Behind the anarchy of the stock market

This is the first of two articles by Sam Marcy written after the stock market crash of 1987. The second, written on Nov. 2, 1987, is called “The next phase of the crisis” and is also available online. 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.

October 21—The stock market collapse of 1987 is bound to have the most profound economic effects and will surely transform the political situation as well.

The loss of half a trillion dollars inside of 36 hours is in itself such an enormous factor that it is not possible to “make up for it” on the basis of a subsequent rebound of the stock market. Even if a considerable amount is recouped, there is the other half a trillion dollars that was slowly lost between Aug. 25 and Oct. 19.

It is sheer nonsense to say that these are mere paper losses. If that were the case, the heads of the central banks and of the capitalist governments, the financiers, brokers, money managers and the hordes of economic and financial consultants, let alone the stockholders and bondholders themselves, would not have panicked and been driven to the verge of insanity.

No, these are real losses. The rebounding of the market, if it continues, does not take into account those who have been completely eliminated. It doesn’t take into account the millions who have depended on the value of their stocks and the price they could have elicited.

Marx on the anarchy of capitalism

What does the prolonged character of this cataclysmic collapse demonstrate? What is it that Marxists have to look at?

First of all, it confirms the Marxist conception of capitalist economics. It shows that, in the final analysis, all the most skillful manipulators and financial wizards on a global basis, with all the most sophisticated technological communications, cannot control the forces of capitalist anarchy and chaos. These were the very words they used to describe the tumultuous drop of the capitalist stock markets.

The spontaneous character of capitalist production manifests itself first and most violently in the financial markets, the most sensitive area in the mechanism of the capitalist system of production and exchange.

But how did the market suddenly begin to rebound? Was it all under its own steam? Was it also due to the spontaneous character of the sale and purchase of stocks?

From ‘free market’ boosters to begging for government intervention

No, it wasn’t. It was caused by the intervention of the capitalist states—the U.S., West Germany and Japan. Assurances from the central bankers of each of these imperialist countries came swiftly on the heels of the collapse.

The one thing they all dreaded, the one thing they all said they would avoid, was for the capitalist government to come to their rescue. For years they’ve been boasting that the market does so well on its own, it needs no regulators, doesn’t need a policeman over it, doesn’t need bureaucrats telling them what to do.

But how quickly they all changed their minds! From the most liberal of the capitalist newspapers to the most conservative, they all demanded action.

The new chairman of the Federal Reserve Board, Alan Greenspan, a right-wing conservative Republican, had been most vociferous in promoting a policy of no intervention by the government to support or regulate the financial markets. How quickly he changed his tune!

Federal Reserve bails out bankers and brokers

Greenspan’s statement pledging that the Federal Reserve would see to it that there was liquidity in the markets, which was leaked in advance Monday evening and made official on Tuesday morning, was what led to Tuesday’s rally. What’s liquidity? It’s a code word for printing money and handing it over to the most powerful, the most favored of the bankers and brokers to rescue them.

Just how was this done? The banks can apply for loans from the Federal Reserve, as everyone knows, at a discount rate. But there is also another way. The Fed’s Open Market Committee can purchase the very securities that may be collapsing and advance money that way. These open market operations have for years been regarded as one of the most important functions of the Federal Reserve Board and one of the means for regulating the currency.

Only later will we see who got rescued that way, who was let down, how it all was done. The fallout is not yet fully public.

It also should be borne in mind that the intervention of the capitalist state, which they had been hypocritically scorning but are now relying upon, is not as omnipotent as it may appear. We need only remember what they were doing right before the collapse.

Baker and the Louvre agreement

James Baker, the head of the U.S. Treasury, announced on Saturday, Oct. 17, that he favored a continuation of the lowering of the dollar. This is what set the crisis off and made it a global phenomenon. Why would that be so?

In the first place, he broke an agreement among the seven biggest imperialist countries—West Germany, Britain, Japan, France, Italy, Canada and the U.S.—that, before any one of them raised or lowered their currency, they would first consult each other. In that way they would maintain monetary stability in order to have a stable capitalist equilibrium. This is known as the Louvre agreement, and was made in France last February.

What does such an agreement mean? In reality, it is like a giant cartel, a global trust or monopoly. It is not called that; it is called an instrument of stabilization. But in reality it is an attempt to rig the prices of their currencies so as not to reflect real values, which are continually changing and sometimes fluctuate wildly.

Thus, while they are all for free trade and against restraints, while they never stop singing hosannas to the free movement of goods and capital, they nevertheless, under cover of monetary stability, resort to an agreement on one of the most important and sensitive economic barometers—the money supply. They try to artificially hold their currencies to an agreed level.

One hundred years ago, such an agreement would have been scorned as a restraint of trade smacking of international monopoly. At that time, the gold standard was still in effect—5 dollars to an ounce of gold—and the currency was merely a reflection of the value of gold. But so unstable has capitalism become that now not even the most powerful capitalist countries, let alone all the others, dare make their currency convertible to gold.

Weakness of economy seen in currency and swollen military budget

Among those financial elements of the bourgeoisie who claim the U.S. is in a much stronger position now than in 1929, they neglect to mention that in 1929 the capitalist system was still strong enough to be on the gold standard and have a convertible dollar.

Moreover, it didn’t have the swollen military budget it has today. It didn’t have half a million troops overseas, 350,000 of them in Europe and the rest spread out throughout the world, with naval forces on all the seven seas.

This is what adds to its extreme instability. In 1929 the U.S. was a creditor nation. It is now a debtor nation. These are significant elements in the decline of U.S. imperialism, notwithstanding the growth of its productive forces.

Monetary struggle an expression of deeper rivalry over markets

Since the Bretton Woods conference of 1944, every attempt to reach a monetary agreement in some way has collapsed. The Louvre agreement is no exception. The problem today is different only in form from that of the monarchs of ancient times, who would debase the coins. No matter how minutely it was done, it was still considered cheating and led to devaluation.

Each country allows the others a certain amount of cheating. But the real struggle, which is merely being expressed in the field of monetary manipulation, is over the disequilibrium of capitalist production, the competition for capitalist markets, the drive to increase exports and hold down imports, to increase their share of market holdings and exert their “rights” to exploit the oppressed countries.

The Louvre agreement among the seven imperialist bandits could not be kept because each was secretly manipulating its currency through interest rates and other mechanisms without informing or getting the approval of the others.

West Germany, Japan, France and some of the others will do whatever needs to be done quietly and with some restraint. But it took the big bully from Washington to boldly announce, not just threaten behind the scenes, that he would lower the dollar, or, as they say, “let it fluctuate lower,” as though it were an altogether spontaneous process. It was this that angered the German financiers and also the Japanese.

West Germany raises interest rates, all hell breaks loose

The West Germans very quickly used a well-known mechanism to counter the devaluation by raising interest rates. It was this that set off the market crash, much to the consternation of Baker, his Federal Reserve partner Greenspan and the Wall Street fraternity of pirates.

Baker, shaken by the effects of his own conduct, immediately blamed it on a pending tax bill initiated by the Democratic majority in the House, headed by Rep. Rostenkowski. The likes of T. Boone Pickens, one of the most notorious financial pirates, took this up, trying to make Rostenkowski the goat. It was a piddling bill that would put a tax on future mergers and acquisitions—something like a penny sales tax—assuming it passed both houses of Congress and wasn’t vetoed.

So this became the issue in a day of tumultuous financial and political developments, including the Persian Gulf adventure of the Reaganites, which helped accentuate the panic.

The global character of the calamitous drop made it immediately incumbent on Baker to make a double-take, rush to Bonn and immediately patch it up with both the West German financiers (that’s what the meeting with Bundesbank president Otto Pohl was about) as well as with the Japanese.

Up until that day, the word was “Let the markets alone! They know best. No interference!” and above all, “No interference from foreigners dictating to Wall Street!” But on Tuesday morning the New York Times as well as other organs of the capitalist press immediately change tune. Now is the time for togetherness, they said. This has to be worked out among the leading financial powers. West Germany, Japan and the U.S. are all partners, etc., etc., ad nauseam.

Both Democratic and Republican congressional leaders—House Speaker Jim Wright and Senator Byrd, as well as minority leaders Dole from the Senate and Hyde from the House—were all for coordination. Senator Moynihan was forced to get on TV, denounce the “little mistake” that was made with the tax bill, call it stupid and promise almost on bended knee that it would be rescinded.

While this piddling tax bill meant little, it shows how obedient they all are when the stakes for the ruling class are so high.

Will the Louvre agreement hold? Will it be any different from all the others? Can they really contain the blind, unbridled forces of the capitalist market?

Engels put it best when he said, “No one knows how much of his particular article [or stock!—S.M.] 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.”

No matter how many times the various imperialist cliques share out markets or make hundreds of agreements on excises, import duties and tariffs, no matter how often they may cancel them and establish a freer circulation of commodities by unblocking the channels of trade and of commerce, it is impossible for them to avoid what is the ultimate arbiter in all of this.

That is the contradiction between the social character of the productive forces, which under the impact of the scientific-technological revolution are expanding and changing ever more rapidly, and the form of appropriation, which is privately owned property. This is the basis for the anarchy that exists in production and ultimately reflects itself in the financial markets.

Only when the working class takes over the means of production and utilizes them on behalf of the mass of the people will the chaos so evident in October 1987 be eliminated, along with the imperialist wars caused by it.