Reprinted from Workers World of Nov. 12, 1987
The next phase of the crisis
Published Oct 18, 2008 6:59 AM
By Sam Marcy
This is the second of two articles by Sam Marcy written after the stock
market crash of 1987 and now available online. The first, written on Oct. 21,
1987, is called “Behind the anarchy of the stock market.” The
reader will be amazed at how many features of that crisis were remarkably
similar to the market panic in 2008, including the cries by big banks and
brokers for a government bailout. Marcy pointed out that, even if there were a
recovery, the crash was sure to result in lower real wages for the
workers—which it did, as the capitalist government printed more money to
cover the bailout and stimulated inflation. The main differences between then
and now are the much greater magnitude of debt today and the worldwide
character of the crisis.
Nov. 2, 1987—When the decline in the stock market took on a really swift
momentum in mid-October and the market started to drop by 50, 60, and even 100
points, the financial analysts, stockbrokers, and investment banking officials,
all apologists for the capitalist system, insisted that these momentous drops
were merely a “correction.” They held firmly to that position even
after the market crashed 508 points on that critical Monday, Oct. 19.
Even then, the apologists continued to defend their views. They feared the
truth might deepen the crisis. For instance, among the networks, ABC and NBC
continued to stick with the word “plunge.” Only CBS dared to call
it a crash, but then corrected itself and retreated back to plunge.
Rockefeller: It’s a crash, but ...
Only here and there did any stock analysts mention the term crash. Finally,
when the results were only too obvious, it took none other than David
Rockefeller himself, appearing on CNN on Oct. 29 and 30, to legitimize it as a
stock market crash, of the dimensions of 1929. But he then added, and again
reiterated a week later, that it “might cause a recession” if
Washington didn’t institute “the right policies” (meaning, of
course, deep budget cuts affecting the vital interests of the working
people).
Thus, the first inclination of the apologists for the capitalist system was to
deny what had actually happened—an unprecedented stock market crash that
went beyond the dimensions of the one in 1929. And even after the debacle, the
ruling class economists continue to allege that the crash was unrelated to the
“fundamentals,” meaning the economic situation.
They persist in propagandizing the view that this global, cataclysmic
phenomenon was something strictly within the framework of the stock market and
did not affect the economic situation. In this way they try to divorce the
stock market and the banks—that is, the nerve center of the capitalist
system—from its anatomy, the entire economic and class structure on which
the stock market is built.
Only slowly does it begin to come out that there may be “economic
consequences,” as they put it.
Can’t have it both ways
For decades now, the bourgeois economists have been trumpeting the glories of
the stock market and its vital significance for the economic well-being of the
country as a whole. Now their first instinct on sensing the emergence of the
crash is to deny what they have been saying for years, and, in fact, to say the
very opposite! They want to have it both ways.
It soon became impossible to maintain this position, so they moved away from it
ever so slightly, some saying that the crash might have “marginal
significance” for the economy as a whole. But they immediately qualified
this with the hopeful note that a rebound is inevitable.
Yes, a rebound is inevitable, as the whole history of capitalism shows. But
when? One week from now, one year, ten years? And on what historical scale?
Will a rebound of the stock market alone be able to avoid the inevitable
economic collapse?
What happens at the stock market is a representation of the conditions of
capitalist production. Before much time passes, all this will surely become
clear. But it is indispensable to say it, because capitalist propaganda shrouds
in mystery the functions of the stock market and financial dealings in general.
It cultivates the greatest amount of confusion and deception regarding the true
nature of the capitalist economy.
Millions directly affected
How broadly does the financial crisis reach? “As of the early 1980s,
three out of four men, women and children in the U.S. either owned shares of
corporate stock or stock mutual funds directly in their own names or had an
indirect stake through their pension funds, insurance policies, savings
accounts or other forms of institutional investments.” (From the
Money Encyclopedia, 1984, edited by Harvey Rachlin.) They used to
boast about this. Now they’re trying to play it down.
The stock market, which had been an example of capitalist prosperity, now will
turn out to be the instrument to facilitate the wholesale expropriation of
millions of workers and middle-class people through the loss of their savings,
pensions and other retirement funds, insurance funds and other institutions,
all of which have played the stock market.
The onus is put on the yuppies, but their numbers have been greatly exaggerated
in the capitalist media during the period of capitalist stability, so as to
take the heat off the giant multinationals, banks and the stock exchanges and
divest them of responsibility.
Before going further, it is necessary to put in historical perspective the role
of the stock market in the capitalist economy, without either embellishing it
or denying its vast significance.
Engels on the stock exchange
As long ago as 1894, Frederick Engels, in supplementary notes updating Volume
III of Capital, said about the stock exchange:
“The position of the stock exchange in capitalist production in general
is clear from Vol. III, Part 5. ... But since 1865, when the book was written,
a change has taken place which today assigns a considerably increased and
constantly growing role to the stock exchange, and which, as it develops, tends
to concentrate all production, industrial as well as agricultural, and all
commerce, the means of communication as well as the functions of exchange, in
the hands of stock exchange operators, so that the stock exchange becomes the
most prominent representative of capitalist production itself.”
Engels also provided valuable insight into the relation of foreign investment
to the stock exchange, in England as well as the U.S. At that early stage of
the imperialist epoch, when it was still on the very edge of the transformation
of competitive capitalism into expansionist monopoly capitalism, Engels already
discerned that colonization was “purely a subsidiary of the stock
exchange”!!!
It was in the interests of the stock exchange, wrote Engels, that the European
powers partitioned Black Africa and the French conquered parts of northern
Africa and Vietnam. “Africa [was] leased directly to companies (Niger,
South Africa, German South-West and German East Africa), and Mashonaland and
Natal [were] seized by [Cecil] Rhodes for the stock exchange.”
How many bourgeois historians of the colonial era ever show this connection
between the stock exchanges and the exploitation and enslavement of the
colonized peoples? Today the hundreds of billions in indebtedness of the
oppressed countries are a continuation on an immense scale of what was merely
in embryonic form when Engels noted it.
How prophetically Engels put it, almost 100 years ago!
Stock exchange concentrates production
The stock exchange even then was becoming increasingly more important. Why?
Because it tends to concentrate all industry, agriculture, commerce and the
means of production in the hands of stock exchange operators. They should be
understood not in the narrow sense of stock exchange officials alone, but more
broadly as encompassing the heads of the biggest banks (particularly the
central banks such as the Federal Reserve in the U.S.), the heads of other
exchanges and the governmental agencies like the Securities and Exchange
Commission. All these make up the network of what is nowadays referred to as
the financial industry.
So that the stock exchange has indeed become the most prominent representative
of capitalist production itself.
Temporary ups and downs in market
Of course, it should be stated that not every stock market plunge results in a
capitalist economic crisis. Some just reflect the temporary gyrations of the
moment and may be due to one or two financial disasters, such as when Lockheed
or New York Central went bankrupt. An individual industrial or financial
collapse, even of such a large corporation, may have only limited significance
for the economy as a whole.
There have always been oscillations of this or that industry. For instance,
only recently there was capitalist overproduction in microchips, followed by a
moderate recovery based partly, in this case, on limiting Japanese imports.
What if there was overproduction in such a key industry as lumber? This would
affect construction, housing, furniture—probably most forest products.
But again, it might affect only an individual industry, even though it has
multiple effects on the economy.
In understanding the nature of the present crisis, it helps to examine the
summary provided by Engels in Socialism, Utopian and Scientific that
describes how a capitalist crisis develops, bearing in mind that each crisis
occurs in a specific historical setting.
When a crisis does occur, says Engels, “Commerce is at a standstill, the
markets are glutted, products accumulate, as multitudinous as they are
unsalable, hard cash disappears, credit vanishes, factories are closed, the
mass of the workers are in want of the means of subsistence, because they have
produced too much of the means of subsistence, bankruptcy follows upon
bankruptcy, execution upon execution.
“The stagnation lasts for years; productive forces and products are
wasted and destroyed wholesale, until the accumulated mass of commodities
finally filters off, more or less depreciated in value, until production and
exchange gradually begin to move again. Little by little the pace quickens. It
becomes a trot. The industrial trot breaks into a canter, the canter in turn
grows into the headlong gallop of a perfect steeplechase of industry,
commercial credit, and speculation which finally, after breakneck leaps, ends
where it began—in the ditch of a crisis. And so over and over again. We
have now, since the year 1825, gone through this five times, and at the present
moment (1877) we are going through it for the sixth time.”
We challenge the innumerable bourgeois economists who have been awarded Nobel
prizes for “economic science” since this was written to present a
clearer exposition of the capitalist cycle of development! Don’t they
instead try to obscure it?
Relation of stock market to capitalist economy as a
whole
How do we relate the current truly historical market crash to the classical
Marxist concept of an economic crisis?
The stock market is an integrated element of the entire financial services
industry, as it is now called, and is intimately bound up with all the credit
institutions—the pension funds, the multitude of banks, credit unions,
insurance companies, mortgage associations and so on.
In the outline of a general economic crisis depicted by Engels, the financial
crisis comes at the very height of the capitalist cycle. The collapse of the
market brings about the period of stagnation.
The capitalist economists put the shoe on the other foot. They have been
telling us that since there has been no economic collapse, the economic
fundamentals, as they put it, are still sound. Only the rate of growth has
slowed; therefore there cannot be an economic collapse and the Marxist criteria
don’t apply. According to them, what happened in the market may be only
an episodic event and not the kind of sweeping one that entails an economic
catastrophe.
But the stock market is an integral part of the financial industry, and its
crash is a forerunner of the economic situation, not the aftermath. This is
what the bourgeois economists are deliberately confusing.
Of the many bourgeois economic analysts who have made pronouncements since the
crash, only one of them, Alan Sinai from Shearson Lehman Brothers, in a report
during congressional testimony covered on CNN, said of the stock market crash
that it reflects not the past performance of the economy as much as “what
the future holds in store.”
Market is best indicator that capitalist cycle has reached crisis
point
How does one measure the nature of the capitalist cycle of development in the
current historical context? Can it be done on a national scale where there is
admittedly a global economy? Does one really know precisely when capitalist
production has reached it pinnacle?
Certainly there are a mass of economic indicators, like the gross national
product, but in the final analysis there is no way of knowing in advance
precisely when a collapse may begin.
Credit, which was developed in order to facilitate capitalist production by
expanding purchasing power, also greatly extends its bounds, so that it takes
on ever larger risks, thereby exaggerating and aggravating capitalist
overproduction and its concomitant—the contraction of working class
purchasing power.
Slow economic growth is a relative concept, not an absolute one. To the
workers, to the millions of unemployed, there has been a recession for years
now. But the crisis becomes generalized when there are too many sellers with
few buyers, not just in the industrial sector but in all the sectors of the
capitalist economy. The stock market is the generalizer that makes this
apparent. It is not just a barometer but an economic summary, an economic
resume; it can speak of the future rather than of the past, as Engels
showed.
1979-82: Concrete confirmation of Marxist analysis of
crisis
We have just seen how Engels described the development of a capitalist crisis.
We have a concrete example of one that happened less than a decade ago, in the
period 1979-82.
As early as 1974, a precursor of the coming downturn could be seen in the
collapse of the Franklin National Bank. This event of formidable international
dimensions was followed by a significant number of smaller business failures
and accompanying stock market declines. However, before the economic crisis
really took hold, there was a brief speculative binge in 1978.
The economic crisis of 1979-82 greatly accelerated the restructuring of
capitalist industry, which had already begun in the seventies.
Capitalist economists today stress that the crisis was overcome through the
“cooperation” of labor with capital, that productivity was raised
on the basis of a partnership with the official labor leadership (bureaucracy).
What this rise in productivity really signified was an intensification of
exploitation.
This intensification of exploitation used to be called the rationalization of
industry; today it is called restructuring. It entails not merely the
introduction of labor-saving devices but a whole new concept known as the
scientific-technological revolution, which is a quantum jump in development far
surpassing all the earlier strides made by inventions and discoveries.
The period of the late 1970s and early 1980s saw the most significant advance
of the scientific-technological revolution. It caused the mass displacement of
millions upon millions of workers on a global scale and their replacement by
lower-paid workers, particularly in the so-called service sector. This sector
is by no means exempt from the ravages of the next economic crisis, as the
developing layoffs in the financial area are now showing.
An article in the June 4, 1987, New York Times entitled “As Output Gains,
Wages Lag” shows how restructuring works. One example given (among many)
is the refinement of a computerized machine at Goodyear Tire and Rubber that
used to take four hours or more to be retooled to make tires of a different
size. Now, the retooling takes only three hours.
This tendency for capitalist restructuring to make labor
“superfluous” was described by Engels in Socialism: Utopian and
Scientific: “It is the compelling force of anarchy in social
production that turns the limitless perfectibility of machinery under modern
industry into a compulsory law by which every individual industrial capitalist
must perfect his machinery more and more, under penalty of ruin.”
It is no accident at all that there is such a mad race among the capitalists to
develop ever smaller microchips, more perfect robots and other advanced forms
of automation.
Engels referred to Marx’s Capital: “Thus it comes about,
to quote Marx, that machinery becomes the most powerful weapon in the war of
capital against the working class: that the instruments of labor [computers,
robots, etc.] constantly tear the means of subsistence out of the hands of the
laborer; that the very product of the worker is turned into an instrument for
his subjugation.”
Keeping in mind the Goodyear example, we read on: “Machinery, the most
powerful instrument for shortening labor time, becomes the most unfailing means
for placing every moment of the laborer’s time and that of his family at
the disposal of the capitalist for the purpose of expanding the value of this
capital. ...
“Accumulation of wealth at one pole is, therefore, at the same time,
accumulation of misery, agony of toil, slavery, ignorance, brutality, mental
degradation, at the opposite pole.”
After crisis, what brings a revival?
The bourgeois economists tell us that the revival period since the last
recession has lasted for 54 months. In this period of incredible prosperity
(for them), which started as a trot, became a gallop and broke into an all-out
steeplechase, they amassed tremendous super-profits.
How does capitalist production become revived? What are the forces upon which
it relies?
First, it feeds on the devastating destruction wrought by the economic
collapse. Many firms go bankrupt, plants close, some are completely liquidated,
dismantled and sold at auction, as so on and so forth. The weaker
establishments are weeded out; the larger ones swallow up the smaller, which
have barely been able to survive. This is the effect of the centralization of
capital, as Marx explained it.
This destruction can of course be vastly magnified by the havoc of imperialist
wars and counter-revolutionary interventions.
Secondly, the work of destruction brought by the capitalist crisis, especially
the huge unemployment, initially weakens the working class. The capitalists
subject those who are employed to more intensified exploitation in order to
retrieve more profits and continue the process of capitalist accumulation and
expansion. The intensification of exploitation is absolutely indispensable in
the process of capitalist revival.
1980s ‘revival’ brought lower wages
If the period from 1982 to the present had been a normal revival phase like
those that occurred earlier in the long evolution of capitalist development, it
should have resulted in a material improvement in the condition of the working
class, with a commensurate increase in wages. The facts, however, demonstrate
incontestably that this lengthy period of so-called capitalist recovery was
marked not by an improvement but by a drastic deterioration in the wage level
of the workers, in particular the oppressed Black, Latino and undocumented
workers, and in the general income of the mass of the people.
Data on this is now voluminous. The most recent figures appeared in the
business section of the Sunday, Nov. 1 [1987] New York Times: “Real wages
are now below 1963 levels, and 80 percent of the jobs created in the 1980s are
in retail sales and miscellaneous services where average wages, adjusted for
inflation, are below the national average wage in 1949.” This is an
astonishing admission!
A report put out on Aug. 7 by the Council on International Public Affairs
confirms this, as its title makes clear: “Real Wages Drop Below 1962
Levels.”
An article in the May 1987 Scientific American by economist Lester
Thurow discussed a conservatively taken survey that revealed the growing
polarization between the very rich and the mass of the people. “According
to the U.S. Bureau of Census, the share of total income that went to the top 20
percent of all families was 43 percent in 1985. Conversely, the income share of
the bottom 60 percent of the population declined to 32 percent, the lowest
level ever recorded.” (!)
We demonstrated a year and a half ago that the high-tech revolution signifies
lower wages [High Tech, Low Pay by Sam Marcy, WW Publishers]. At that
time, we said that it had been accompanied by six long years of an anti-labor
offensive. And the assault hasn’t stopped yet!
There continues to be a shift to lower-paid service workers and a lowering of
wages in general based on the restructuring of industry on a global scale. This
objective development is deepened by the anti-labor offensive. The Reagan
administration has aggravated the oppression of the working class and raised it
to new heights by its policies, but Reagan is no more the cause than Hoover was
the cause of the Depression or Theodore Roosevelt the cause of the 1907
panic.
The capitalist government didn’t cause the crisis, but aggravated it. But
crisis comes entirely independently of the will of the capitalist class or its
government, which is merely its executive committee, as Marx pointed out.
Anarchy leads to overproduction
Capitalist overproduction is still the outgrowth of capitalist production,
notwithstanding all the research, the sophisticated data, the computerized
telecommunications at the disposal of the capitalists.
And anarchy reigns in capitalist production, as Engels explained in
Socialism: Utopian and Scientific, because “No one knows how
much of his particular article is coming on the market, nor how much of it will
be wanted. No one knows whether his individual product will meet an actual
demand, whether he will be able to make good his cost of production or even to
sell his commodity at all.”
The deep-going causes of crises arise from the contradictory nature of the
capitalist system, which enshrines private ownership of the means of production
and yet has developed these same productive forces to the point where they have
far outgrown private ownership and are really social in character.
Bourgeois economists try to explain away this contradiction by resorting to
mystical expositions on the monetary phase of the capitalist crisis or on
interest rate swings. Some blame it all on unscrupulous speculators, high
rollers, common thieves in high places and, more recently, on the existence of
the yuppies. But they shy away entirely from the deep causes, concentrating on
the symptoms of the malady rather than explaining the nature of the
disease.
What fueled the hyperspeculation
As for these symptoms, it is necessary to explain the significance of
hyperspeculation, which enthralled the ruling class and brought them to
dizzying heights of optimism in their system, only to dump them in the
doldrums.
No really large-scale speculation in stocks, bonds and commodities can take
place without the banks. They are key and central to all of it. It’s the
banks that supply the loans for the speculation, that take all kinds of stock,
mortgages, or whatever as collateral for their loans.
The banks are the fundamental agent of the speculation, if we understand that
we are talking today about a broader concept of banking than what prevailed
early in this century. Even then, the banks as the depositories for the cash
were not immune to loaning it out for speculation, although their opportunities
(and losses) were somewhat restricted under pain of criminal prosecution.
The high speculation before the 1929 crash and the devastation of the economic
collapse caused the Roosevelt administration to promote massive legislation of
two types. One included the well-known social reforms of the New Deal, like
unemployment insurance and social security, which were calculated to create a
cushion, or as it is now called a safety net, to soften the effects of the
economic debacle.
1930s legislation was supposed to prevent dangerous
speculation
The other type of legislation enacted was meant to prevent such a collapse from
occurring again. Such, for instance, was the law that set up the Securities and
Exchange Commission as well as the statutory provisions that regulated banking,
strengthened anti-trust laws and so on.
All this was received by many in the ruling class with extreme bitterness. They
regarded it as against the free enterprise system, as being anti-capitalist in
nature, but in reality it was devised to defend the system against excesses, to
curb not only speculation but fraud so as to dampen any crash that might take
place in the future.
1970s revolution in banking
With the impact of the high-tech revolution, banking itself has changed, as we
said earlier. “The economic currents that began in the 1970s,” says
the authoritative Money Encyclopedia, “permanently altered our
money practices and ushered in a financial service industry which continues to
evolve on an almost daily basis. Today banking is no longer a matter of
depositing savings in a regulator passbook account for safekeeping and a small
yield and keeping a no-interest checking account to pay bills. In the 1980s it
is the investment in instruments giving the highest possible return ... that
more closely defines banking.”
In fact, there has been a revolution in world banking.
Banks are no longer confined to a single state. They’ve stretched their
offices across the nation. Banks are no longer limited to collecting deposits
and making loans. Today they act as discount stockbrokers, suppliers of credit
cards, and as paid consultants in areas ranging from estate and tax planning to
investing. They no longer conduct business according to banking hours, 10 a.m.
to 3 p.m. Instead, they provide access around the clock through automated
teller machines.
Citibank, for instance, began to diversify early in the 1980s. The purpose was
to lessen its heavy dependence on international activities for its earnings,
which at one point accounted for more than 80 percent of the company’s
net income. Over the years they have tried to dump these loans on other, weaker
shoulders. It is truly a giant transnational corporation on which the sun never
sets and precisely because of that it absorbs all the contradictions and
weaknesses of the capitalist system.
The banks have become very high-risk adventurers. The retirement of Walter
Wriston, the former head of Citicorp, was undoubtedly hastened because of his
reputation as “an ultimate risk taker.”
On June 21, 1984, the New York Times wrote: “Over the long term, the
question remains whether Wriston’s new world of banking will prove to be
healthy, flexible and sinewy or whether it will repeat the experience of the
1920s, when extraordinary risk taking by banks and exotic financial techniques
turned into the disaster of the Great Depression.”
The bankers are no longer satisfied to keep idle funds in checking accounts
that by law pay no interest. In the seventies, banks couldn’t pay
interest on deposits that matured in less than 30 days. But not now. Banks are
engaged in the sale of CDs, certificates of deposit. The companies that buy
them have the option of selling them at any time to other investors. For the
purposes of the companies, these are similar to short-term deposits on which
interest would be earned.
Reaganites loosen restrictions on banks
The virtual revolution in banking did not automatically grow out of the
economic and technological developments of the earlier epoch. Much of it has
been helped by either new legislation, by administrative decisions or by the
Reagan administration.
For instance, one of the ways the New Deal legislation hoped to limit the
excesses of capitalist speculation was to separate the underwriters from the
banks, so that only underwriters would distribute and sell securities and act
as advisers to corporations. Today, however, they work as part and parcel of
the banks.
A great deal was made of the fact that the Roosevelt administration broke up
the securities industries by narrowing the field for underwriters, insurance
companies and commercial banks. The law compelled them to make financial
disclosures, to make their balance sheets more detailed so as to reveal more of
their real situation. Also enacted were various bank regulations that gave more
power to the regulators and inspectors. Brokerage houses were restricted from
letting their customers play the market on a minimal amount of margin.
Most of this massive legislation calculated to restrict speculation, to force
disclosure and to curb the excesses resulting from capitalist financial
dealings has in one way or another under the Reagan administration been either
abolished by statute or invalidated by administrative decisions of the agencies
concerned. Particularly weakened are the divisions under the regulation of the
Federal Trade Commission, the Securities and Exchange Commission and other
agencies which are the very ones supposed to act as guardians against
speculation and fraud.
Moreover, the banks themselves have been given free rein to virtually disregard
the previous protective legislation. While once banks could only operate in the
states of their origin, they now have been given the green light to expand
interstate and to lend to excess. By enlarging their field of operations, they
have enlarged their risks as the lenders of capital.
While the banks themselves have been generating the hyperspeculation, we must
repeat that speculation is not the cause of the crisis itself. It is the
effect, in the first place, of the enormous accumulation of capital that has
been extracted from the workers, especially during the period of the capitalist
recession of 1979-81. It was then driven even higher by the high-tech
restructuring of industry at the expense of the workers.
Erosion of the U.S. dollar
A monetary crisis usually accompanies an economic crisis. They don’t
always go together, but certainly one of the features this time is a monetary
crisis, and it concerns the U.S. more than any other country at this historical
juncture.
The U.S. dollar is considered a world currency reserve. What does that mean? It
means that other countries, and especially their governments, have been
obligated over the years to hold a certain amount of dollars as their reserves
in the same proportion as they would gold. This special position in the world
monetary situation arose from the favorable position the U.S. was in
economically and financially after World War II.
While the economies of Europe and Japan were battered or ground down in the
military struggle, the U.S. merely served as a supplier until near the end of
the war, fortifying its military position with the atomic bomb. Its formidable
economic strength in the postwar period was in sharp contrast to what prevailed
in Europe, Asia and even Latin America and Africa.
Formidable though it was, however, it was not nearly strong enough to remain on
the gold standard. The U.S. and the other imperialist countries had to abandon
it after the 1929 crash, and have never gone back. Before that, gold backing to
support paper currency had always been regarded as the key to stability in
monetary affairs.
In the period immediately following the war, the dollar as reserve currency for
all of the other capitalist countries was unquestioned. And today, too, it is
still a reserve currency in most of the capitalist world. Even socialist
countries are obliged to hold dollar reserves, if for no other reasons than to
trade to the extent possible with the capitalist countries.
But the period when the stability of the dollar was unquestioned began to
wither—for very material reasons. In the 1950s the U.S. gross national
product constituted as much as 50 percent of the world’s gross product.
But since then the U.S. gross national product has been shrinking in relation
to the rest of the world.
As late as the 1970s, it was estimated to be about 30 percent. Now, with so
much switchover from manufacturing to service industries, with the introduction
of high tech and the competition with its capitalist rivals, the U.S. gross
national product in relation to the world as a whole has again significantly
shrunk, if for no other reason than that the battered capitalist countries have
recuperated and in some cases, like Japan, have exceeded the U.S. in a number
of industrial and technological spheres.
Moreover, the U.S. has become a debtor nation as a result of its borrowing from
other capitalist countries. This has been done through the sale of bonds and
stock, which earlier fueled its recovery. But as the U.S. debt has kept
mounting, the fears of its capitalist rivals have become more and more
pronounced.
Worldwide fears of U.S. devaluation
What are these fears worldwide with respect to the U.S. as a world currency
reserve? Take this example. Suppose you as a central banker of country X have
in your treasury a reserve of $100 million, which is a very, very tiny amount
of dollars. If the U.S. devalues the dollar by 1/10th of 1 percent,
you lose $100,000!
Now, supposing you have a billion dollars, which is also not an enormous amount
by any means, even for one of the countries highly indebted to the U.S. A
devaluation of that same 1/10th of 1 percent means losing $1
million, which is a lot of money.
But there are those who hold many, many billions of dollars. For countries like
Japan, England, West Germany or even Saudi Arabia, letting U.S. currency
“fall,” as they say, holds immeasurable consequences.
Hence, on the outbreak of the stock market crash, the Wall Street Journal and
practically all the capitalist politicians, from Reagan on down, were urging a
monetary conference of the Big Five (the U.S., Britain, West Germany, Japan and
France) or the Big Seven (those five plus Italy and Canada) to get together and
stabilize the dollar. They hoped this would help the falling stock market and
prevent an economic debacle.
The U.S. ruling class has been desperately trying to reduce the value of the
dollar so as to increase its exports and put a lid on imports. But if
there’s an economic collapse, particularly in those imperialist countries
to which the U.S. wants to export, they will be unable to absorb U.S. exports.
Moreover, they will become more insistent that unless the U.S. opens its
markets to them, they won’t be able to sustain their own economies, let
alone try to help the U.S.
The prospects, then, are not just for a rerun of earlier economic collapses,
but for one that could be on a profounder and deeper level even than 1929.
Regardless of its dimensions, however, it will reopen the struggle of the
working class and change the character of the entire international
situation.
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