Join the Socialist Party Join us today!

Printable version Printable version

Facebook   Twitter

Link to this page: http://www.socialistparty.org.uk/issue/599/8295

From The Socialist newspaper, 28 October 2009

80th anniversary of the Wall Street Crash: Capitalist failure - then and now

Scant attention has been paid in the media to the 80th anniversary of the October 1929 Wall Street crash. Preoccupied with their own present devastating global crisis, the capitalists can hardly repeat their theme of yesterday - "it can never happen again" - when dealing with 1929.
Peter Taaffe, general secretary of the Socialist Party, takes a look at how much of it really has happened again, and spells out the underlying cause.
Socialist Party 'bankers' appeal for more cash, photo Senan

Socialist Party 'bankers' appeal for more cash, photo Senan

In the past, anyone, particularly Marxists, who anticipated something similar to the 1929 crash reoccurring - and the Socialist Party and the Committee for a Workers' International did - were considered 'economic catastrophists' or 'primitive slumpists'. However, we never approached economic prospects in such a crude manner as this. In fact, we opposed those who prematurely saw that 'another 1929' was just around the corner.

Some Marxists fell into this trap in 1987. But before this crisis erupted, we did predict that this time it was likely to be a serous crisis, which the capitalists would be unable to avoid and get out of easily.

The capitalists, on the other hand, were in denial about the workings of their system. Something similar also existed prior to 1929, as John Galbraith in his celebrated book The Great Crash 1929 demonstrated. On 4 December 1928, the outgoing US President Calvin Coolidge - about to hand over to the infamous Herbert Hoover - declared: "In the domestic field there is tranquillity and contentment... and the highest record of years of prosperity... [We] can regard the present with satisfaction and anticipate the future with optimism."

Andrew W Mellon, Treasury Secretary under Hoover, declared: "There is no cause for worry. The high tide of prosperity will continue." An ex-Marxist, Werner Sombart, was also seduced by the 1920s' boom. In 1928 he wrote: "Karl Marx prophesied... the catastrophic collapse of capitalism. Nothing of the kind has come to pass."

End of boom and bust?

Does this have a topical ring to it? Amongst others, Alan Greenspan, chairman of the US Federal Reserve for 19 years from 1987 to 2006, made similar statements extolling the 'free market' and Gordon Brown joined in, boasting that he had tamed capitalism and the economic cycle of 'boom and bust' had been conjured away.

As with 1929, we said that the massive financial bubble would inevitably end in a 'bust'. The economic cycles of capitalism, as Leon Trotsky pointed out, are as organic as "inhaling and exhaling" for humans.

Capitalism reached an impasse by the time of the First World War. The productive forces - science, labour and technique - had outgrown the narrow limits of the nation state and private ownership by a handful of billionaires.

After the war, the economic cycles, like the slowed-down breathing in an aged body, became shorter, the booms weaker and the crises deeper. However, the US, as a newly rising economic power - it had overtaken Britain in this regard by the late 19th century - seemed to have escaped the economic difficulties affecting the rest of the world in the 'roaring twenties'.

Under capitalism, the trigger for a crisis can come from different factors. Indeed, history never repeats itself in exactly the same way. The immediate impulse for the 1929 crash was the sudden collapse in shares on 24 October (Black Thursday) and another, greater collapse on 29 October (Black Tuesday). The current world economic crisis was triggered by a banking crisis and then spread to shares and the rest of the economy.

But the 'impulse' is not the main cause of a capitalist crisis. Karl Marx pointed out that capitalism is a system based on the production of profit and not of satisfying social need. Profit comes from the 'unpaid labour' of the working class. Therefore built into the very foundations of capitalism are inequality and the tendency of the working class to be unable to buy back the full value of what they produce.

Capitalism overcomes this contradiction for a time by reinvesting part of the surplus back into production. The only justification for capitalism historically is to use this surplus to develop the productive forces, with the capitalists, according to Marx, acting as the 'trustees' of society. Once they abandon this mission - not developing but destroying wealth and industry - they forfeit this role. And in a crisis - spectacularly demonstrated in 1929, the Great Depression and also in today's crisis - capitalism abandons its mission.

Investment in factories and increased production result in a greater supply of goods and services. But both in the period up to 1929 and in the last 20 years the capitalists cut the share of wealth going to the working class enormously, while at the same time piling up their own wealth. As Stephen Foley pointed out in the Independent: "Tell me if this is a coincidence. The income of the top 10% of earners in the US has accounted for about 50% of the total [of national income] on only two occasions in the past 100 years, first in 1928 and then again in 2006-7".

Rottenness of the system

Economists like Paul Krugman assert that the social after-effects of the Great Depression curtailed the more avaricious appetites of the capitalists in the 'Great Compression' which followed in the 1950s and 1960s. Capitalism made enormous profits in this period but because of the huge expansion of industry, the working class's real living standards also increased. At the same time, the income gap was kept in check up to a point by the renewed strength of the labour movement on the back of the boom.

But this began to be undermined in the Reagan counter-revolution in the US and also by Thatcherism in Britain. The biggest US companies - not just in finance - paid their Chief Executive Officers 275 times the average of their staff's pay in 2007, ten times the ratio of the 1960s.

In both 1929 and today we saw the spectacle of overaccumulation or overproduction - a glut of goods, services, agricultural production, etc. The consequences of the 1929 crisis, beginning in the US, were devastating. By 1932, US unemployment had reached 23%, peaking at 25% in 1933.

The Hoover administration's approach was summed up by Mellon, who declared: "Liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." Shades of David Cameron's Tory party?

In June 1930, the US Congress approved the Smoot-Hawley tariff act, which raised barriers to imported goods from abroad. This in turn triggered a 'beggar my neighbour' trade war which reinforced and extended the crisis. Unlike in the current crisis, 5,000 banks, mostly small ones, collapsed. In this crisis just 103, mainly small, banks in the US have gone under so far. With the notable exception of Lehman Brothers, the capitalists have learnt from the Great Depression and bailed out the big banks. This has been an international phenomenon with the US and Britain to the fore.

Worldwide, credit lines have been expanded and extended to the banks, to the tune of $10 trillion, approximately 80% of the total annual gross domestic product (GDP) of the US, the biggest economic power on the globe. In Britain, the figure is $1.2 trillion in the form of directly guaranteed loans and equity investment, more than two thirds of the annual output of the entire economy. All of this will be paid for ultimately, of course, by 'consumers', largely the working and middle classes.

An economic crisis, particularly one as devastating as 1929 or today, has the same effect as a war. It results in the 'slaughter' of capital, resulting in idle factories and workplaces together with 'idle hands', that is mass unemployment.

A recent report of the European Commission bluntly declared: "The crisis is the equivalent of capital destruction, reducing - at least for a time - the productive potential of the economy". This means "the economy will not return to its pre-crisis expansion path but will shift to a lower one. In other words, the crisis will entail a permanent loss in the level of potential output."

In the US, the working week now is at an average of 33 hours. A victory for the labour movement's demand for a shorter working week? On the contrary, it is the result of the forcible eviction from the factories and workplaces of millions of workers who may never work again. In the first three months of this year three million jobs went in the US. When taking into account part-time work and those who have given up looking for a job, the unemployment rate is far higher than the official figure of just below 10%. In Britain, 750,000 workers have just disappeared from those "seeking work".

Green shoots or green weeds

But hope springs eternal. "We have avoided a repetition of the Great Depression," say the spokespersons of capitalism. There is probably some truth in this. Marxists always recognise that there is no 'final crisis of capitalism'. At a certain stage, unless the working class seizes hold of the direction of society through socialist planning, capitalism will find a way out, albeit on the basis of continued suffering of the working class and the poor.

Is there presently a recovery, 'green shoots', or is it rather 'green weeds'? The latter seems to be the case in Britain, as the latest figures showing a continued slide in production indicate.

Even if there is a 'recovery', it will be so anaemic that many workers will not notice it. Parts of the capitalist world are already in a 'depression', such as Latvia. California is an economically "failed state".

Moreover, two economists, Barry Eichengreen and Kevin O'Rourke, in their paper A Tale of Two Depressions indicate that the jury may still be out as to whether capitalism is 'over the worst'. The massive worldwide stimulus packages, historically low interest rates, etc, are bound to have had an effect, they concede. Industrial production is slowly recovering and this diverges from the Great Depression when the decline in industrial production continued for fully three years. But has 'demand' increased, leading to rising production? Consumer spending is down, house prices continue to fall and production is largely building up stocks.

Global stock markets have recovered some of their losses, as Eichengreen and O'Rourke concede, "Nonetheless, the proportionate decline in stock market wealth remains even greater than at the comparable stage of the Great Depression". There is a "collapse of global trade [which], even now, remains dramatic by the standards of the Great Depression".

In industrial production, the big four EU nations - Germany, Britain, France and Italy - are doing badly: "Today's German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse. The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis". Japan has the worst figures, with industrial output in February "25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March".

Public spending

In Britain, if David Cameron puts the already weakened public services to the sword, this will enormously aggravate the situation. The effects of such methods were shown in the 1930s. In 1936, the US Congress passed a bonus bill for veterans of the First World War. But then in order to balance the budget in 1937, Roosevelt withdrew this and other measures, which led to a 13-month long recession and unemployment soared again to 19%.

The US was on the verge of an even greater crash than 1929. What saved capitalism then and underpinned the whole of world capitalism for a long period afterwards was massive arms production before and during the Second World War.

1929 and the Great Depression became etched into the consciousness of people in America, Britain and worldwide. Restrictions were introduced in an attempt to control and curb the greed of the bankers. The Glass-Steagall Act and other measures remained in place for over 65 years. It took a 'liberal' US President Clinton in 1999 to remove these restrictions. These, together with Thatcher's 'Big Bang' of financial deregulation in Britain set the scene for the orgy of speculation which prepared the way for the present crisis.

Social tension

Have the capitalists - particularly the bankers - learnt from the present crisis, never mind that of 1929? On the contrary, swollen with public money, they have once more unleashed capitalism's 'animal spirits' and awarded themselves colossal bonuses - worth at least 6 billion in the case of Britain.

In the US, Goldman Sachs awarded its top bankers $23 billion in bonuses for 2009. This prompted one journalist, in Rolling Stone magazine, to call this firm "a great vampire squid wrapped around the face of humanity". One Wall Street banker simply said the directors are "a bunch of clever thugs". This company was bailed out with $10 billion from the US government, which has now been generously 'paid back', but it has also issued $21 billion in bonds, backed up by the Federal Deposit Insurance Company.

The Independent declares that not to bail out the banks would "result in a depression". Mervyn King demurs: "If the banks are too big to fail, then they are too big". He wants to break them up and separate their retail and investment functions.

Yet this crisis is not just in the banking and financial sector but, as in 1929, is rooted in the contradictions of capitalism itself. Moreover, nothing can fully check these 'vampires' or 'squids' - not even obscene bonuses can be eliminated, only curbed, as Obama has proposed - within the framework of capitalism.

Only by nationalising the banks and the main giants of the financial sector would it be possible to begin to introduce measures which benefit the mass of the people and not a handful of 'coupon clippers'. This in turn could be a step towards the establishment of a state monopoly of foreign trade and a socialist planned economy.

The most crucial difference at this stage between the events of 1929 and the current crisis is the political effect. In both crises the result was a massive increase in 'social tension'. In the US, for instance, in the ten years following 1929, millions poured into the Congress of Industrial Organisations (CIO) trade unions. The Teamsters' rebellion in Minneapolis unfolded, led by Trotskyists. Huge battles took place in the US with many workers killed in bloody confrontations with the police and other state forces.

Worldwide, the 1930s were characterised by revolution and counter-revolution. Capitalist commentators usually concentrate on the rise of Hitler and the triumph of Franco. But before this, the working class of Germany was enormously radicalised, as was the Spanish working class from 1930 onwards. The working class and the labour movement had the opportunity to take power but failed because of faulty leadership. This allowed the Nazis in Germany to triumph, followed by Franco's fascists in Spain, despite the heroic resistance of the working class who initially controlled four fifths of Spain.

On the industrial plane - particularly in the US - so speedy and deep was the industrial decline that trade unions and the working class appeared to be paralysed. Nevertheless there was enormous political fermentation, leading to substantial growth of left and socialist parties.

Despite the monstrosities of Stalinism, the planned economy in Russia proved a great attraction for workers against the background of mass unemployment. 'Non-capitalist' Russia was economically immune from the Great Depression. When 6,000 positions in Russia were advertised by a New York agency, 100,000 workers applied!

Capitalism - failed and will fail

Today, the mass of the working class is angry and disappointed with economic developments but has not yet moved decisively towards the left politically. If there are "dispersed agencies of opposition" to capitalism, as some have argued, then this results from the lack of a pole of attraction for the mass of the working class in the search for an alternative. This is the crucial difference at this stage between 1929 and its aftermath, and today.

But such are the blows that capitalism is preparing against the working class that, in time and with the help of socialist and radical forces, a layer of workers will find a road to a socialist alternative. They in turn will affect and galvanise the mass of workers into action.

We will experience not just one crisis but a chain of crises of capitalism over the coming years. There is no prospect of world war as a way out for capitalism. The only 'war' being prepared is by the capitalists against the rights and conditions of the working class.

The most powerful factor in society is the working class but it is presently politically disarmed, because there are no mass independent workers' parties.

Capitalism offers no way forward. It has failed and will fail; the working class is the bearer of all real progress. But in order to play this role, it must organise, as Marx said, as a "class for itself". For this to happen it should discard discredited leaders and organise new parties which can act as levers to combat capitalism and change society in a socialist direction.

See details of Socialism 2009 where Peter Taaffe and others will discuss and debate the ideas of socialism.

www.socialism2009.net

Why not click here to join the Socialist Party, or click here to donate to the Socialist Party.


In The Socialist 28 October 2009:

Support postal workers

Support post workers, this is no time to equivocate

Postal strike reports: Defending the service


Anti-racism

BBC Question Time panel - Workers' voice denied against BNP

BBC Griffin protest: Jobs and homes, not racism!

Far right shut out of Newport by mass protest


Socialism 2009

Socialism 2009 forum - can we build a party for working class people?


Youth fight for jobs

Huddersfield march for jobs

Young musicians support YFJ

Cardiff Socialist Student elected


Anti-war

Afghanistan: anti-war demo

Tamil Solidarity fights for boat refugees


Socialist Party news and analysis

Darling you're talking rubbish!

Energy giant 'fanciful to the point of paranoia'


Marxist analysis

80th anniversary of the Wall Street Crash: Capitalist failure - then and now


Workplace news and analysis

Strikes sweep across Yorkshire

Leeds bin strike: 92% vote to reject council's 'final' offer

Battle for jobs in Land Registry

Ex Ford/Visteon pensioners protest in Swansea

Leicester uni cuts protest


Socialist Party feature

Call centres - public services on the cheap


Marxist analysis: history

Newport Rising 1839


Comment

Daily Mail homophobia


Socialist Party reviews

Film review - Capitalism: a love story

Conspirator: Lenin in Exile


 

Home   |   The Socialist 28 October 2009   |   Join the Socialist Party

Subscribe   |   Donate  




Related links:

Capitalist:

triangleRussia, October 1917: When workers took power

triangleObesity epidemic: end food market anarchy

triangleTories torn - bin them now

triangleThe fight against racial discrimination is tied to fighting against capitalist austerity

triangleIMF helps cause inequality it slams

Wall Street Crash:

triangleThe 1930s depression - What happened after the Wall Street crash?

1929:

triangleAre we heading for a new Great Depression?

The Socialist:

triangleHundreds turn out for rally aimed at removing west Wales Tory MP

triangle'Dazzling' Bad Art show points to socialist future

Socialist Party:

triangleConference on state spies and sabotage: who's watching who?

Socialist:

triangleSocialist Students 'welcome' Hillary Clinton to Swansea

Global:

triangleExtreme weather events and global warming

Peter Taaffe:

triangleOctober 1917 reviews: 'More bright than any heaven'

Capitalism:

triangleCan you donate to the Socialism 2017 appeal?

US:

triangleSwansea Socialist Party: Mother Jones - A US labour pioneer

Working class:

triangleNasty party imploding...drive out the Tories

Historic events

Historic events

18/10/17

Russian revolution

Russia, October 1917: When workers took power

4/10/17

Che Guevara

Che Guevara 50 years on - revolutionary socialist and fighter

23/8/17

Review

Mutinies and strikes: when Bolshevism threatened British bosses

23/8/17

Anti-fascist

Lewisham 1977: When socialists and workers defeated the far-right National Front

9/8/17

Marx

Marx's Capital at 150: an unequalled analysis and critique of capitalism

26/7/17

Russian revolution

Russia 1917: how art helped make the revolution

12/7/17

Russian revolution

July Days 1917: battles with counterrevolution

6/7/17

LGBT

Lessons from the Russian revolution for LGBT+ struggle today

28/6/17

Liverpool

Liverpool's 1983-87 socialist council

21/6/17

Revolution

The Pentrich uprising: revolution and counter-revolution in 19th century Britain

31/5/17

Russian revolution

June 1917: when workers in Britain first tried to form soviets

26/4/17

May Day

The real origins of May Day

26/4/17

Labour Party

How Blairism sank its claws into the Labour Party

29/3/17

Russian revolution

April 1917: how the Bolsheviks reorientated

8/3/17

Ferries

1987 Zeebrugge disaster

triangleMore Historic events articles...


Join the Socialist Party
Subscribe to Socialist Party publications
Donate to the Socialist Party

triangle13 Oct The end of the Tories?

triangle11 Oct Nasty party imploding...drive out the Tories

triangle11 Oct CWU fights court attempt to stop national strike

triangle11 Oct The fight against racial discrimination is tied to fighting against...

triangle11 Oct Catalonia: Workers can finish what Puigdemont won't

triangle6 Oct Boeing bust-up threatens thousands of skilled jobs

triangle4 Oct The nasty party turns on itself... but the Tories must be driven out

More ...

triangle18 Oct Warrington & St Helens Socialist Party: 1917-2017; the October Russian Revolution

triangle18 Oct Hackney Socialist Party: 100 years ago - the Bolshevik-led revolution

triangle18 Oct Tower Hamlets Socialist Party: Capitalism in Crisis - is Corbyn the answer?

triangle19 Oct Waltham Forest Young Socialists: Deaths in police custody

More ...

Socialist Party Facebook page
Socialist Party on Twitter
Visit us on Youtube

Archive

Archives:

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

Legal

SP RSS feed RSS

Platform setting: = No platform choice

V2