Chris Harman

Thinking it through

The limit to capitalism

(October 1998)

From Socialist Review, No.224, November 1998.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

‘In desperation bankers, industrialists and governments have suddenly forgotten their old insistence that there should be no interference with free markets’

‘The fundamentals are all right. All the problems are with the financial system.’ If we’ve heard this once from supporters of capitalism about the developing crisis in the last two months we have heard it a hundred times.

In saying this, they are inadvertently admitting to a central fault with their own system. The fundamentals capable of producing the goods which people need are always there – machines, factories, raw materials, computers, workers with various degrees of skill. But these fundamentals mean nothing unless ‘the finance’ is all right as well. If there are problems with it, then the system simply cannot work. ‘Finance’, however, in the present system, is just another word for profit making.

What is being said, then, can be rephrased as, ‘All the elements are there to produce goods in abundance, but dependence on production with profit making is stopping this,’ If production was not on a capitalist basis then there could be no crisis. Or, as Karl Marx once put it, ‘the limit to capitalism is capital itself.

Even the best known capitalist economist of the interwar years, John Maynard Keynes, half recognised this, despite a hostility to Marx so strong that he never even opened Capital. Revising his own free market ideas in the face of the Great Slump, Keynes pointed out that all the goods produced in the system could only be bought if capitalists spent all their takings – profit, rent, dividends, interest and fat cat salaries combined. Some of the takings would, of course, be spent on luxuries for themselves. But under normal circumstances they would invest the rest in order to make more profits through the opening of new factories, the building of new office blocks, the buying in of new machines and raw materials, the employment of more workers.

But there was no necessity for them to do so. They might instead choose to go for ‘liquidity’ – simply to hoard cash. This would be their response if profits suddenly dived down or even if there was an ‘expectation’ that profits were about to dive down. In a sudden panic investment would stop. And when that happened, total spending simply would not be high enough to buy all the goods being produced, or as Keynes put it in his own terminology, there would be ‘a deficiency of effective demand’.

A vicious circle then follows. Firms can’t sell ‘investment goods’ – bricks, concrete, steel, machinery, computer parts, certain raw materials – and sack the workers producing such things. They in turn can no longer afford to buy ‘consumer goods’ – clothes, cars, fridges, food – so the sacking spreads from industry to industry, like dominoes knocking each other over as they fall. Firms and governments react by attempting to bolster profits by cutting wages, but in doing so reduce still further the demand for goods and make the crisis worse.

Keynes also acknowledged something else which Marx had seen long before him. The desire for profits leads capitalists not merely to engage in productive investment, but to throw vast sums of money into a frenzy of speculation. They outbid each other to buy up stocks and shares, oil paintings, supplies of gold or silver, raw materials, office space, land, foreign currencies. But investment in such things rarely increases production (only about one twentieth of stock exchange ‘investment’ is in new production). Instead, the speculation creates the illusion of new wealth as prices of such things shoot up (as in the housing and office boom of the late 1980s) producing instant profits for some speculators, only then to collapse leaving other speculators unable to pay their bills. Those they owe money to are suddenly short of cash and sell other things in turn. There is a ‘rush to liquidity’ which undermines faith in profitability all round, destroys all sorts of investment and drives the system into crisis.

The crisis spreading across the world for the last 14 months has developed precisely along these lines. Fears for profitability, especially in Japan and east Asia, have led to cut backs in production and an onslaught on living standards under the guise of IMF ‘rescue programmes’. A crisis of overproduction has suddenly arisen in certain global industries causing a slump in the price Russia gets for its oil, electronics firms for microchips, European farmers for food, and so on. This in turn has pulled the rug from under the most recent forms of speculation that go under the name ‘hedge funds’. And now some of the biggest banks are worried they will not be able to recoup money lent to the hedge funds. They are selling stocks, shares and certain currencies in a desperate attempt to cover their own cash position and are refusing to lend money for new investment. The whole financial system faces a ‘flight to liquidity’ and a ‘credit crunch’.

In desperation bankers, industrialists and governments have suddenly forgotten their old insistence that there should be no interference with free markets. They are thumbing through old Keynesian textbooks for some way of propping things up. The trouble is that Keynes offered them two sets of answers – one which they might accept but which won’t work, the other which if pushed through in a radical manner would work but which they cannot accept.

The first is to try to reduce interest rates and increase public spending. This is difficult for them to reach agreement on, since in some countries it would create inflationary pressures which local capitalists are reluctant to accept. But in any case, it is not an answer if the crisis is as serious as many now fear. The experience of Japan, where interest rates are now down to 0.5 percent, shows this, as does the experience of the slump of the early 1930s. Similarly, raising public expenditure has so far been to no avail. The set of solutions suggested by Keynes involved ‘socialisation of investment’ and ‘the euthanasia of the rentier’ (i.e. the receiver of dividends). ‘Deficiency of demand’ is really deficiency of investment because of its dependence on ‘expectations’ of profit, he argued. The answer then is for the state to take investment decisions out of private hands – in other words to separate the functioning of the ‘fundamentals’ from dependence on the world of ‘finance’.

The logic of this argument was too radical for Keynes himself, and so, although it is contained in his major work, The General Theory, he never pushed it in practice and it does not get a mention from latter day Keynesians like Will Hutton and William Keegan of the Observer. For it implies a challenge to the whole basis of the capitalist system – accumulation for profit. And in conditions of modern capitalism, with its international links, it could not be implemented without, at a minimum, nationalisation of the big banks and the major corporations. Yet it provides the only long term guarantee against repeated and deepening crises. Socialists have to take up that argument and turn it against both free market and ‘Keynesian’ economists.

In principle, control of the major investment decisions should be easier now than ever before. Capitalism itself has led to an enormous concentration of productive power over the last half century. Around 100 companies produce more than half Britain’s output and four supermarket chains distribute 75 percent of the basic goods people need. Also, no more than 1,000 companies produce half the world’s output, and no more than a few thousand individuals, who sit on the boards of such companies, run the great bulk of world production.

This in itself destroys the old argument that socialist planning is impossible because it involves taking too many complicated decisions. If a few thousand people meeting together can take such decisions, but on the basis of competition between a thousand or so firms, then there can be no problem in principle to a few thousand other people (elected workers’ delegates) taking such decisions on the basis of co-operation with each other.

What would be involved would not be drawing up detailed plans to start making every item from scratch, but ensuring a co-ordination of new investment to satisfy people’s democratically expressed desires and to avoid slump.

Finally, such an approach to the crisis does not have to be a purely propagandist vision, remote from people’s immediate concerns. It can be connected with the immediate struggle of people to protect themselves against the effects of the crisis. Socialist Worker has presented a ‘programme of action’ for the crisis. It begins by stressing the need to struggle to protect jobs and living standards through occupations, strikes and demonstrations. But it goes on to develop the logic of such struggles into a challenge to the control of firms by those whose only concern is profit, the movement of vast funds by banks, and the organisation of the state in the interests of capital. In doing so it suggests how the immediate fight against the effects of the crisis can develop into a struggle for practical demands whose fulfilment would mean an onslaught on the system’s centres of power.

Last updated on 31 July 2021