Workers World, Vol. 21, No. 41
October 16 – The financial and credit structure of the capitalist system may, within certain limits, be compared to the nervous system of the human organism. Symptoms of a very grave disorder in the economy as a whole frequently reveal themselves in the financial structure, where they are more easily discernible.
The sharp rise to 14 percent in the prime rate which banks charge their best customers among the largest corporations, followed by the collapse of the stock market last week, are certainly some of the most visible and serious symptoms. The emergency measures taken by the Volcker-Miller-Carter trio through the Federal Reserve system to arrest a debacle for American finance capital are bound to aggravate, rather than ameliorate, the rapidly deteriorating economic situation in the country.
The bourgeoisie is incapable of addressing itself to the basic causes of the ever more devastating and ruinous recurring cycle of capitalist development. It would in no way be fruitful for them to do so. This is not wonder, since it would only point to their inevitable demise.
Bourgeois economists therefore invariably address themselves primarily to the symptoms of the disease rather than to the basic cause. Their writings are mere apologetics for the exploitative system and devoid of objectivity.
The massive among of literature made possible by the development of the statistical sciences – in particular, computers, econometrics, etc. – deals with collecting material and data that describe in minute detail the external features of the working of the capitalist system but shy away from its deep going and fundamental contradictions. These contradictions have their origin in the private ownership of the means of production by an ever-shrinking group of monopolists.
Only in the early days of Adam Smith and others was there an attempt at a dispassionate and objective analysis of the system. But this was mainly due to the fact that the system was in its infancy, in its so-called progressive stage of development when scientific development at the time was in part directed to defeating feudal superstition which represented the surviving vested class interests of the old order.
Once the feudal class was vanquished and the bourgeoisie fully matured, the development of the social sciences, and particularly of political economy, was abandoned since its further development was really a hindrance to bourgeois rule. It was left for the founders of scientific socialism, Marx and Engels, to continue and fully develop the science of political economy, as exemplified in Marx’s monumental classic, Das Kapital.
In it he diagnosed capitalist society and demonstrated to the hilt that it was the untrammeled growth of the productive forces bursting against the restraints of private property relations which is the basic cause of the incurable malady of capitalist production. The curse of capitalist society, he showed, was capital itself, which he fully demonstrated was not a relationship between things but a relationship between people under the mask of a relationship between things. It is a relationship of exploitation, in which human labor power is exploited in the interest of the capitalist.
It is important to bear this in mind when one considers the currently developing economic crisis since the crisis gives the appearance of being a process external to the human condition, far removed from the bulk of humanity and the raging struggle going on between the antagonistic classes of exploiter and exploited.
Modern bourgeois sociologists, including many of the high priests of bourgeois natural science, see the causes of the ecological ruin of the environment and the destruction of society in the unrestrained growth of the forces of production, and most particularly in the development of sophisticated technology.
Marx, on the other hand, pointed out that it is not the productive forces as such but their quality as capital which brings about this destruction and ruin.
Marx further demonstrated that the solution to the contradiction between the forces of production and private property depends on recognizing that the productive forces are social forces, the product of collective labor. This is obscured by the present form as capital.
Marx pointed out that when a crisis strikes, it is a signal that the contradiction between socialized production and capitalist appropriation has broken out in a violent explosion. The circulation of commodities is clogged up and for the time being stopped.
But the bourgeois quack doctors try to treat only the symptoms by manipulating monetary policy, relying on central banks like the Federal Reserve maneuvering with the reserves of their member banks, artificially raising or lowering interest rates and, more frequently nowadays, by devaluing the currency. While it is possible for the bourgeoisie, through monetary and credit manipulation, to stretch out the length of the capitalist cycle of development, it is impossible to avoid forever the ultimate economic crises.
Marx shows that the money crisis is merely the manifestation of the fact that the capitalist mode of production is also in rebellion against the mode of exchange.
It is only in this scientific context that one can understand the nature of the monetary crisis which accompanies the economic crisis.
Ever since the termination of the First World War and particularly since the Second World War, international trade and commerce has been characterized by one monetary crisis after another. Frequently these have turned into monetary wars between the great capitalist powers in which each tries to undermine the others by devaluing – that is, debasing – the currency. The U.S. has led the pack in this respect and has found it to be a fruitful way not only to rob their imperialist rivals but to more effectively plunder the underdeveloped and less developed countries of the world through this financial jugglery. More often it is used in areas where outright economic or military aggression is not possible or desirable.
The present world monetary crisis, which the Volcker-Miller-Carter servants of U.S. finance capital are seeking to solve but also to turn to the advantage of the most powerful U.S. financial and industrial combines, is another exercise in suppressing the symptoms and driving them deeper into the organism of capitalist society rather than curing the disease.
A chronology of the many world capitalist crises, particularly those in the United States, will show that each of them has been preceded by a financial and credit crisis. However, since the Great Crash of 1929, the international monetary wars, the recurring devaluations, and the efforts of the central banks in the leading capitalist countries to manipulate the credit and financial system, the financial crises have been delayed and in many ways masked so that the kind of plunge which took place in 1929 has been avoided. Instead, the destruction has been spread out over a protracted period of quite a number of minor but painful collapses.
Nevertheless, it has been impossible by monetary and credit manipulation to either delay or suppress an economic crisis for any length of time. The symptoms of the crisis in the financial and economic structure, in spite of desperate efforts to suppress them, break through, even if they lack the initial violence and catastrophic effects of the 1929 holocaust.
For instance, in 1974 the collapse of the billion-dollar Franklin National Bank was originally given minor billing in the world capitalist press. Indeed, many other symptoms of the impending crisis were pooh-poohed for a considerable period.
In our pamphlet, “Capitalist Economic Stagnation and the Revolutionary Perspective” (August 1975), we showed that the collapse of the Franklin National Bank was a severe symptom of the developing economic crisis, but we also sifted out some of the very tiny developments in the financial and credit structure of the U.S. which in and of themselves were picayune if divorced from their historic economic and political context but were perhaps just as illustrative as the Franklin National Bank. We showed that even the failure of such a tiny bank as the First National Bank in the small town of Eldora, Iowa, in the midsummer of 1974, was in its own very small way a harbinger of what was coming.
Today, a bare eight days since the stock market began its sharp and panicky decline, the symptoms of the disorder, although they have not fully surfaced, evince a similar pattern.
The fact that today, October 16, several large bank-holding companies reported third-quarter earnings sharply higher than a year earlier may be comforting and reassuring to stockholders of Chase Manhattan Corp., whose income jumped 61 percent in this quarter, or Bankers Trust New York Corp., which scored a 29 percent gain.
It will not be very comforting, however, to the stockholders and employees of the small American National Bank of Houston (the so-called oil capital of the United States) which failed and closed its doors two days ago and was promptly taken over, or rather swallowed up, by what the U.S. government characterized as “other institutions.”
Nor will it be comforting to the stockholders and employees of the Livingston State Bank of Livingston, New Jersey, which closed its doors and was just as promptly taken over – swallowed up – by “another institution,” according to the government release.
The almost simultaneous failure of these two small banks in widely separated areas of the country, within days of the onset of the stock market collapse, in our view heralds the oncoming economic crisis just as surely as did the failures of the bank in Iowa and the Franklin National in New York.
A credit and financial crisis strikes first at the small and weak. In times of expanding capitalist production, when things are “booming,” as the jargon goes in the capitalist market, small banks mushroom. But they are the first victims when a downturn begins. They are almost as sure a signal as a big jump in outright bad checks.
If one were to point out the absence of a bank failure of the dimensions of the Franklin National in the present situation, we might point to an equally significant symptom in the so-called Euromarket: withdrawal last week by the Development Finance Corporation of New Zealand of a $50-million three-year bond issue paying 11 percent interest, when no underwriters could be found at that rate of interest despite the triple-A credit rating of the corporation. The issue was withdrawn on the advice of Citicorp, which manages the firm. While the U.S. press neglected to mention this development, the Financial Times of London and Le Monde considered it a first victim of the “total confusion” reigning in the money markets.
The economic and industrial effects, as differentiated from the financial and credit effects, may be slower in arriving. They are, however, as certain to arrive as night follows day. This is vividly demonstrated by the consternation which the Volcker-Miller-Carter package has aroused in the various class groupings on whom the burden of the economic crisis will fall first.
It should be noted that the leaders of the biggest industrial and financial combines in the country – as represented for instance in the Business Council, a closed, extremely tight-knit grouping of the largest corporation representatives in the country – are wholly supportive of the harsh measures inaugurated by the Volcker-Miller-Carter administration. “I have yet to meet a single businessman [here] who is not supportive of the move by the Federal Reserve,” says Reginald H. Jones, chairman of the Council. “This is the right move,” he added. “We’re totally supportive of it.” (New York times, October 15, page D1)
In a similar vein, Irving S. Shapiro, chairman of the DuPont Company, was equally supportive. He too is a member of the council and was meeting with 100 or so other luminaries of the giant industrial and financial corporations. Only he showed a little more sensitivity by his demagogy to public sentiment: “The sooner we suffer the pain [of harsh measures taken by the Federal Reserve], the sooner we will be through.”
Thomas A. Murphy of GM shared a similar view. The head of the Sperry Rand Corporation, the head of Exxon, and the chairman of the Citibank, Walter B. Wriston, all made comments along the same lines.
But while the leading representatives of the summits of finance capital were exuding confidence right in the midst of the crisis, this doesn’t signify at all that they are not worried about a collapse or that some of the lesser lights among the giant corporations may not shake and even tumble. The significance of their optimism lies in the fact that the burden of the developing economic crisis will be shifted from them onto other shoulders.
Thus Citibank chairman Wriston said, “If the demand for credit rose [and it is rising rapidly – SM], marginal projects [that’s the small and weak ones numbering in the hundreds and thousands and ultimately involving the jobs of millions of workers – SM] naturally are not going to be built.”
Therein lies the key to the distribution of the burden of the economic crisis on a class basis. The economic crisis will strike first, from a financial point of view, at the small financial institutions. As the crisis finally takes shape, it will strike harder at the so-called small businesspeople. And it will eventually widen to draw in the entire mass of the working class.
There are, according to the October 16 Wall Street Journal, as many as 10.4 million small businesses. “The figure,” says the Journal, “comes from the Small Business Administration, whose definition of small businesses varies from industry to industry (a manufacturing concern, for example, can have as many as 1,500 employees and still be considered a small business by the agency).”
If there are 10.4 million small businesses in the country, then multiplying that by the least number of workers – three – encompasses over 30 million people. This does not include the small businesses which employ undocumented workers.
An increase to 14.5 percent of the prime rate, which is the rate at which banks lend to the best, so-called blue chip, corporate customers, means that the rate at which they will now lend to the small businesses will easily surge to 15, 16, and even 20 percent. And under a restrictive policy calculated to deny credit to the weakest, it will mean within time the collapse of hundreds of thousands of small ones first.
So this particular economic crisis, which shows a tendency to be a creeping one, strikes at the petty bourgeoisie, the so-called middle class, first. Their collapse will not be confined to the individual middle-class owner or operator alone, but will encompass the millions whom they employ. And these workers are not readily and quickly accounted for, especially in the unemployment statistics.
The jacking up of the interest rate and the restriction of the credit extended to small businesses will in the coming period wipe out a whole section of the so-called middle class, the petty bourgeoisie. In the stock market, the huge sell-off of 81 million shares last Wednesday alone meant that a large section of the middle class, composed of middle management executives, accountants, lawyers, doctors, professionals of all sorts, were either partially done in or wiped out.
Thus the restrictive financial policies pursued by the Volcker-Miller-Carter administration have a built-in class bias. They are aimed to favor and strengthen huge combines of business and bankers and to weed out the millions among the petty bourgeoisie. It goes without saying that the heaviest burden will ultimately fall on the workers who are employed by the so-called small businesspeople.
The measures of the Volcker-Miller-Carter administration, even if they were not intended to, will fall squarely on the shoulders of the poor and the oppressed most of all, but they will be felt first by the petty bourgeoisie who desperately need continued financing and are unable to meet their financial obligations.
Nor can the crisis be confined to small business alone. The disease slowly but surely spreads to large industry itself. The housing industry and construction industries are particularly sensitive to the tightening of credit and the sharp rise in interest rates. “Our business is like a faucet,” said a builder quoted in the Wall Street Journal of October 15. “You can turn it one and off. The Fed [the Volcker-Miller-Carter trio – SM] has just turned it off. Another building put it more explicitly: “It’s a disaster.” And a third one said, “This thing’s going to kill us.”
The three builders’ sentiments, says the Wall Street Journal, were expressed last weekend at a meeting of the industry group, the National Association of Home Builders.
Once home building construction slows down, it reverberates through heavy industry, hits automobiles, and others.
Even the farm situation, where there were bumper crops in the last two years and especially this year and which was considered to be in “great shape” until just recently, has shown immediate signs of deterioration. First it has been revealed that, along with the record bumper crops, there has been a growth in farm debt for the first six months of this year which has set an all-time record. The debts were contracted for the purpose of expanding production and investing in new equipment and machinery.
All this will require extended credit. Since the market collapse, however, credit conditions have tightened considerably in the major agricultural states. This will evoke a further decline of the small, independent farms, and their absorption by the big agribusinesses.
The universality of the developing economic crisis is merely a manifestation of the universal domination of the most powerful banking and industrial combines throughout the world where the bourgeois mode of production prevails, which includes vast areas of the planet encompassing the underdeveloped and lesser developed countries.
Under no circumstances can it be said that the socialist countries are immune from it. But to the extent that they are affected, it is the result of the external pressures and interrelationship with the world of finance capital and not at all the internal dynamics of socialist planning and construction.
Last updated: 11 May 2026