euphemistic way of stating that the OECD's projection is capitalist stagnation for at least the next decade. What the London Economist sees in this on a worldwide basis is "a menacing army" of many, many millions of enraged and hostile unemployed workers in all the capitalist countries.

The U.S. News and World Report has its own comments on the OECD's survey. With its large circulation here at home, this mouthpiece of the right-wing of the bourgeois press also mutes its pessimism and states that "a return to the high economic growth rates and world trade gains of the past 20 years seems unlikely." In plainer words, it's really out of the question for a long time.

One need not rely especially on the OECD's survey. The U.S. government has itself admitted that U.S. industry as a whole has been operating at only 69 percent of capacity (very low indeed!), even over the last 3 months in which the indicators are supposed to show an upward trend. Only mining, oil and natural gas are operating at high capacity (New York Times, July 31).

And the crisis is even deeper!

It need scarcely be added that the unemployment figures are way beyond the 10 million figure around which the official statistics seem to hover. The government itself admits (Bureau of Census Statistics) that 1.3 million people — of all nationalities — have been added to the lists of the poor. (That alone should help cement class solidarity.) That makes a new officially admitted total of 24.3 million below the poverty line, or about 12 percent of the population.

When one adds to this the amount of people who now qualify for food stamps, one gets the true dimensions of the current capitalist crisis.

The crisis is unlike any of the previous crises over the last 30 years. The recovery, assuming but not conceding that it's already on the way, could not by any stretch of imagination absorb a minimum of 8 to 9 million unemployed (which would still leave a residue of several million unemployed and partially employed, anyway).

To put the bulk of American industry at the operational level which it experienced during 1972-73 would virtually mean adding 30 percent to the current operating capacity — a very tall order indeed for the capitalists.

One of the really significant economic indicators has always been machine tool orders. While they rose above last year, the rise was only because General Motors reinstated a cancelled order. Otherwise, this indicator, which usually shows what production will be in the near future, showed very little change.

But basic to any kind of real recovery, even for the short term, are autos and housing. This is so because it is precisely these industries which are considered to have so-called multiplier effects — that is, they usually fan out into a host of supplier industries such as glass, road building, sewer systems, auto parts, and so on. This is absolutely incontestable and agreed to by almost all bourgeois economists. But it is precisely these two industries which show the greatest resistance to any kind of general "normal" capitalist recovery.

According to Business Week of July 28, autos, instead of being the bellwether of recovery, are really dragging it down at the present time. The New York Times of July 27 agrees, "In the auto industry, more than any other business, and in Detroit, more than any other city, the recession of 1975 has looked like the great depression of the thirties."

In spite of recalls, the situation is not likely to substantially change or return to even the so-called "normal" employment of 1973. Even during the so-called periods of prosperity, sales of automobiles went way beyond the increases in employment. It is a well-known fact that after the minor recession of 1958 it took 7 years to return to the previous level of employment by which time the companies were producing almost 1.5 times as many vehicles per worker.

So far as housing goes, none other than the National Association of Home Builders, mouthpiece for the building industry, issued a statement attacking President Ford in which it said that "the outlook is bleak" and that the Ford administration was misleading the public by "issuing unwarranted public expressions of optimism." They said that "actual housing starts for the first six months of this year were the lowest for any comparable period in 28 years."

They even went on to say that signs "of any vigorous economic recovery (are absent) despite statements to the contrary from high economic sources."

All of this, obviously taken into account by one of the largest banks in the country, prompted the July Economic Letter of the giant First National City Bank to say "the spark of consumer interest [that is, purchasing power by the mass of the people -SM] so vital to a strong recovery, is not yet in evidence."

II. Comparison with 1930s

The larger issue to be considered is whether the economic crisis that began last year is of the dimensions and gravity of the one that was set off in October 1929 by the great Wall Street crash. True enough, there has not been such a cataclysmic crash, but the economic depression which is now in full swing more and more resembles the period of the thirties. Without the economic crash, it has come about or is coming about on the installment plan.

It is important to recall that the economic crisis that was set off in 1929 actually ended around 1939-40. It was the longest period of capitalist stagnation during the imperialist epoch. It rivaled and far transcended in intensity and in acuteness the economic crisis of 1873, which really lasted up until around 1895. These two long stretches, one in the 20th and one in the 19th century, can be compared only because of their duration. Both of these long stretches were interrupted by brief intervals of economic upswing. But they vary in other respects fundamentally.

They differ most meaningfully in the fact that the 1873-95 period, of course, encompasses the period of competitive capitalism. It was the period when economic crisis brought about lowering of the prices of manufactured goods. In a general way the whole period of pre-monopoly capitalism was characterized by a lowering of prices of manufactured goods brought about by intense capitalist competition and introduction of technological and labor-saving devices. There was no question during the entire period of an inflationary spiral whose stubbornness and intractability could not be overcome. The inflationary period of the Civil War had by and large been overcome.

That whole period which Lenin chronologically put between 1870 and 1914, the outbreak of the imperialist war, was generally the progressive phase of capitalist development. This does not mean that it was any less oppressive, but that it had by and large plenty of room for upward development.

The 1920-40 period was wholly different from the long stretch in the 19th century which began in 1873. The economic crisis ushered in by the Wall Street crash was "solved" by state capitalist intervention which alleviated some of the worst consequences wrought by the havoc of the economic collapse. The Rooseveltian New Deal and its social legislation gave a fillip to the capitalist economy for a while.

The dollar was devalued. A gigantic trade offensive was started against the rest of the capitalist world. A multitude of government-sponsored make-work projects such as the WPA were introduced along with CCC camps, youth labor camps, and a myriad of other projects. Millions of dollars were poured into the coffers of the rich at the expense of a tremendously enlarged budget deficit.

Roosevelt allied himself with the large banks and light industry in order to artificially stimulate the capitalist economy. It was the beginning of the Keynesian era of priming the pump. Nevertheless, by 1937-38, another economic collapse proved that the capitalist crisis had really not been overcome. In reality, it was the turn towards the Second World War which fueled the renewed economic upturn in 1940. Heavy industry grew along with all the ammunition factories and the establishment of new aviation plants and other war-making facilities. This together with the draft set a new phase in the economic cycle.

The truth of the matter is that there has not been a normal, that is, spontaneous, economic upturn in the classical sense of the word for the capitalist economic cycle.

Monopoly and the military

Whereas the 1873 stretch was accompanied by lowering the prices of manufactured goods, the entire imperialist epoch has been characterized by ever-rising prices of manufactured goods. This is so in spite of all the technological developments, innovations, and labor-saving devices. Monopoly maintains (that is, rigs) prices artificially and extracts enormous, extortionate super-profits.

There was a lowering of prices for a while during the most acute stage of the economic crisis of the thirties, but it was short-lived, and the upward spiral of price hikes resumed unabated. This was partly due to the rigging of prices by the giant monopolies, but even more to monumental war expenditures of such size and magnitude that they actually depreciated the value of the currency, not only in the United States but virtually throughout the whole capitalist world. Currency inflation thereafter, the devaluation of the various monetary units of the capitalist countries, made currency wars a prelude to direct military conflicts.

In every way, monopoly capitalism has so distorted and transformed the normal functioning of the capitalist system that it is virtually impossible for the system to function without some of the strictest controls, that is, the direct fusion of the capitalist state with the economy.

At the end of the Second World War, it was plain that after the havoc wrought by the military conflict and the virtual breakdown of the capitalist system in Europe, a capitalist economic decline was in the offing as soon as the postwar reconstruction period had ended, which might have been somewhere around 1949.

However, the few symptoms of economic decline that made themselves felt primarily in the United States were soon completely submerged by the Korean war. This was followed by the Vietnam war.

Even before the U.S. suffered the catastrophic defeat handed to it by the Cambodian and Vietnamese people last April, it was obvious that American finance capital, and along with it, but to a limited extent, European and Japanese finance capital, would go into a deep tailspin.

As we indicated last year there has been no normal capitalist recovery. From this it follows that even if there is going to be a limited period of capitalist upturn, the world capitalist economy is headed for a long period of stagnation. And the real question which this poses is whether the capitalist system can survive it, given contemporary political conditions.

They thought expansion would never end

Nevertheless, the question may still be validly raised as to why this economic crisis should necessarily differ in duration and intensity from the previous four or five economic crises which the capitalist system experienced over the last 30 years. The bourgeois world has viewed this lengthy stretch of economic history from the end of the Second World War practically up to 1973 as having been characterized by the greatest wave of capitalist expansion and prosperity (never mind the 5 or 6 million unemployed at the time, the millions on welfare, etc.).

The most remarkable aspect of these last three decades has been that the four or five cyclical crises were of a mild and moderate character and of relatively short duration. Not one of them even lasted a whole year. In fact, it appeared to bourgeois economists that the expedients which the capitalist politicians began to apply after the great crash of 1929, especially during the Rooseveltian era and all the way down to the late 1960s, had virtually eliminated crises from capitalist development.

It began to be the vogue in bourgeois liberal circles to speak of Marxism as having been disqualified by experience. In the universities in particular, bourgeois liberal economists, especially such luminaries as Kenneth Galbraith and others, were most lyrical about the expansionist possibilities of capitalism. So pervasive was the idea that capitalism was reorganizing itself and eliminating its dangerous defects by self-regulation — that is, by eliminating anarchy and chaos inherent in capitalist production — that in 1969 no less than the Council of Economic Advisors to the President, that is, the principal advisors to the U.S. government on economic matters and generally representative of the views of the dominant sections of the bourgeoisie, took it upon itself to make the following rash statement: "The vigorous and unbroken expansion of the last eight years is in dramatic contrast to the thirty month average duration of previous expansion. No longer is the performance of the American economy generally interpreted in terms of stages of the business cycle. The forces making for economic fluctuations have been contained through the active use of monetary and fiscal policies."

Thus we see that the view of the U.S. government's most able advisors was that the capitalist economy could no longer be regarded in terms of the "stages of the capitalist business cycle." They in fact boasted that economic fluctuations, that is, the violent ups and downs of the capitalist economy, had "been contained" through the hocus-pocus of "active use of monetary and fiscal policy."

The external laws of capitalist development had been eliminated, they claimed, and capitalist prosperity was from now on apparently to be an eternal process.

How the stock experts . . .

"It was not so much the business recovery nor its anticipation which produced the recent rise in the stock market but rather the fact that business was weak. This weakness permitted inflation and interest rates to subside and the flow of money to shift from inventory-building and real estate to securities (stocks) ..."

. . . see their system!

"Finally, and without pretending to be profound, is Western civilization on the decline? The subject is relevant to the investor because analysis of this would shed light on the parallel question of whether common stocks are entering a long-term uptrend, during which declines can generally be ignored, or whether we have witnessed simply a rally in a bear market."

(Both quotes from New York Times Financial Section August 3, 1975.)

III. Military collapse and economic consequences

The learned counsellors to the imperialist establishment had, however, inadvertently left out two minor details regarding that 8-year period — the Vietnam war and the military budget.

From 1961 to 1969 — the period covered by the report of the President's economic council — U.S. spending for military purposes amounted to no less than $546 billion! In the year 1969 the military budget alone was $81 billion, or 56 percent of the federal government's total budget of $146 billion (Pentagon Capitalism by Prof. Seymour Melman, p. 72).

Imperialist finance capital regarded the largest chunk of this fabulous sum of money as a "sound investment" from which it would derive enormous super-profits if the Southeast Asia adventure turned out to be a success.

The collapse of this mad dream began to make itself felt soon after the 1968 Tet offensive. Johnson's resignation underlined this. And the collapse of the Penn Central (basically civilian) and Lockheed (almost all military), which had been artificially maintained by further subsidies, brought home that the post-World War II era of U.S. imperialist expansion and imperialist successful adventures was nearing an end.

Military investment is only a "sound one" when it is successful, when it is able to conquer vast territories with an abundance of raw materials and sources of cheap labor and a means for the disposal of capitalist surplus production.

$104 billion to produce inflation and disaster

Military expenditures, especially of the gargantuan dimensions of the last few decades, and particularly in a period of the contracting fortunes of finance capital, instead of acting as a stimulant to capitalist expansion and accumulation turns into its dialectical opposite and becomes a depressant. Like any drug, it may operate to accelerate recovery from illness, but if administered on an ever-continuing and ever-increasing basis without let up, it becomes toxic and poisons the organism.

Only recently, Senator Kennedy after a visit to the Middle East ventured to remark that "the U.S. is becoming hooked on the heroin of arms buildup in the Persian Gulf. " But it is not only the Persian Gulf, it's also in Europe, Latin America, parts of Asia, anywhere on the face of the globe where the U.S. can dispose of its ever-increasing military equipment. Kennedy's cure for the "heroin-addicted" military-industrial complex was to "declare a moratorium for six months." He has no more a solution to the problem than the "heroin addicts" in the Pentagon.

From the foregoing it follows that the military budget, which for 1976 is calculated to be $104 billion, is not likely to have the effect it had in the previous decades when military adventures paid off by enslaving huge sections of the globe. In the final analysis the manufacture and sales of planes, guns, missiles, and tanks must show an exchange, even if not an equivalent one, in the form of other commodities or other visible means of economic wealth.

Even when the military expenditures operate as an economic stimulus, they distort the functioning of the capitalist system in an irretrievable way. In the first place, military production preempts vast resources and skills to a degree which undermines and makes virtually impossible an easy, or even protracted, conversion to civilian production. The caste system, and the military-industrial complex which feeds it, becomes stubbornly entrenched and even great progressive political struggles of a mass character can barely move them.

Military spending is one of the principal causes of absolutely inordinate price inflation. This in turn affects the entire civilian economy. The military does not really buy in the open market with open competitive bidding. Prices are continually rigged upward, and woe unto those administrators who even disclose the more malodorous wheelings and dealings! Because price inflation as a result of military spending is so steep, it permeates all levels of civilian production and disrupts the civilian capacity for normal capitalist development.

The eagerness with which the liberals in the Senate and the House are reversing themselves on the military budget — witness the turnarounds on the Diego Garcia naval base, the B-1 bomber, and the very recent House subcommittee approval to build the F-18 Navy plane — is a certain harbinger that the worthy representatives of the liberal establishment have taken to the "heroin of arms building" themselves, and with a vengeance.

It will be of no avail. The results will be of a catastrophic political character and can only lead to the most dangerous military adventures.

We shall consider next the general causes of inflation which were slowly building up over the past 30 years but which are more intractable in this period, the period which has been ushered in by the collapse of the U.S. war effort in Laos, Cambodia, and Vietnam.

— August 1, 1975

IV. More on the real nature of the current crisis

Economic historians of the current capitalist crisis will undoubtedly — and correctly — regard last year's collapse of the Herstadt Bank and the Franklin National Bank as its starting point. It may however also be traced back to the financial crisis of 1970.

The latter ushered in the collapse of one of the giant railroad networks in the country, the Penn Central. Not at all coincidental was the virtual bankruptcy of Lockheed, one of the multi-billion dollar defense contractors.

(The collapse of these two corporate giants should be seen against the background of the Vietnamese Tet offensive which marked the turning point in the fortunes of U.S. imperialism although not fully recognized as such at the time.)

It is deeply significant that five years afterward, both of these great capitalist establishments are as sick as ever. Transfusions of many millions of dollars have been of little avail.

These two establishments are in many respects representative of the most substantial portion of capitalist industry in this country. One, the Penn Central, is a civilian firm, and the other an arms producer. The fact that both could be so terribly ailing at the same time bolsters the view that it is not one of the "moderate" cyclical crises that occurred in the past three decades but the beginning of a protracted period of capitalist stagnation in many respects similar to the period of the thirties, which were also marked by brief periods of recovery.

Real cause and effect

The resurgence of the current spiral of inflation is evident in the sharp upturn in the Consumer Price Index for June and probably for July.

But there are much more serious indications, such as the impending price increases in aluminum, steel and copper, which in turn affect most of the products destined for popular consumption. Price increases in monopolized industries such as these are the ones that really set the pattern for all the rest. The general inflation grows directly out of the unchecked price hikes of the monopolies.

Inflation, however, is usually considered to be the cause of the crisis rather than the effect. Capitalist theories of inflation abound and all, without exception, are calculated to throw the onus of responsibility for the ravages of it from the shoulders of the ruling class onto those of the working class and the oppressed people. (They are too greedy for bread!)

At the moment, capitalist economists, the press, and other news media are hard at work making the Soviet grain deal and Arab oil the principal cause for the renewed surge of the inflationary spiral.

Capitalist theories of inflation almost always lump together the inflation of ancient times, the feudal period, the period of commercial capitalism, the competitive stages of capitalism, along with that of monopoly capitalism.

What they extrapolate from these different modes of production and different periods in the capitalist system itself are meaningless generalizations which do not throw any light on the causes of present day inflation, but rather obscure them.

Who gains, who loses

By lumping all periods of inflation into one pot they hide the driving forces behind each inflationary period and ignore the various classes which gained or lost in the course of the inflation. It is true that in the current period there are present some of the same characteristics prevalent in different historical situations. But the results were different.

For instance, the inflationary period in the United States resulting from the Civil War was followed thereafter by a deflationary period. However, the Civil War itself, of which the inflation was merely a monetary expression, gave an impetus later to a tempestuous forward development of American capitalism.

Today there may be some remnants of the kind of inflation that existed in ancient times, in feudal times, and in the period of competitive capitalism. (The devaluation of the dollar is no less a coin clipping operation than that which the princes and monarchs of the period of early commercial capitalism employed!)

Under modern capitalism, price inflation as well as monetary inflation has existed and can exist wherever commodity exchange exists on a large-scale basis. All price inflation of course is a symptom of instability. And currency manipulation is a symptom of the inherent instability in the capitalist system as a whole.

The currency wars following the First World War, including the one begun in the early seventies, are symptoms of decay and a manifestation of sharpening antagonisms in inter-imperialist relations.

From competition to monopoly

The inflation which has been most characteristic since the First World War — with slight declines between the First and Second World War — differs fundamentally from the inflation of all previous epochs.

In particular it differs from the inflation of the competitive stage of capitalism. During the competitive stage of capitalism the prices of manufactured goods commodities as a whole, were in a more or less constant decline. One must remember what Marx said in The Communist Manifesto. That it was cheap commodities that heavily contributed to "breaking down the Chinese walls."

Because there were so many competitors, competition was a spur to the production of cheap commodities and in that sense capitalism was, of course, on the upgrade in its developing state.

Of course capitalists are always interested in higher prices, not only for investment, but because it brings higher profits. But the competition during the so-called progressive stage of capitalism operated as a barrier to higher prices and the success of this or that manufacturer lay in underselling his competitor and in lowering the price of his product.

But the centralization of the means of production in fewer and fewer hands converted the capitalist competition into capitalist monopoly, and prices began to artificially skyrocket and, in fact, became still more rigged.

Therein lies the general cause for chronic capitalist inflation.

If we compare the whole price range of commodities, particularly of wholesale prices beginning with the first worldwide capitalist crisis of 1825 all the way down to the turn of the century, we cannot but note that the prices of manufactured goods were generally on the decline during that entire period but only began to rise steeply with the development of monopolies on a large scale.

There is absolutely no way to get around this except to abolish monopoly capitalism in the means of production and for the workers to take over the economy and plan it on a rational basis.

War dreams down the drain

However, on top of the general cause of inflation arising out of monopoly capitalism, there is the inflation that is caused by military expenditures and imperialist wars which still further heighten the inflation and accelerate the tendency towards capitalist stagnation.

As we mentioned earlier, during the 8-year period from 1961 to 1969, that the Council of Economic Advisors to the President alluded to, the government spent $546 billion for military purposes.

The IOUs (that's what the dollars really are which are floating all over Asia, Africa, Latin America, and Europe, not to speak of the United States which paid for the military equipment) are really that much water in the circulatory system of the capitalist economy. The real equipment has either been destroyed, given away, or tucked away in mothballs.

But the primary consideration for it — we speak here of the monetary considerations for these IOUs — was the dream of obtaining vast new markets in Southeast Asia and other parts of the world which, with the collapse of the Vietnam adventure, went down the drain. And hopes for reviving it are the dreams of madmen in the Pentagon.

The current economic crisis differs from the moderate cyclical crises of the last three decades in that the U.S. has literally run out of imperialist wars — for the moment at least.

The crisis also occurs at a time when the total area available to the U.S. for the extraction of surplus value and for the disposal of surplus production at a profit has become circumscribed and narrowed, making a renewed cycle of capitalist production, reaching a peak higher than the previous one, as was the case after the previous crises, exceptionally remote.

Propaganda against Arab oil countries

It will not do to explain the resurgence of the capitalist inflation on the basis of the rise in Arab oil prices and the enormous surpluses which the Arab oil-producing countries are supposedly filling their treasuries with.

A year ago, the capitalist media was dominated even more than it is today with the oil crisis and the giant surpluses which the Arab oil countries were said to be accumulating in their coffers. The propaganda virtually turned into a veritable anti-Arab hysteria which only slightly receded as of now.

Last year, we must recall, the bourgeoisie was predicting that the surpluses from oil revenues in the OPEC countries would be so large that it would almost be impossible to "recycle" (to get back) into the Wall Street banks. The amount of billions the OPEC oil-producing countries were said to be accumulating ranged all the way from $250 billion to $650 billion.

We pointed out at the time that even if this were true, all that it meant was that paper money, or checks drawn to the accounts of the OPEC countries, would be ultimately deposited in the huge banks of the imperialist countries such as Chase Manhattan, First National City, Morgan Guaranty Trust, and the big London, German, French, and, of course, Swiss banks.

The way we answered the questions regarding the so-called OPEC surpluses was, that as long as the OPEC countries remained under bourgeois compradore domination and as long as they were in the orbit of the capitalist world and remained dependent on it, it merely meant that in exchange for oil the oil-producing states were in return given IOUs by the imperialist countries which, under contemporary conditions, were destined for deposit in imperialist banks.

Of course, some of this money would be utilized for industrial equipment agricultural and manufactured commodities, and a variety of other imports. But this would be only a drop in the bucket and even over an extended period of years would come nowhere near to attaining the technical know-how and equipment necessary to create a modern industrial bourgeois state.

The reality of the situation is that the bulk of the imports into Arab oil-producing states is in the form of military equipment, which to date comes close to $20 billion worth.

Reason for the turnaround

But what has happened to the predictions of the tremendous flow of "surplus dollars" — so-called petrodollars — into the treasuries of the OPEC countries? The very banks and government officials who raised such a fierce storm about these petrodollars have now quietly changed their approach without letting the broad public know about it.

The $250 to $650 billion surplus has now been downgraded almost to a deficit. This fantastic turnaround is not altogether due to capitalist propaganda turning the faucet on and off as they generally do whenever it suits their purposes.

The turnaround is also due to the ravages of the capitalist depression. The cut in oil consumption in some of the capitalist countries is the result of the industrial slowdown — of a decline in capitalist world production due to the depression. (This, of course, has not forced, as of now, the OPEC countries to cut the price of oil.)

Thus, the monthly Economic Letter of the First National City Bank for June 1975 makes the following cynical observation about the oil surpluses in OPEC countries.

"So what began in 1973-4 as a ferocious tiger was first declawed and is now becoming a Cheshire Cat." Two other giant banks, the Irving Trust Co. and the Morgan Guaranty Trust, have made similar observations.

What an object lesson in the manipulation of public opinion by the banks and the government! One only has to remember that it has been barely six months since Kissinger, Schlessinger, Ford, the New York Times, The Washington Post, and the Los Angeles Times let loose the most ominous sabre-rattling, shaking their nuclear fists at the Arab countries and shouting themselves hoarse that it was these Arab oil surpluses and price increases which were strangling the world capitalist economy. It now turns out, as they admit themselves, that the exact opposite is the case.

Of course the oil price increases have added to world inflation but that is not the basic cause of the galloping global character of the inflation. The OPEC in its mid-year report of a year ago credited the oil price increases over-all with a mere two percent.

Colonial oil and imperialist overproduction

The fabulous wealth in the form of oil buried beneath the ground of the OPEC countries remains wealth all right. But so long as the OPEC countries remain oppressed nations and imperialism controls the basic fabric of the world capitalist economy, the OPEC countries, in spite of undoubted economic advances, are nevertheless the dominated ones and by no means the domineering ones in the world capitalist order.

The roots of the general capitalist crisis lie in capitalist overproduction and the inability of the capitalist class to dispose at a profit of the tremendous products which continually flow out of the giant mines, mills, and factories.

This over-all crisis coincides with the general crisis of capitalism which was ushered in as long ago as the end of the First World War and has only been interrupted by brief periods of capitalist recovery and devastating imperialist wars and military adventures.

What imparts particular acuteness to the present economic crisis is that it comes at a time of maturing over — all political crisis in all the leading imperialist countries. It is to this crisis that we must now address ourselves for the economic crisis will be solved by political means and not by the automatic processes of capitalist development.

— August 4, 1975

V. A bank fails

NEW YORK, Aug. 25 — It was nice and sunny in Eldora, Iowa, that midsummer day in 1974. Hardly anybody would have thought anything extraordinary had happened. Yet if on that Monday you had had to cash a check or make a deposit at the First National Bank of Eldora, the only one in this little town, you might have noticed on your way in or out a slight change in the name of the bank. It had become the Second Bank of Eldora.

No, it wasn't that another bank had nosed it out of first place. Something else had happened.

From late Thursday afternoon the week before until the wee hours of Sunday morning, there had been feverish activity by a handful of people in Eldora and in Washington who were trying desperately to see that this tiny little bank, one out of 20,000 in the country, should not sink.

The federal bank regulator, James Smith, who had jurisdiction over that bank and 5,000 others, also had a sentimental reason for taking a special interest in it. His mother lived in Eldora, and it was kind of his home town. But try as hard as he could, by Saturday he had to throw in the towel and put the bank up for sale at an auction. By Monday morning the sale had cleared and the First National had gone under.

To the citizens of Eldora it seemed as though nothing much had happened, merely a change in name. Since deposits up to $15,000 were insured and everything else in the bank appeared as before, it didn't seem as though there was anything to worry about. But the bank's bad debts had to be called in, and this meant that some business firms either had to cut back their business activity, cut their staff, or lay off workers. That was noticed, especially by the people concerned.

A symptom?

Was this failure of a tiny bank deep in the heart of mid-America a signal of an impending storm? Would the federal bank regulator, also the controller of U.S. currency, initiate an immediate in-depth study of what was going on in all the banks in his jurisdiction to see if a financial and economic catastrophe was coming?

James Smith admitted later that he had "sensed trouble." So he decided to look into the general health of the banking system. After all, he said to himself, perhaps early detection could prevent a financial and economic crisis. That would make him a real hero in the banking and business fraternity.

After all, as the federal bank regulator and the controller of the U.S. currency, he was in charge of a vast army — there were 2,500 members on his staff. They could be mobilized quickly and ordered to look into the situation right away and report to him. The banks were legally bound to open their books to him or face penalties. By law he was charged with the responsibility of monitoring about 5,000 of the 20,000 banks in the country. Among these 5,000 were some of the very biggest. He could also reach into the 15,000 other banks by a variety of legal and administrative powers available to him under existing law. And he had wide latitude in judgment in determining the number and size of banks, the structure of this industry, and even the degree of competition.

He and Arthur Burns, the Chairman of the Federal Reserve Board, were really in charge of the whole banking and financial structure of the U.S. The comprehensive study he would undertake would help him decide whether what had happened in Eldora was an accident or an emerging phenomenon. With all the techniques, money, men, and vast authority at his command, perhaps he could determine whether a dangerous trend in the economy was surfacing.

Capitalist crisis

Little did he know, or appear to know, that he was treading a beaten path. Since 1825 when the first worldwide economic crisis developed, learned men in high places, in government, in industry, and in the universities, had tried not only to fathom the meaning of the so-called disturbances in the economic system, but had tried by a variety of mediums to change their course or eliminate them. There had been no success. All measures taken in that direction had proven to be mere palliatives. At most they had delayed the oncoming crisis and more often as in recent years had diverted it by driving the crisis deeper into the organism, only to find that it exploded with greater force and vigor than before.

For the crises are the inevitable result of the inherent contradictions in capitalist economy — where production is carried out on a collective basis but is appropriated on the basis of individual gain. Moreover, the crises occur independently of the will of the capitalists themselves. This law of capitalist production has the force of a natural law.

Understanding this will explain why no amount of comprehensive investigation or study would be helpful in obviating a developing economic crisis.

And it explains why James Smith, federal regulator of the banks, was frustrated in his efforts to save the Eldora bank and why, shortly thereafter, he found himself immersed up to his ears in a much bigger sea of financial troubles — the collapse of the Franklin National Bank.

Franklin National confirmed a crisis

All the vast powers Smith had at his command — specialists of all kinds, the help of computerized technology of the most sophisticated type — did not equip him to comprehend the oncoming catastrophe at the Franklin National Bank. For days and weeks on end, he and a large number of officials from his staff, from the Federal Reserve Bank's staff, and from the big banks in New York, worked on a monumental rescue mission to save this tottering giant from collapse, to save a multi-billion-dollar bank with international connections and significance.

Officially the trouble was characterized as foreign exchange losses. But in reality it was unrestrained monetary speculation on the international arena. In the classical, competitive stage of capitalist development, such foreign exchange speculation was a normal accompaniment to international trade and commerce. However, the speculation which has been rife particularly since World War II has its origins in the devaluation (or rather debasement and depreciation) of the dollar and other currencies — a symptom of severe inter-imperialist rivalries and capitalist instability. This has been especially true since the end of the Vietnam war, when the boom-bust cycle of capitalist decline has reemerged with a vengeance and the so-called long boom, mostly the result of the Korean and Vietnamese wars, has drawn to an end.

Viewed in this light, the collapse of the Franklin National Bank was no more accidental than was that of the tiny First National Bank of Eldora. But the crisis of a multi-billion-dollar bank provokes a lot more attention, a lot more effort, and more desperate rescue measures than that of a small-town bank. It is no wonder that vast transfusions into the dying organism of the Franklin National Bank were soon hurried. The big banks in New York were mobilized in this giant effort. Eleven of them, including Chase, First National City, and Manufacturers Hanover sunk in $250 million. The effort was necessary, it was thought, because it could avoid a worldwide financial crisis.

Billion-dollar rescue fails

After some changes in the management, the introduction of new efficiency measures and exposure of some of the shady practices of the Franklin National (but no shadier than those of the other banks), an effort was made to make it function. But it wouldn't. After the transfusion of $250 million, the Federal Reserve Bank itself stepped in with a billion dollars — but by then the bank was already finished and as in Eldora, if you went to cash a check or make a deposit you saw a new name on the bank window: European American.

What the collapse of the Franklin National Bank showed was that the financial crisis was worldwide, that the phenomenon which had been observed in Eldora was also to surface in West Germany with the collapse of the Herstadt Bank, a giant on the European continent.

What is really important today, nearly a year after the Franklin collapse, is that the very banks who were so generous in offering their transfusion to the Franklin National are themselves in trouble.

VI. Why the banks are assaulting NYC

Therein lies the real clue to the assault on the city of New York and its millions of people — especially the poor, the workers, and the many millions who have toiled to make this city the great metropolis it is today.

These very banks have stuffed in their vaults billions upon billions of IOUs. This money has vastly depreciated as a result of the Korean war, the Vietnam war, and the continued parasitic production of armaments by the military-industrial complex — the production of planes, tanks, guns, and missiles, all most sophisticated and costly, which brings no material return beneficial to industry or to the people as a whole, particularly the working people.

All this takes place on the crest of a capitalist crisis of over-production. The banks are the central nervous system of the economic structure of the capitalist system. Their health reflects the state of industry, shipping, mining, commerce, etc. The latter are in a state of utter decline and stagnation. But IOUs printed by the government continue to pile up in the banks and flood all the arteries of world capitalist commerce and trade.

It's the dead hand of past imperialist wars and adventures which holds back the future, keeps the capitalist machine in a state of stagnation, unable to obtain new areas for exploitation and obstructed everywhere by heroic resistance from rebellious, underdeveloped countries.

The ruling class is impelled more and more to overcome the crisis by shifting it onto the shoulders of the workers — Black, white, Chicano — especially the poorest. The banks are in the vanguard of this offensive. That is what has to be realized and clearly understood. They are looking for the weakest link, where to aim an assault.

The banks have naturally seized upon the finances of the large cities as their primary target. This is not hard to understand. A considerable number of IOUs in the vaults of the biggest banks are from municipal corporations — big cities like New York. The big banks have many notes, bills, bonds, and various other financial instrumentalities from the cities.

The banks have always been especially eager to purchase these forms of indebtedness from big cities like New York. One good reason is the high interest on the city's bonds. Another equally cogent reason is that these bonds are tax-exempt. This is especially helpful for the millionaires, the very rich, who alone can buy them in large numbers. It's their tax shelter. The workers have no shelter like that at all. They pay out millions in sales taxes, tolls, cigarette taxes, and hundreds of hidden indirect taxes. There is no shelter for the workers at all.

But for the very rich, municipals have always been a good buy precisely because they enable them to avoid taxes and at the same time garner in extortionate interest rates. Any danger of depreciation in the value of these bonds, notes, or bills immediately makes the city government a target of attack. Through the city officialdom, the bankers can strike a blow at the living standards of those who work for the city and all who live in the city, particularly the mass of the workers and unemployed.

They've done it before

A bird's-eye view of what has happened since the turn of the century in the struggle of the banks as exploiters and oppressors of the city is extremely instructive. Let's take New York City as an example.

In 1907 the U.S. experienced a tremendous financial crisis. At that time the city of New York came under severe attack from the press. The attack, except for a change of verbiage, was in substance the same as today's. The city was "living beyond its means," the poor and working people were "to blame for the crisis." Yet in 1907 there was no sanitation union to blame, no public employees' union, no teachers' union. There was no welfare system at all aside from Salvation Army-type relief. So-called charitable organizations, poor houses, and soup kitchens were the only things left for the unemployed and the needy.

Yet it was the poor who were blamed and the cry was that the city was "living beyond its means." There was no Federal Reserve Bank at the time to which even small banks could appeal. And there was little if any bank regulation to check on the banks. One of the leading banks, the Knickerbocker Trust Co., had failed to sell an issue of New York City bonds. The furor created in the press by this hastened the financial crisis and panic.

It was then that President Theodore Roosevelt and Secretary of the Treasury George Cortelyou worked together with J. P. Morgan to "bail out" the city. They did so by putting the city in virtual hock to J. P. Morgan and Co. Mayor McClellan became the errand boy for J. P. Morgan in the same way that Mayor Beame is now acting on behalf of the banks which, through the medium of big MAC and other stratagems, are subjugating the city and its people.

In those days almost 70 years ago, it was said that, once a centralized banking system like the Federal Reserve Bank of today was established, panics and financial and economic crisis could be avoided or substantially reduced so that no city would ever again become enslaved to the bankers as New York City had become enslaved to J.P. Morgan in 1907. Nevertheless in 1933, notwithstanding the existence of the Federal Reserve Bank, the "bank of last resort," a capitalist economic crisis crashed down on the heads of the people of New York. With slight modifications, the exact scenario that had occurred between the Morgan bank, Mayor McClellan, and Teddy Roosevelt in 1907 again took place in New York. This time it was Mayor O'Brien and there were both Rockefeller and Morgan banks. Once again New York City was in the vest pocket of the bankers as collateral security to them. The politicians in charge of the city were encharged by the bankers with squeezing the last drop of blood out of the mass of the people.

The city officials, with the mayor at the head, who were pledged to promote the good and welfare of the people and defend them against the banks' depredations, were in reality delivering them to the tender mercy of the banks.

Now once again, as in 1907, the arguments being made in the capitalist press are the same as those made in that earlier crisis of American capitalism. The chaotic scenario being played out today reflects the same havoc visited upon the people as a result of the objective effect of the capitalist crisis. Always in these cases of cyclical ups and downs, the rewards go to the greedy while the capitalist politicians prey upon the needy.

Reserve bank to the rescue — of whom?

It was shown that the problem of the city of New York is not a local phenomenon, nor even an urban one alone, but part and parcel of a worldwide crisis of the capitalist system when the Chairman of the Federal Reserve Board was forced to say that the Federal Reserve Bank, that is, the government, will come to the rescue.

Not, mind you, to the rescue of the city and its inhabitants — but to the rescue of the banks in case the city defaults.

The catastrophe, you see, is not unemployment, loss of social services, health care, sanitation, and so forth. The catastrophe lies in the failure of the millionaires, multi-millionaires, and billionaires to get their regular coupons — the extortionate interest from city bonds, notes, and bills. As in other capitalist crises, the government is prone to collect bad debts that the big banks have accumulated. The government will take care of that. After that is done, new cruel taxation on the working people will be levied and collected to make good the bad debts accumulated by the big banks.

It must be recognized that the insolvency of some of the largest cities in the United States is merely a part of the general bankruptcy of the capitalist system in its period of decline, when it depends on imperialist wars, adventures, and parasitic military production by the military-industrial complex to solve an economic depression.

VII. The tactics behind inflation

The origin of the crisis of the cities lies, therefore, in the general crisis of capitalism in this country. The capitalists are trying to overcome their crisis by a general assault on the mass of the workers, striking at the weakest link first: cutting social services, health, sanitation, fire control, and education.

A broad, frontal attack on the organized working class, especially in basic industries, is at the present time not possible, although it is precisely what the ruling class has in mind. Thus fueling the fires of inflation becomes an indirect method of cutting the living standards of the population as a whole and the workers in particular. But a frontal attack, which they would find more desirable, is more dangerous for them because it would enhance the class struggle, raise the class consciousness of the workers, and be a prelude to the political organization of the working class on an independent class basis.

It follows from this that the most effective answer to the crisis of the cities lies in a general working class counter-offensive against the ruling class which would unite Blacks, Chicanos, Puerto Ricans, Native Americans, Asian Americans, and whites, men and women, in a common struggle against Washington and Wall Street. Such a struggle should not be confined merely to one city or one region but should have the character of a nationwide class approach.

— August 27, 1975

Last updated: 1 July 2018