MARX, CAPITALISM AND THE RECESSION


Many thanks for your response to the articles I sent. I did not intend or expect a response, especially one so extensive.  I expected more to irritate you than anything else. I notice that I succeeded.

I know very well your views on these matters, having had many discussions with you over many years. But I think your effort deserves serious consideration and a thoughtful response.

My personal position first. It is not correct to believe that I advocate ‘socialism’ as you describe it, or any form of economy in which state ownership dominates. I support the state playing a role, regulatory or more, yes, but dominating, no. State ownership in the USSR and Eastern Europe has collapsed. Market policies have transformed China and is doing so in Vietnam. Cuba has begun the process. North Korea may well follow at some time in the future.

It is important to note that Marx laid out no blueprint for socialism. What developed in the USSR, and followed in the other countries, was more in line with thinking about economic policies and development that developed long after Marx died even though his writings and work inspired the revolutions. ‘Commandism,’ rather than democracy played a major role in what developed in economic and political policies.

While I’m on the subject, I should point out that there has been a resurgence of the serious study of Marx over the past quarter century. Marxism has always been, but is now more accepted, as a respected intellectual and academic discipline among scholars who are not themselves Marxists, though many are. Much of this work has been going on in Europe. Hundreds of books have been written, many against, but more often in sympathetic explanation and support of Marxist theory. Hundreds remain to be written. Some of his conclusions, as I point out below, are broadly accepted in capitalist countries by non-Marxist economists. You yourself accept the business cycle as an integral aspect of market economies.

Apart from the study of Marxism, several best selling and award winning biographies have been recently written about Marx and Engels in recent years. David McLellan’s (Professor of Political Science  at the Goldsmith College, London – 20 books on Marx) biography in 1973, ‘Karl Marx: His Life and Thought,’ 1973, was followed by Francis Wheen’s (distinguished journalist), highly readable, award winning biography, ‘Karl Marx: A Life,’ 1999. ‘Love and Capital,’ a poignant biography of the close knit Marx family encompassing Marx’s intellectual work was published last year. ‘Marx’s General,’ a biography of Engels, Marx’s lifelong collaborator, was also published last year and confirmed for the wider public what many people already knew – that the collaboration between the two since they were in their mid twenties, was one of the most enduring, productive and influential intellectual collaborations of the nineteenth century.

From their mid twenties they were writing influential material. Marx’s ‘Wages, Prices and Profit’ and Engels, ‘The Condition of the Working Class in England’  were to become important classics in the nineteenth century discourse on political economy. These men were not crazy or wicked or lacked understanding of human nature. They spent their entire lives in serious academic study and writing, much of it analyzing social and political developments, including capitalism. Each one spoke and read more than half a dozen languages.

Their practical political activities were directed to the overthrow of the backward, reactionary, feudal monarchies in Europe which they expected to result in the flourishing of capitalism with improved working conditions, not the development of ‘socialism.’ It is to be noted that all of the same monarchies were subsequently overthrown by others for the same reason, namely, they were a fetter on the growth of the market mechanisms which were then growing rapidly through scientific inventions, the development of factory production and colonization. Marx and Engels, however, took a strong position against the awful exploitation, degrading poverty and dehumanization that wealthy capitalists unnecessarily imposed on workers in nineteenth century Europe, much as Cheddi struggled against the same in twentieth century Guyana. From Marx to Cheddi, they all knew one historical truth – improvement in the conditions of the poor has never been a gift from employers.

So the wholesale dismissal of Marxism, which inspired but had nothing to do with what developed after the 1917 Revolution in Russia, is not in line with what many economists and scholars think about Marxism today.

Two examples: First, Marx expanded the analysis of the reasons and eventual consequences behind one major phenomena in capitalist economies – the business (boom and bust) cycles. Second, Marx investigated the reasons behind the tendency of the rate of profit of capitalism to fall. In both cases he showed how they arose as a result of the contradictions of capitalism and how they are overcome, temporarily, until the next cycle.

The business cycles and the reasons are now accepted. The problem is that the ‘elites’ (I notice that you use this word only in relation to socialists) of capitalist societies ignore it. Former Fed Chair, economic wizard Alan Greenspan, never knew what hit the US when the recession came. The new Fed Chair, Ben Bernanke, an expert on the US recession in the 1930s, had said it could not happen again. Yet it keeps occurring, time and again, in country after country and region after region. These eminent gentlemen know about Marx. Yet they ignore the truth about the business cycle and much else. You have to ask yourself why.

For Marx capitalism was a revolutionary development and an advance over feudalism, as much as feudalism was a revolutionary advance over classical slavery. Both of the latter lasted for millennia. Capitalism at about a thousand years old is young in comparison. It has a long way to go, perhaps longer that the previous eras because it is more dynamic and scientific advances are moving at a far faster rate.

Marx understood and said that capitalism provided the basis for substantial advances, developments and innovations, while recognizing its negative characteristics. One of these was that capitalists would not willingly provide decent wages and conditions for workers unless they fought for them. The endless struggles over the centuries for workers rights prove that he was right. Two examples are the tremendous struggles for shorter working hours and against child labour in the nineteenth century. That is why there are Cheddi Jagans, in his case struggling against the appalling conditions under which workers lived in the first half of the twentieth century in British Guiana. There will be many more, all over the world.

In relation to the second issue, the rate of profit, Professor Desai of the London School of Economics, who is not a Marxist, wrote a book called ‘Marx’s Revenge,’ in about 2000 in which he analysed Marx’s explanation about the reasons for the tendency of the rate of profit of capitalism to fall, a phenomenon already accepted before Marx and demonstrated by Desai to be occurring today, with certain exceptions. He joined a growing band of academics who argue that Marx was misunderstood.

Progressive and liberal economists today are demonstrating the relationship between the falling rate of profit of capitalism and the current recession. The arguments I set out below are based on their thinking.

The alleged debts that exist among developed economies are only regarded as serious, and have only arisen as an issue, since the recession. The first matter that needs to be pointed out is that it is in fact the falling rate of profit of capitalism, which has resulted in wage increases not keeping up with the capacity of workers and the middle classes’ ability to provide for themselves the social benefits which are necessary for their sustenance. This is demonstrated by a comparison of  the gap between the highest paid and lowest paid in the US in the 1960s and today and you will see what I mean.

Health care and college tuition are two examples of social benefits moving beyond the capacity of workers and the middle class to afford. This has necessitated greater public spending (medicare, medicaid and social security in the US) resulting in greater public debt. Your view that the debt crisis came about because governments give social benefits and shorter working hours which they cannot afford is not justified. These social benefits, be they social security in the US, health benefits by most developed countries, even transportation subsidies which would be unmanageably expensive for ordinary people otherwise, were given of necessity in order to preserve social peace and the stability of capitalism. In fact they subsidize capitalism. Workers pay subsidized fares (in the US its cheap gasoline) to get to work. This means businesses do not have to pay higher salaries to accommodate transport expenses. If the governments do not do these things people would have rebelled. Serious conservative political leaders know this. It is all done to keep profits high.

Take the US as an example again. The expenditures of the Vietnam War, combined with the reducing profit of the US economy and the normal business cycle, resulted in a serious economic crisis under President Carter with ‘stagflation’ and very high interest rates.  The conservative Reagan succeeded Carter. What did he do? Reduce taxes? No! He increased taxes and trebled the public debt, both frowned upon by conservatives? Why? In order to spend his way out of the crisis and buy social peace. Had Reagan not increased public expenditure in order to provide social benefits to the population, which they could no longer afford, American society would have experienced too much social tensions and production and productivity would have been negatively affected. Reagan’s distinctly non-conservative policies, even though he reduced a great many social benefits (poverty and homelessness increased under him), were devised to protect and preserve capitalism.

The health care issue in the US is a good example. Up to the 1960s Americans could easily provide for their own health insurance. Today it is too expensive, and 40 million Americans are not insured, forcing the Government to do something about it. I had US health insurance for about three years starting about seven years ago. The premium started at US$1500 a year. In three years it grew to US$4000 a year. I had to give it up. In my now old age I am unprotected against serious illness. I just have to hope that nothing serious happens to me. This was what was facing millions of Americans until the reforms in this one area only.

The crisis was not caused because the ‘socialists’ governments gave benefits to their population which their government could not afford. They gave benefits which their peoples could no longer afford, like Medicare and Medicaid in the US. If not Americans would be dropping dead on the streets, creating social chaos and the ‘revolution’ against capitalism their leaders want to avoid. Governments borrowed or raised taxes to implement these programmes. Hence the debts.

High social benefits and taxes are fully consistent with successful market economies such as has been proven in Scandinavian countries. These countries prove that high taxes are not a disincentive to investment and successful market economies if the taxes are utilized to provide social benefits.

The prominence of conservative ideology in this crisis reflects a heightened struggle by the rich to recover their positions by eliminating the benefits already advanced.

In the US it was left to President Clinton to eliminate the public debt created by Presidents Reagan and Bush the first. He was able to do so because the economy surged during his term as a result of technological innovations, namely, the internet and information revolution, just as Marx predicted would happen after the bust phase is ended and the boom phase commences. (He discovered from his studies of business cycles in the nineteenth century and before, that innovation and productivity were the most important elements in restoring the boom phase of the business cycle after a recession because it reduces production costs). The surging economy and low interest rates drove the financialization which occurred. The unlimited growth of the finance was later predicted by Lenin when capitalism, and the export of capital which he called ‘imperialism’ kept growing after Marx’s death.

The resurgence of conservative economic opinion, reflected in much of what you say, is reflected in the ongoing debate about how to resolve the crisis. Despite academic learning (Keynes) and previous experience (the US depression before the War) austerity is promoted as the solution. It is argued that if public spending is cut the ‘confidence fairy’ will appear and businesses will resume investing. That is not happening in the US and UK. Businesses are awash with money but investment is very slow despite substantial cuts in public spending in the US and particularly in the UK whose economy has moved from modest growth to recession and is threatened by inflation as well.

The Labour Government had a better plan – to halve the debt in five years but continue growth policies. This would have reduced the debt at a slower rate but maintain growth. The Tories slashed and burned, reduced taxes on the rich and used the opportunity to reduce social benefits. The economy has slowed as a result. Even big business is now calling for a slowdown of slash and burn and the introduction of some stimulus measures. The same is happening in Europe with the bankers now calling for an easing up of the austerity measures. France and five other countries threw out their governments because of the imposition of austerity measures.

The same things were experienced in the US in the 1930s. It is only the increased spending when the US was preparing to enter the War that ended the recession. Opposition to stimulus obstructed Rooseveldt’s desire to introduce more stimulus measures just as it is hampering Obama today. His earlier stimulus package was inadequate.  Forty percent had to be in tax reduction, which is in fact no stimulus, in order to appease the Republicans in the US Congress. His Jobs Bill is dead in the water.

The fact is that the debts only appear large because of the recession. These economies are large enough to sustain the debts and increased spending at the same time. So says Paul Krugman, the celebrated US economist. The argument about their unsustainability has only arisen because the ‘elites’ in capitalist societies want the crisis to be solved by a reduction in public spending and reduction in taxes for the rich. Reduced public spending takes resources from those most affected by the crisis and returns it to capitalist ‘elites’ in bonuses, lower taxes and higher profits. Many non socialist economists, Paul Krugman again, have been pointing out since 2008 that the answer to the recession is more stimulus. All the history and all the economic science favour stimulus packages.

The only country that has tried the other way is Argentina. After years of austerity which forced several Presidents out of office in quick succession, President Kirchner forced a default, refused to pay the banks and saw growth return in two years. Today the economy is growing at 8 percent. True, they have been helped by high prices for soya and also have a problem with inflation. But that is minor in comparison to what had faced and would still today have been facing them. These actions saved millions more from going to bed hungry. Not a single banker suffered that fate. Hopefully Greece will spare itself the agony of a decade of hunger and pain and follow the example of Argentina. And these are not ‘socialist’ solutions. All of these leaders are moderate social democrats and nationalists who strongly support market economies. Unfortunately, many of these leaders are denigrated in the West as dangerous radicals. They are not.

It is in connection with the growth of finalization that I referred to Lenin in my article on Cheddi. The ‘elites’ in capitalist societies attributed the crisis to ‘greedy bankers,’ who promoted sub-prime mortgages, credit swaps, junk bonds and other fraudulent financial instruments. This was done in order to deflect criticism from the system itself on to the few ‘greedy bankers.’ The development of these instruments, captured in the word ‘finalization,’ is a natural growth of financial capital which was discussed and analysed by Lenin who predicted the growth of financial capital to the extent that it can create such a crisis. That is what I sought to point out.

The solution proposed by you is not the solution. It is one proposal which is based on conservative as opposed to moderate social democratic (not ‘socialist’) thinking – austerity as opposed to stimulus.

As regards Cheddi, the assessment made by you is one that was once popular in certain limited circles but now has a reducing appeal. It is losing its traction and credibility as a result of recent studies. The idea suggests that little boy Cheddi should not have annoyed, upset and showed ingratitude to God Father America which had no choice but to remove him. I remember David deCaires telling me some time ago, after Cheddi had died, that history will be increasingly unkind to him. The opposite is happening.

Growing academic opinion fixes the blame for Guyana squarely on American intervention. Stephen Rabe, a Professor of history at the University of Texas, is a former Marine who described himself as being ‘as blue blooded as they come.’ He excoriated the CIA in his book ‘US Intervention in British Guiana: A Cold War Story’ and lays the blame for all the problems of Guyana today on US intervention in British Guiana. He showed that Cheddi gave the US no cause to intervene in British Guiana. The next book was written by Professor Colin Palmer, ‘Cheddi Jagan and the Politics of Power.’ It is a more in depth study of Cheddi’s history. It makes the same argument as Rabe.

Those Caribbean countries that have fared better only did so because of comparative advantages. Trinidad has oil which helped to maintain social peace and Barbados has sandy beaches and no racial tensions. Surinam is only marginally better off than Guyana.

The idea that if Cheddi had played ball with the Americans he would have remained in power and Guyana would have made economic progress is arguable. Unless the PPP was capable of dramatically turning around the economy, to garner the resources to secure social peace, Guyana’s political/ethnic problems would have surfaced anyway and would have overshadowed a PPP administration. Political/ethnic instability was almost a certainty. We cannot predict how this would have played out.

I believe that capitalism will survive and prosper for the foreseeable future. New poles of growth, China and India, the Asian Tigers, Brazil, South Africa, have already appeared. Others are on the horizon.

For this reason it is my interest to see that capitalism survives efficiently and effectively and provides ever greater benefits for the people who make it profitable, namely, investors and workers. This is why I am so deeply interested in the solving the problems or reducing the effects of its crises. My interest is not to impose ‘socialism;’ it is to make capitalism better, more productive and more responsive to the challenges which it faces. It cannot do so by austerity programmes which do not take growth into account, Tea Party solutions as proposed in the US or sustaining so much poverty in the world.

You should note that the regulations existed in the US to prevent the banking crisis. It is the bankers and Greenspan who persuaded the Clinton Administration to dismantle the regulations, thus allowing the banking fraud to precipitate the financial crisis in the name of profit, not production. My interest is to see these controls in place again and the power and influence of the bankers and such types in dictating economic policy to be substantially reduced. They are destroying capitalism, not building and protecting it.

I am convinced that the resources currently provided by capitalism are sufficient to eliminate worldwide poverty and disease as we know it. As Bill Gates has argued, this should not be considered as charity. It is an investment. It can bring millions of productive hands into the building and growing of capitalism. This is what should happen and I notice that Bill Gates is inspiring others.

Cheddi in his ‘New Global Human Order,’ which has been adopted by the United Nations, pointed out how the resources of capitalism can be deployed to eliminate hunger and disease. He argued that the existence of poverty is a waste of human resources especially since enlightened policies can substantially reduce or eliminate it. The Tobin tax proposed by him is now on the agenda of the world’s financial institutions and it is only a matter of time before it is implemented.

The article on Marx that I sent, ‘Marx at 194,’ published in the London Review of Books, concludes that Marx would have been happy at capitalism’s progress today and would be satisfied with the benefits enjoyed by workers in Scandinavian countries. The reason I sent it is to demonstrate that much of Marx’s understanding of capitalism’s growth and dynamism have proven to be accurate.

I note your reference to Professor Paul Kurtz and his call for a ‘New Renaissance.’ Be careful! It was the Renaissance that produced Karl Marx. You can never tell what a New Renaissance may bring forth!

Good luck with the doctorate. I would like to read it when it is complete and available.

Grateful if you would circulate this to our relatives and friends who had the benefit of your ideas.

Ralph

May 24, 2012.

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