What is behind the economic crisis (Part 1)

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Ross Wolfe has posed four questions on his blog on the nature of economic crisis that I found very interesting. I want to offer my thought on them. Today I will address the first two questions.

1. Do we live in a crisis today? If so, what sort of crisis — political? economic? social?

If several simultaneously, how do these crises interrelate?

In other words, what effect does the present global economic downturn have on prospects for politicization? If it results in political radicalization, does it tend toward the Right or toward the Left?

Oppositely, does the absence of a viable leftist alternative today change the character of the social or economic crisis?

What sort of social consequences has the economic crisis generated, in terms of classes? Why the discourse (ideology) of “the disappearing middle class”? At a political level, has this social upheaval led to anything in the way of a renewed “class consciousness”? Is class still even important?

RESPONSE: Although loosely referred to as such, I am not even sure events since 2007-2008 qualify as a mere crisis. The view held most widely by Marxists is that a crisis is a reconstitution of existing relations, but I am not sure that is what is taking place right now. Rather, we are likely looking at the absolute collapse of capitalism. Chris Harman for instance, in his essay, “The rate of profit and the world today”, argues a crisis resulting from a falling rate of profit necessarily leads to the recovery of the rate of profit:


In Harman’s view the crisis appears to be a collapse of capitalism, but it in fact leads to a new equilibrium for the mode of production. The crisis points to a supercession of existing relations, but does not, of itself, supersede them; rather it affirms those relations by establishing a new equilibrium (*see note below) on a reconstituted basis of accumulation — bringing the crisis to its close and beginning a new period of development. While this meaning of crisis may not be technically wrong, I think it is simplistic and can lead to what has been referred to as a theory of the eternal return of capitalism, which I reject.

By contrast, Henryk Grossman, in 1929, argued for a broader definition of crisis by suggesting every crisis begins as a breakdown of the capitalist mode of production that would lead to the end of capitalism if not for intervening counter-tendencies.



Unlike Harman, who conflates the breakdown of capitalism with a crisis, Grossman argued that each ‘crisis’, as the term is commonly used by Marxists, already expresses capitalism’s inherent tendency toward breakdown and collapse. This tendency may or may not be interrupted by some intervening counter-tendency that forestalls complete collapse, but the intervention of such a counter-tendency is contingent and not a necessary result of the capitalist mode of production — the breakdown of the mode of production expresses the essential character of capitalism, while the counter-tendency that converts this breakdown into a mere crisis is contingent. This nuanced definition — which separates out what is necessary from what is merely contingent — gets reduced to one and the same event in Harman’s formulation: the crisis, rather than expressing a tendency toward absolute breakdown that may or may not be contained by a counter-tendency, is simply defined as the basis for a new expansion of capitalism.

Capitalism is indeed experiencing a breakdown at present, but nothing about this breakdown of itself implies that capitalism necessarily will be able to reconstitute its relations on the basis of a new equilibrium. Counter-tendencies to the breakdown, if they arise at all during this crisis, will only have a contingent character. To put this argument another way, the final crisis of the capitalist mode of production will appear on the surface as “just another crisis” — it will be indistinguishable from an ordinary crisis, except a new equilibrium will never be established.

The present breakdown we are experiencing, therefore, proceeds on the basis of the old equilibrium, which has now been proven obsolete and insufficient by capitalism’s own development and the resulting breakdown. So the question posed by this breakdown is what was the old equilibrium that is now obsolete and insufficient for the continuation of capitalist relations of production? I think the Great Depression saw a change in the mode of production that has never been properly analyzed by Marxist theory — a change made possible by the fascist state’s assumption of the management of the external conditions of capitalist reproduction. The period leading to the Great Depression was characterized by what Engels referred to as a mode of production in rebellion against the mode of exchange that had to culminate in state management of the national capital as a whole.

This would suggest the present crisis is, first and foremost, a crisis of fascist state management of the capitalist production process. This management has become obsolete and insufficient to maintain the equilibrium necessary for capitalism’s further development. The various nation states, by taking control of the management of their separate national capitals, also fell under the domination of the law of value, which has now rendered not only state management, but these states themselves obsolete and insufficient.

Does this view suggest the possibility of a radical politicization? I think not — to the contrary, I think it suggests politics had already ended when states assumed management of the various national capitals. Since fascism is, above all, state management of capitalist reproduction (which can only have a national form), we do not face prospects for political radicalization, but the prospect for supercession of the state entirely. Given this, the terms “Left” or “Right” are entirely meaningless. The absence of a viable “Left” or “critical” political alternative simply means politics itself no longer has a critical character with regards to the present relations of production once the state assumed management of the external conditions of national capitalist reproduction.

Marxists tend to forget the capitalist class was never anything more than an ideal personification of the functions of the capitalist. These functions were increasingly socialized and ultimately came to reside in the fascist state itself, which, as Engels argued, represented an economic advance, but which has never been adequately analyzed by Marxism. The present breakdown takes the effective absence of classes as its starting point.

Why is this true?

If the state assumed the functions of the capitalist as Engels argued, this means capitalism “forces out the capitalists, and reduces them, just as it reduced the workers, to the ranks of the surplus-population”. What then was left of classes as a category of analysis? The proletariat remained, however this class, according to Marx, was not really a class at all, could not act as a class, and had no consciousness of itself as a class. The proletariat, according to Marx, “has no longer any particular class interest to assert against the ruling class”, i.e., against the state which assumed the functions that previously were only personified in the person of the capitalist in Marx’s theory and were never identical with the capitalist class. Effectively, therefore, politics ends when the state becomes the capitalist or the capitalist state is overthrown and replaced with a proletarian dictatorship. Basically, the working class — as a class — could not conceive of overthrowing the state once fascism is established. Empirically (although not materially), they aren’t a class at all and never were a class in the Marx’s argument, but the dissolution of class society. Their conflict with the capitalist was always empirically a commercial struggle — a struggle over the terms and conditions of their exploitation.

This effectively end of classes, I would argue, was already politically expressed in the ideology of the middle class” in which classes within capitalist society appeared to ceased to exist — becoming mere appendages of the state. The ideology of “the disappearing middle class”, is itself symptomatic of the longer-term dissolution of “classical” personifications of capitalist relations that, in reality, were never anything more than personifications.

“Is class still important?” I think the answer to this is “No”. And class has not been important since the rise of the fascist state. With the effective dissolution of the capitalist class and its supercession by the fascist state as manager of the national capital, the term “proletarian” has had no meaning for decades. Which is to say, as a political class there has been no proletarians to speak of, since this category has itself been essentially subsumed under the democratic state. Through the bourgeois democratic state the proletarians appear as both the subject and the object of their own exploitation. In other words, empirically it is only as individuals that proletarians find themselves in conflict with the fascist state. Which sets them up for a final direct conflict with the state that leads to its overthrow.


2. How does the present crisis operate (unfold) in terms of time and space?

How does the present crisis relate to past crises of capital? How is it the same? How is it different?

What is the duration of the present crisis? Is recovery on the horizon? Is there an end in sight? Or are we witnessing, as Marxian economists like Bertell Ollman and Immanuel Wallerstein have contended, the “terminal crisis” of capitalism? If not the end of capitalism as such, does the present crisis at least signal an end to neoliberalism? If so, what is the character of the transition? Does neoliberalism (post-Fordism) revert to a neo-Fordist configuration, or something else? Can the outcome of the this crisis be understood to entail “progress” or “regress”?

How does the crisis in North America since the subprime mortgage crisis of 2008 relate to the sovereign debt crisis in the Eurozone since 2010? Are these crises at all related to the wave of political revolutions of the Arab Spring?

What is the extent of the present crisis? How has it been distributed spatially? Unevenly? What does globalization look like during a time of prolonged crisis? Is the era of US hegemony at a close? If so, to where does the locus of geopolitical power now shift? (China? Russia? India?)

RESPONSE: First, I think this recession should be understood to be an unprecedented breakdown precisely because what has broken is not simply capitalism in general but the fascist state itself as a specific historical form of accumulation. This fascist state emerged as a necessary feature of capitalism in the 1930s and was the means by which the depression was converted into a mere crisis.

This is most clearly demonstrated by the replacement of commodity money — the highest fetish form — with state issued fiat. The replacement of commodity money by state issued fiat constituted a world history, since it consisted of the conscious management of the hitherto unregulated fetish form itself. This is the paradox of state issued fiat: the fetish form itself is subjected to the management of society and no longer manages society. But this self-management by society appears in the form of the management of the fetish form, not in direct management of society’s material relations. It is this completely self-contradictory form of society’s self-management of it relations that breaks down in 2008.

What constituted the world history of fascist state issued currency is that for most of the history of money state issued token co-existed with money, and this co-existence regulated state issued tokens. Whenever the two forms of money diverged a two-tier system of prices arose, forcing devaluation of token. In the modern incarnation, however, commodity money itself refuses to circulate as means of exchange, and cannot displace the tokens. This means gold, for instance, cannot become money capital — even though is freely is bought and sold as a store of value, it is of no use whatsoever as capital. Money capital gets exchanged for labor power; which is to say, it can become real capital by purchasing labor power. Since the Great Depression, however, gold has been unable to become real capital through this transaction. (The monetarists refer to this as the “non-neutrality of commodity money”.) And there is a reason for this, as explained by Grossman in 1929: Under conditions of absolute overaccumulation, further accumulation can only proceed on the basis of the forcible devaluation of labor power below it value. With gold, or any commodity money, labor cannot be devalued; state issued token, whose “purchasing power” can be continuously depreciated by fascist state monetary policy all this condition to be fulfilled.

The present crisis, a crisis of absolute overaccumulation of capital, has lasted some eighty years now. There have been two depressions within this crisis: the first, in the 1970s, led to the collapse of fascist state fiscal policy, or fascist state deficit spending led growth — which tended toward a hyperinflation that would have resulted in collapse of the dollar had it continued. In the second (and present) depression, we are witnessed the collapse of monetary policy, or fascist state encouraged debt accumulation by society. This latter depression has been in place since at least 2001, and it led directly to the collapse of fascist state monetary policy.

All indications are the fascist state cannot recover control over economic processes it had prior to 2008. Washington can only survive at the expense of other fascist states, but it is also financially and productively intertwined with them. Kurz argued in 1995 that the heart of capitalism has already stopped beating, replaced by the accumulation of fictional claims to the future profits of productively employed capital (debt). I would go one step further and state that capitalism as a mode of production, i.e., the production of surplus value, of capitalist self-expansion, was eclipsed during the Great Depression. It has, since that time, been in process of actual relative contraction and the social space increasingly occupied by accumulation of fictions of capital.

Capitalism is now in the process of incipient absolute contraction, indicated by the ongoing Great Recession and the collapse of fascist state economic policy. I define absolute contraction as the contraction of nominal GDP measured in both dollars and physical units of gold. This crisis, since 2008, saw the first year over year contraction of fiat dollar denominated US GDP since the Great Depression; and with it, the first multi-year contraction of employment and the first multi-year contraction of consumer debt. So, for the first time since the Great Depression, we have multi-year contractions of output, employment and debt measured in both fiat dollars and physical units of gold.

Since, in the present regime of accumulation, all growth is debt-driven (that is financed through fictitious claims to the future profits of productively employed capital) the question is who will now accumulate the mass of debt necessary to sustain capitalist growth and reproduce capitalist relations of production? With Europe imposing austerity on its working classes and on national state expenditures, and with Japan in a two decades long deflationary crisis, this is a critical question for the survival of capitalism. With the American consumer as a class essentially becoming sub-prime, it is unlikely new debt accumulation will originate there as well. And with Washington facing the prospects of hyperinflation should it just begin running its printing presses to devalue labor power, this effectively places more than half of global demand outside the debt-driven growth model.

If this were not enough, such new debt as must be created to sustain the model of deficit-driven economic growth cannot simply take the form of any currency — the debt must be denominated in American dollars, which is the world reserve currency and thus can affect the prices of all commodities. This means new debt denominated in pounds, euros, yen etc. do nothing to resolve this break down. The present crisis is not just a crisis of the fascist state in general, it is essentially an American crisis — a crisis of the entire dollar zone within the world market. Capitalist relations of production still face the same problem identified by Engels in the 19th century: the mode of production is in rebellion against the mode of exchange.

This crisis, since it bound up with the exchange denominated in the dollar reserve currency, is distributed globally; it has no “center” or “critical point” that can be attacked to resolve it; nor can it be resolved by shifting the center elsewhere. Moving to another currency, for instance, would render somewhere on the order of 700 trillion dollars of reserves and accumulated fictitious debt immediately worthless.

End of part one

*NOTE: It was raised to me that the term “equilibrium” may lead to a misunderstanding that I am discussing the economics category of equilibrium. This is an unfortunate choice of word. My meaning of equilibrium in this essay simply means a set of relations of production that facilitate the further development of the productive forces and is in no way related to the concept of equilibrium as the term is used by economists.

Author: Jehu Eaves
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JehuWhat is behind the economic crisis (Part 1)