WHAT TRIGGERED THE CRISIS?

It is generally recognised that there is an ongoing economic crisis taking place within the 21st century capitalist system. However, its causes and what has triggered it – which are not necessarily the same – are the subject of considerable dispute. This dispute takes place not only within the pro-capitalist camp but also within the anti-capitalist ranks. The pro-capitalists, viewing as they do, the capitalist system as the most advanced and desirable system, rarely if ever delve below the ’appearances’ of the economic categories of their system. They try to make sense of it and suggest remedies based upon these surfaces appearances. From the standpoint of anti-capitalism, however, it is important to understand the underlying phenomena which gives rise to these appearances and recognise the complexity involved. The following is a contribution to such an understanding.

Belief in economic appearances are the economic equivalent of the everyday fact that from our various places upon the planet it ‘appears’ that the sun goes round the earth, when in fact it is the opposite. This fact did not prevent the vast majority of people ‘believing’ that this was so for thousands of years, despite it being challenged, particularly by Copernicus and later observers of celestial reality. In delving beneath appearances, Marx, did for economics, what these early mathematicians and observers had done for astronomical and other sciences. Marx formulated the general possibility of capitalist crisis as emanating from the separation in time and space between purchase and sale of commodities. This together with the pursuit of profit leading to relative over-production (producing more than could be sold at a profit) could compound the general possibility and turn a limited crisis into a general one.

During the 20th century such a period of relative over-production, was off-set to some degree by the extension of multiple forms of credit. Indeed, such an off-setting, extended credit factor itself, can create an over-production of credit along with the increased possibility of defaults. This occurred roughly during the period of 1970 – 2000. In many ways the relative over-production of commodities and thus the overproduction of productive capital was revealed in Europe when wine lakes, butter mountains and set aside agrarian policies were brought to popular notice. Such EEC measures where not taken because all these commodities and future land-produced commodities, could be sold on the open market at their value and the capital invested realised, but the opposite. They were purchased and stockpiled (or dumped) because the capital (and thus surplus labour) locked up in them, could not be realised without government intervention, utilising borrowing and tax revenue to purchase them.

At this point it should be obvious, as in other walks of life, that due to complexity, the immediate trigger releasing an acute crisis may not always occur at the point were the crisis is maturing, but at a weaker connected juncture. And the system of capitalist production has many such junctures. The circulation process of capital, requires many intermediate stages between initial purchase of raw materials, means of production, the production, distribution and sale of the finished commodities. Between each of these numerous phases, money or credit or a combination of the two, must link all the elements of production and circulation.

What is true of each particular industrial or commercial factory, is also true at a national and international level. The whole system of modern capitalism requires a complex international interconnection and continuous reliable production, transportation and consumption process. A significant or substantial breakdown in any one of the linked but separate stages or between stages can trigger or be triggered by a particular crisis and in certain circumstances – subsequently develop into a general crisis. The following are just a number of the more probable locations for such possibilities of crisis emerging and re-emerging.

1. Significant quantities of commodities remaining unsold.

Relative over-production. This could occur for any number of reasons – saturation of the market, downturns in consumer spending, collapses in currency – but any such significant relative over-production of commodities, would result in the failure of money capital to return to the producer. Depending upon the financial reserves held by the producer (or availability of sufficient credit) this could in turn lead to failure to pay for further materials or labour, leading to cancellation of orders and sacking of workers. Any such failure in one place could pass down the line of suppliers and producers causing multiple failures there also.

2. Non-fulfilment of payments.

Defaults. This could occur for the above noted reasons, but also because of swindles, thefts, speculative purchases, miscalculations, a down-grading or lack of credit, increased costs of credit, a rise in the costs of materials or labour etc. Again any such significant occurrence in one company or industry could have a knock-on effect on others along the full length of the chain of supply, distribution and consumption. Each one relying, sooner or later, on receiving payments in order to pay their creditors.

3. Unavailability of credit.

Credit squeeze. The complexity and diversity of the modern system of capitalism requires an extensive credit system. Credit avoids, any interruptions in the process of production and consumption, caused by delays in the realisation of surplus value or an insufficient supply of interest bearing capital. Credit itself could dry up or be refused, not because of any problems with production or distribution of commodities, but because of problems or changes occurring in the credit granting institutions. Crises in this realm of capitalism can react upon the essential production processes and cause a crisis. Because any such refusal in one place could have a domino effect on the payments and transactions of industrial or commercial businesses.

4. Speculative bubbles and collapses.

Leveraged and fictitious capital. An extensive credit system and the supply of surplus value in the form of interest bearing capital, leads to the creation of ‘leverage’ and fictitious capital. Speculative surges of money capital seeking interest on its investments in favourable avenues, can create bubbles of activity in one sphere of activity, leading to shortages of money capital available for general productive activity. Such bubbles can accelerate the creation of fictitious capital (paper ‘financial instruments’ and after distorting the cost of credit and the replenishment of productive capital, the bubble can suddenly burst. A bursting bubble, as was seen by the housing sub-prime bubble which collapsed in the USA in 2008, leads to a contraction and dislocation of credit and banking solvency. This in turn can lead to a crisis elsewhere in the system.

5. Interrupted material supplies.

Exhausted resources. It is obvious that supplies of materials can be interrupted for any number of reasons, including being triggered by any of the above four reasons and those to follow. However, materials supply can be interrupted by circumstances outside of the production or circulation processes, such as wars, disasters, and increasingly exhausted primary sources (mines, forests, wells, seas etc.). Also an interruption could occur due to reduction in the quality of materials. Such interruptions can trigger a production crisis in which commodities can no longer be produced or produced in the same qualities, quantities or at the same price. For example a crisis in the supply in the pivotal energy producing material of crude oil or refined petrol would cause a general crisis of production in all spheres of life.

6. Labour withdrawal or insufficiencies. 

Strikes or occupations. Since labour is an essential requirement for all kinds of production, an insufficiency of labour, for any reason, can cause an interruption to production even if all the other factors needed for production are available and in the places were they are required. Labour is the necessary ‘active’ value-increasing ingredient in production as all other values are consumed by the activity of labour during production and become embedded or embodied in the final product. Labour-withdrawals in the form of strikes, sit-ins and work-to-rules, interrupt the production processes and delay the circulation of capital as well as possibly cause the deterioration of other elements of production. Industry-wide strikes can cause a series of crises, which ripple outward. A general strike is more likely to occur as the result of a general crisis, but it to can accentuate such a crisis.

7. Transportation interruptions or failures. 

Infrastructure collapse or denial. Since the circuit of productive capital requires completion between the initial investment for purchase of means of production, the production process itself, and the subsequent marketing and sale of the final products, transport becomes vital. With the development of global economic interactions there are numerous parts to the transport of; raw materials, means of production, and delivery to markets. Any serious or long-lasting interruptions to these phases of transport can cause a crisis within a factory, an industry or even in certain circumstances an entire country. Indeed, in the Second World War one of the major means employed by both sides to bring an industry or country to its knees, was to deny each other the means of transport of essential supplies of consumer goods, raw material goods and means of production.

8. Government economic contractions or failures.

Sovereign debt. The state, under the system of capital, is a multiple tool for the capitalist and pro-capitalist elites. It is the Swiss Army Knife of social control and support for the capitalist system in general. The state is used for producing things considered necessary or desirable, but are not immediately profitable for the individual or collective forms of capital. In some periods it is also used for producing things for which the combined investment of private capital is insufficient – a modern Army, Navy and Air force, for example. Governmental purchases are often the way certain capitalist concerns are guaranteed high returns on invested capital.

Many modern governments have also become insurers and assurors of welfare benefits, employing large numbers of workers, whose wages and salaries purchase commodities and services. Additionally, the state is also the instrument for holding down the population, should large numbers or a majority of the population want to challenge the existing mode of production or instigate changes detrimental to the rule of capital. Government failures in any of these aspects, particularly in the early 21st century, those attached to the honouring of interest payments and capital repayments obtained from the international bond-markets, can cause repercussions and crises within the system as a whole.

All these eight broad categories and their own numerous internal possibilities of disconnection, interruption or failure can trigger a crisis or series of crises. These in turn can create an actual domino effect on other elements which are separated in time and space, but are necessary parts of the ‘unity’ of the whole mode of production based upon the circulation and augmentation of capital. Due to the complexity this interdependence; “Effects in their turn become causes.” as Marx pointed out in Capital Volume 1.

For this reason, under certain circumstances, a particular crisis or a sequence of particular crises can trigger a general crisis. It may not always be clear which caused which. However, it is clear that the bursting of the speculative housing bubble in the US and elsewhere, triggered a crisis of credit in the banking system in 2008. This in turn reacted upon the production processes within capitalist industry and commerce. It is also clear that building up over a number of years, a sovereign debt crisis was brewing and this surfaced in 2011 and 2012.

It is clear that crises have occurred and are occurring in all but three of the above aspects of the capitalist mode of production. Only 5 (interrupted material supplies), 6, (insufficient labour) and transportation (infrastructure problems) have been devoid of serious problems so far. Crises in the areas of relative over-production (1), speculation (4) and sovereign debt (8) are still unresolved and Defaults (2) as well as Credit squeeze (3) are as yet only partly resolved. All this means that the probabilities of any further serious problems in any of these areas will possibly trigger a full-blown general crisis, such as last occurred in 1920 – 1930‘s. Of course there can be no absolute certainty of any such general collapse, but should one occur it is highly probable that it will be triggered by a further serious dislocation or dislocations in one (or more) of the above areas.

In advance of this, however, is the question of the response of the 99% to the measures currently being implemented by the elite in an attempt to save the system from itself. Clearly a sustained general strike in any country, will cause serious disruptions to production and reproduction in the economic cycle and will undoubtedly introduce a political dimension into the economic, financial and social upheavals. Any such developments will face those engaged in a struggle to maintain decent living standards, with the choice of going beyond capitalism or resigning themselves to the fate dished out to them. Revolutionary anti-capitalists, it goes without saying will continue to argue to go beyond. To what, remains a separate question and is considered in other articles. [See for example; ’The Riddle of History Solved’; ‘Capital and Crisis’ and ’Marxists against Marx’]

Roy Ratcliffe (September 2012)

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