The decisive turning point came of course, on August 15, 1971, when the US Administration finally broke the dollar gold standard link which had sustained the 1944 Bretton Woods arrangements.
From now onwards, any increase in production or capital accumulation could only make worse the crisis that much worse in that it was accumulation in a situation where the basis for international value and payments had been deliberately removed. Here again the utter confusion of the revisionists who see in every slight ‘upturn’ in production or ‘improvement’ in the payments balance the hopes of a new boom, however short lived. On the very contrary, such ‘upturns’ and ‘improvements’ can now only aggravate every contradiction which has matured throughout the boom.
For the capitalist system the situation we have outlined would have been bad enough. But onto the billions of unbacked dollars, masquerading as money, has been built a huge superstructure of credit.
Once more Marx shows that this development of credit. Once more Marx shows that this development of credit is no accident, but tied inescapably to the development of productive forces. By credit we mean the system whereby commodities trade not against money (gold, or its equivalent in paper) but against promises to pay in the future. Here again, however, the limits to the expansion of credit (which revisionists such as Mandel saw as the means to indefinite capitalist expansion) are strictly limited by the available money supply.
But it should always be borne in mind that, in the first place, money – in the form of precious metal – remains the foundation from which the credit system, by its very nature, can never detach itself.’
(‘Capital’ Vol.3, p 592)
Apart from being tied to its money (gold) base, the development of credit tends to enormously sharpen the contradictions of the capitalist system.
As Marx shows in the last volume of ‘Capital,’ it is the credit system which tends to make available to any single capitalist the whole of the social capital. It speeds up the tendency towards growth of monopoly and the centralisation of production. In doing this it brings forth a new breed of capitalist – much evidenced in recent months – the speculator.
‘It reproduces a new financial aristocracy, a new variety of parasite in the shape of promoters, speculators and simply nominal directors; a whole system of swindling by means of corporate promotion, stock insurance, and stock speculation.’
It is here that the ‘asset-stripper’ and ‘offshore funds’ operator fits into the picture. It is the indication of the depth of the impending crisis that these sectors should have been the first to feel its blast.
It is in a crisis that these contradictions burst with great violence. Now money (gold) once more comes into its own as everybody rushes out of credit and much of the swindling of the boom is revealed for what it is:
‘In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur - a tremendous rush for means of payment – when credit suddenly ceases an only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a question of the convertibility of bills of exchange [these are the main means of credit – PJ] into money.... At the same time, an enormous quantity of these bills of exchange represent plain swindle, which now reaches the light of day and collapses.’
(‘Capital’ Vol 3, p. 478).
Here we can see the seeds of the giant crisis which is now being prepared. The very length of the boom and with it the extension of credit prepares for an equally catastrophic fall. The more capitalists have tried to dispense with money and relied on paper money, Euro-dollars, international credits etc. the harder their system must fall.
‘The entire credit merchanism is continually occupied in reducing the actual metallic circulation to a relatively more and more decreasing minimum by means of sundry operations, methods and technical devices. The artificiality of the entire machinery and the possibility of disturbing its normal course increase to some extent.’
(‘Capital’ Vol. 3 p. 500)
Fall in the rate of profit.
But the great expansion of the credit system since 1945 is also revealed through the aggravation of a final and major contradiction of capitalism. This is the tendency for the rate of profit to fall. Marx speaks of this law as “the most important in political economy.”
In all his investigations into the nature of the capitalist system Marx stresses one vital point. It was a system based on production for surplus value and profit. The aim of each capitalist was the expansion of his capital. Once more, this did not arise from the capitalist class.
In the course of capital accumulation there is an inexorable tendency for the organic composition of capital to rise. In his expenditures, each capitalist purchases on the one hand supplies of raw materials, heat, light, power etc; this Marx calls constant capital. On the other hand he also purchases labour power, which Marx calls variable capital. It is also called variable capital because it alone can create surplus value. Now with each change in technique (‘technical progress’) the ratio of constant capital against variable capital rises. This Marx refers to as the rising organic composition of capital.
The contradiction involved in the process is this: variable capital, the sole source of surplus value and therefore profit, is a declining proportion of total capital. Unless the capitalists can continually increase the mass of profits (through the rising productivity of labour which goes with technical improvements in production) the rate of profit will tend to fall. [N.B. Note - I don't think this is correct. Financial "productivity of labour" rises with increased exploitation, - longer hours worked, reduced wages - not with capital expenditure on machinery, technology etc. which in fact drives down the average rate of profit. Mass of profit increases with increased volume of production - e.g. new markets C.F. ]
The aim of production (under capitalism: C.F.) is not use, but profit. A declining rate of profit spells crisis for the capitalist system. It is here that the role of credit in post-war economy must be understood. For it has been largely through credit that constant capital has been built up.
The rate of profit tends to fall in a crisis because too much capital has been created in comparison with the available surplus value. (cash mountains) The rate of profit is determined by the ratio of constant capital plus variable capital compared with surplus value (s/c plus v.) It is because c has been ‘overexpanded’ that a crisis profitability is created. The crisis is not one of the overproduction of goods, as the Keynesians and revisionists imagine, but an overproduction of capital.
“The ultimate barrier to the expansion of capital is capital itself,’
How is this crisis tackled by the capitalists ? Through a savage competitive struggle in which each tries desperately to ensure that it is not his capital that is deemed to be ‘excess.’ (unrepayable debt is excess capital ).
‘So long as things last well, competition effects an operating fraternity of the capitalist class.... but as soon as it is no longer a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum, and shove it off onto another’
(‘Capital’ Vol 3, p. 248.)
The present vicious struggle is principally one of larger capitalists against their weaker bretheren. Here, once more, we can see the European-American conflict as the major element in the world crisis.
The Americans are determined that vast quantities of excess capital, built up via credit, and a lot of it now representing no value, shall not be wiped out to their cost. They are determined that it is the capital of the weaker Europeans and Japanese that must be driven out, with the huge unemployment, bankruptcies and chaos that this would produce.
“Compensation of a fall in the rate of profit by a rise in the mass of profit applies only to the total social capital and to the big firmly placed. The new additional capital, operating independently, does not enjoy any such compensating conditions. It must still win them, and so it is that a fall in the rate of profit calls forth a competitive struggle amongst the capitalist, not vice versa.”
(‘Capital’ Vol. 3, p. 251)
In other words, the capitalist crisis is now a twin one which combines an unprecedented credit-inflation crisis with a tendency for the rate of profit to decline, a tendency which is no longer ‘latent,’ as it has been for much of the boom, but one which operates openly on the surface of society.
“The chain of payments and obligations, due at specific dates, is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to actual stagnation and disruption of the process of reproduction, and thus to a real falling off in production.’
(‘Capital’ Vol 3, p. 249.)
Here was Marx speaking over 100 years ago! It is now up to the revolutionary movement to match his prophetic words in deeds and go forward and build a powerful revolutionary party in the working class which alone can lead the way to socialism and elimination of capitalist anarchy and crisis.