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The Crash of 2008 and Its Revolutionary Implications
The Crash of 2008 and Its Revolutionary Implications
The Crash of 2008 and Its Revolutionary Implications
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In beginning this report, I would urge that close attention be paid to its
title: The crash of 2008 and its revolutionary implications.
There have been many references in the media to the Great Depression
of the 1930s, and there is no question that what is now underway is the
most serious economic crisis since that time. But if one is to make his-
torical comparisons, then I think the reference should be to 1914 rather
than 1929.
The year 1914 saw the breakdown of the world capitalist order. It took
4 A WSWS Online Pamphlet
the form of a war, but underlying the eruption of military conflict among
the European powers was the collapse of the economic foundations on
which the previous relative stability had rested.
The year 2009 has opened with a graphic demonstration of the political
consequences of this breakdown. The Israeli onslaught on Gaza is not
just a continuation of the more that 60-year war of repression against the
Palestinian people, it is a warning about the character of international
relations and politics in the coming period.
The Zionist state is being driven forward not least by the explosive
contradictions within Israeli society itself, which have assumed new
force because of the global economic crisis. The recalling of the great-
est crimes committed in the 1930s and the 1940s—Guernica and the
liquidation of the Warsaw ghetto—as the Gaza onslaught proceeds is the
surest sign of the character of the historical epoch into which we have
now entered.
Since the full force of the global financial crisis erupted in August-
September, it has become apparent that the world capitalist economy is
confronted not merely with a series of massive losses and a major reces-
sion, but a collapse of an entire mode of capital accumulation.
world faced a “total” financial meltdown, the like of which had not been
seen since the Great Depression.
Now there is news that the Bank of America needs more funds from the
government to go ahead with its takeover of Merrill Lynch, amid fears
that if it pulls out there will be a new round of financial collapses.
The fact that the “legacy of 1989” is all that the FT has to offer its read-
ers for the stormy times ahead is a sign of the lack of confidence and
perspective, not to say considerable nervousness, with which the bour-
geoisie confronts this global crisis. And with good reason, for the world
economic crisis has not only cut a swathe through the vast economic
structures that were built over the past two decades, it has shattered the
free market dogma that formed the ideological foundation of govern-
ments around the world.
The real legacy of 1989 is not where the FT seeks it. Rather it lies in
the global financial and economic crisis itself. The end of the Cold War
order, while providing a limited short-term boost to global capitalism,
served, in the longer term, to unleash all the contradictions within it.
“Welcome to 2009. This is a year in which the fate of the world econ-
omy will be determined, maybe for generations. Some entertain hopes
that we can restore the globally unbalanced economic growth of the
middle years of this decade. They are wrong. Our choice is over what
will replace it. It is between a better balanced world economy and disin-
tegration. That choice cannot be postponed. It must be made this year.
“We are in the grip of the most significant global financial crisis for
seven decades. As a result, the world has run out of creditworthy, large-
scale, willing private borrowers. The alternative of relying on vast US
fiscal deficits and expansion of central bank credit is a temporary—albe-
it necessary expedient. But it will not deliver a durable return to growth.
Fundamental changes are needed.”
While the FT editorial writers cling to the rather tattered legacy of 1989
in the face of this situation, the events of the past two decades constitute
a powerful vindication of the analysis of the International Committee of
the Fourth International. It was our movement, and only our movement,
which explained that, far from opening up new vistas for the develop-
ment of capitalism, the collapse of the Stalinist regimes was but the
initial expression of an historic crisis of the entire world capitalist order.
I shall examine this in more detail somewhat later, but at this point let
me underscore the fact that the events of the past year demonstrate the
power of the method of Marxism.
One year ago, at our meeting here in Sydney in January 2008, we dis-
cussed a document written by David North, “Notes on the political and
economic crisis of the world capitalist system and the perspective and
tasks of the Socialist Equality Party”, published on the World Socialist
Web Site on January 11, 2008.
“To put it in a nutshell: The expanded growth of China (along with other
The crash of 2008 and its revolutionary implications 9
countries) would not have been possible without the massive growth
of debt in the US. But this growth of debt, which has sustained the US
economy as well as global demand, has now resulted in a crisis.”
Of course, one could argue that by this time last year, the financial crisis
had already emerged and it was therefore not so difficult to draw such
conclusions. So let us go back further.
“In the Christian religion, according to the priests, the soul takes leave
of the body and ascends into heaven. The high priests of the market
preach a similar doctrine, claiming that money can separate itself from
the production process and enter a financial heaven where money end-
lessly begets money.
“Is it possible for capital to realize its dream of turning money into more
money indefinitely? Or are there inherent limits to this process? Share
values can continue to rise and profits can be made on share transactions
so long as more capital keeps pouring into the market. In other words,
income and profit can be accumulated in the manner of a pyramid
scheme, or a chain letter.
The report went on to point to the financial crisis that, some eight years
later, was to explode to the surface: “This inverted pyramidic structure
of global capital is the source of its extreme instability. Hundreds of
billions of dollars of capital, seeking to sustain its rate of return, surge
through world markets in search of profit.
“When the prices for property titles—stocks, bonds, real estate, etc.—
are rising, capital pours in, seeking to make profit by buying cheap and
selling dear. Everyone makes hay while the sun shines. But when the
market falters, and it becomes apparent that capital values have been
vastly inflated, the rush to exit assumes the form of a stampede and
overnight capital values are destroyed—not only fictitious capital, but
productive capital as well.”
10 A WSWS Online Pamphlet
I began by pointing out that the real significance of the global financial
crisis could only be grasped by placing it in its historical context. In
other words, we have to lay bare the logic of the economic and historical
processes out of which it has arisen.
“In the social production of their existence, men inevitably enter defi-
nite relations, which are independent of their will, namely relations of
production appropriate to a given stage in the material development
of the productive forces. The totality of these relations of production
constitutes the economic structure of society, the real foundation, on
which arises a legal and political superstructure and to which correspond
definite forms of social consciousness. ... At a certain stage of develop-
ment, the material productive forces of society come into conflict with
the existing relations of production or—this merely expresses the same
thing in legal terms—with the property relations within the framework
of which they have operated hitherto. From forms of development of the
productive forces these relations turn into their fetters. Thus begins an
era of social revolution.”
The Great Depression lasted until the mid-1890s, whereupon the capital-
ist curve begins an upswing. Profits start to rise, markets expand and
the bourgeoisie enters the new century with an air of confidence. The
new conditions famously found their expression in the leadership of the
Second International in the form of the revisionist theories of Eduard
Bernstein, who concluded at this time that Marx’s theory of capitalist
breakdown had been refuted by events. It was now necessary, he argued,
for the party to abandon its revolutionary perspective.
But far from providing a stable base for bourgeois rule, as its represen-
tatives imagined at the dawn of the twentieth century, the vast changes
taking place in the structure of world capitalism were laying the basis
for revolutionary convulsions. Leon Trotsky, the young Russian Marx-
ist, was among the first to explain their significance. His analysis of this
transformation formed the basis of his Theory of Permanent Revolution,
elaborated in 1905.
“Binding all countries together with its mode of production and com-
merce, capitalism has converted the whole world into a single economic
and political organism. Just as modern credit binds thousands of un-
dertakings by invisible ties and gives to capital an incredible mobility
which prevents many small bankruptcies but at the same time is the
cause of the unprecedented sweep of general economic crises, so the
whole economic and political effort of capitalism, its world trade, its
system of monstrous state debts, and the political groupings of nations
which draw all the forces of reaction into a kind of world-wide joint-
stock company, has not only resisted all individual political crises, but
also prepared the basis for a social crisis of unheard-of dimensions”
(Leon Trotsky The Permanent Revolution and Results and Prospects,
New Park, pp. 239-240).
The development of the world economy posed the necessity for a new
political structure. But the way the various bourgeois governments pro-
posed to resolve this problem was “not through the intelligent, organised
cooperation of all of humanity’s producers, but through the exploitation
of the world’s economic system by the capitalist class of the victorious
country; which country is by this war to be transformed from a Great
Power into the World Power.”
The war proclaimed not only the downfall of the nation state, but also of
The crash of 2008 and its revolutionary implications 13
“It is not the war that put a stop to the development of productive forces
in Europe, but rather the war itself arose from the impossibility of the
productive forces to develop further in Europe under the conditions of
capitalist development” (Trotsky, The First Five Years of the Comintern,
Volume 2, New Park, p. 306).
In the United States, the situation was very different. After a severe
recession in 1920-21, the US economy experienced a burst of productiv-
ity, the like of which has probably not occurred since. In the period 1919
to 1929, while there was no increase in the manufacturing labour force,
output rose by over 60 percent. In the late 1920s, US manufacturing ac-
counted for just over 40 percent of the world’s total: with only 6 percent
of the global population, the US produced 57 percent of the total world
output of machinery. In the decade of the 1920s, manufacturing indus-
try’s consumption of electricity doubled, while household consumption
tripled.
Given this situation it might have appeared, at first sight, that the per-
spective on which the Bolsheviks launched the struggle for power in
October 1917—the perspective of world socialist revolution—had been
invalidated. While Europe was stagnating, the productive forces were
advancing under American capitalism.
But the problem with that appraisal was that it ignored the world
economy, or, to put it perhaps more accurately, insofar as it considered
the world economy, it did so not as a “mighty and independent reality”,
to use Trotsky’s phrase, but as the sum of various national parts. (This
mistake was repeated, by the way, last year in the myriad claims that
so-called “decoupling” would somehow enable the rest of the world to
escape the impact of the global financial crisis that erupted in the United
States.)
And that was also why, in the aftermath of the war, American banks and
financial authorities were so heavily involved in the 1924 Dawes Plan,
which sought to resuscitate German capitalism, thereby providing an
The crash of 2008 and its revolutionary implications 15
crisis has been met with a lowering of interest rates and an expansion of
credit. And for almost 20 years these methods have appeared to work.
Financial crises have erupted, but these have passed relatively quickly
following the injection of liquidity into the financial system, which has
created the conditions for a new boom.
The collapse of the entire “free market” order has given a new lease of
life to the Keynesians. They maintain that the crisis can only be resolved
with a return to government intervention and stimulus packages.
When one points out that the New Deal measures failed to end the Great
Depression, they reply that the problem was that they were not pursued
with sufficient vigour. To the argument that the nine-month decline
from September 1937 to June 1938 was, in the words of one historian
of these events, “without parallel in American economic history” and
“the sharpest decline in any period for which there are statistical data”
(Kenneth D. Roose “The Recession of 1937-38,” The Journal of Politi-
cal Economy, June 1948) they insist that the downturn following the
recovery of 1933-37 resulted from Roosevelt following bad advice when
he lifted tax rates.
I shall deal with these issues by firstly examining them theoretically and
then historically, with a review of the origins and resolution of the Great
Depression.
extraction of surplus value. Thus the key question is: what impact do
Keynesian measures—based on increased government spending—have
on this process? What is their impact on profits?
For the Keynesians the key problem is the lack of effective demand. If
there is a lack of demand then the goods that have been produced cannot
be sold. If the firms that have made them cannot sell them, they must cut
production. This will lead to a reduction in demand for the goods that
the firms themselves purchase, creating a further reduction of effective
demand, and so on. The key issue, then, is to restore the level of effec-
tive demand so that the economy begins to expand again.
Let us look at this more closely. Every capitalist firm is confronted with
The crash of 2008 and its revolutionary implications 19
the dictates of the market. It is through the market that each capitalist
firm realises—turns back into money—the surplus value it has extracted
from the working class, or, to put it more accurately, participates in the
appropriation of the total surplus value that has been extracted from the
working class as a whole.
Writing in 1933, the British economist Lionel Robbins noted: “We live,
not in the fourth, but in the nineteenth year of the world crisis.” He
meant that the crisis began, not in 1929 but in 1914. Taking this ap-
proach enables us to gain a correct understanding of the causes of the
Great Depression.
The eruption of the world crisis in the form of World War I came, as we
have already noted, at a turning point in the curve of capitalist develop-
ment. After a stormy period of growth from the mid 1890s, profit rates
began to turn down. This was not simply a fluctuation in the business
cycle but, as the subsequent failure of the European economy to recover
in the post-war period demonstrated, a new phase of economic develop-
ment.
In the 1920s, many observers were able to see how capitalism could
advance: the European economy would have to be reconstructed on
American lines, utilising the vastly more productive American methods
in order to expand. But this was impossible. The war itself had arisen
out of the conflict between the expansion of the productive forces and
the constrictions of the nation-state system. Far from alleviating this
conflict, the war’s outcome—the Treaty of Versailles—only worsened it.
At the same time, the United States was undergoing rapid growth. But it
was no longer self-sufficient. For American economic expansion to con-
tinue required an expansion of the European economy. The extraction of
surplus value from the working class through the vastly more productive
methods of American capitalism required the extraction of increased
surplus value in Europe. That could not take place, and the result was
the collapse of the American economy in 1929. In other words, while
the Depression took the form of a collapse in effective demand, its cause
was not underconsumption, but the under-production of surplus value,
above all in Europe.
The Great Depression was not a crisis that started in one country and
then spread to the rest of the world. It was a global crisis, which found
its most dramatic expression in the world’s two most productive econo-
mies, the US and Germany.
If the collapse was so marked in the United States, it was because the
European economies had never really emerged from the depressed state
into which they had entered after the war. And if it was so sharp in Ger-
many, it was because no economy was so constricted by the European
The crash of 2008 and its revolutionary implications 21
Rather than Roosevelt’s New Deal providing a way forward for Ameri-
can capitalism, it was precisely its failure that convinced US ruling
circles that only a complete reconstruction of the entire world order
could resolve the historic impasse that had led to the Great Depression.
The way had to be cleared for the more productive methods of Ameri-
can industry. As Trotsky explained in November 1933: “Sooner or later
American capitalism must open up ways for itself through the length
and breadth of our entire planet.” That task would be carried out, he
wrote, by every means available, including war.
Clearing the way for American capitalism meant that German plans
for an empire on the European continent had to be thwarted. Likewise,
Japanese plans for an empire in the East, the so-called Co-Prosperity
Sphere. It also meant, as Churchill discovered when he met Roosevelt in
1941 to discuss the Atlantic Charter, that American visions for the post-
war world did not include the British Empire, with its closed doors and
imperial preference agreements on trade and finance.
Within a period of less than three decades, however, all the fundamental
contradictions of the capitalist mode of production were to re-emerge.
The story of the collapse of the Bretton Woods monetary system in
1971-73 can be told in terms of the excess of dollars circulating through-
out the world compared to the gold stored in the US that was supposed
to back them. But this was only the expression of a more fundamental
process: the contradiction between the growth of the world economy,
which the post-war monetary system had itself made possible, and the
grounding of that monetary system on the currency of a single nation-
state—even the most powerful—the US. In other words the contradic-
tion between world economy and the nation-state system had resurfaced.
In the wake of the collapse of Bretton Woods, every proposal aimed at
devising some kind of stable international unit of account foundered on
the conflicting national interests of the major capitalist powers, just as
had Keynes’s earlier proposal for an international currency.
22 A WSWS Online Pamphlet
What flows from our assessment of the origins of the present situation is
that nothing less than an international socialist revolution can overcome
the crisis of the capitalist mode of production and, moreover, that is the
only way to prevent mankind being plunged into a catastrophe. This
conception is central to our struggle to develop the political conscious-
ness of the working class.
It begins by warning that not since the Great Depression has the world
faced an economic crisis like it does today, with a series of interlock-
ing downward pressures from financial markets reaching into the real
economy and unraveling economic stabilisers and institutions.
and communities, rather than protecting the failed institutions and past
practices that helped create the crisis.”
The basic fallacy of this reformist program is that it proceeds from the
assumption that the vast expansion in finance over the past three decades
is somehow an unfortunate outgrowth that has arisen on an otherwise
healthy real economy; that finance, which is supposed to function as an
aid to productive economic activity, got out of control because of lax
regulation and neo-liberal ideology, and now has to be brought back
under control.
The most rapid increase, however, was in the financial sector. Its debt
rose from 21 percent of GDP in 1980 to 83 percent in 2000 and 116
percent in 2007.
What these figures show is the crucial role of the finance sector in profit
accumulation and the role of debt-creation in the entire process. This
transformation in the mode of accumulation, which has spawned a new
range of financial instruments, especially derivatives, is not confined to
the United States. In Britain, for example, it has been estimated that em-
ployment in the finance sector has increased by 22 percent since 1984.
There are 30 local authorities in Britain where at least 25 percent of the
workers who live there are employed in business and financial services.
And nine of 11 British regions have at least one local authority where 20
percent of residents work in business and financial services.
A study published in 2003 found that in most OECD countries the share
of rentier income—income going to the finance sector—had “dramati-
cally increased.” It found that from the 1960s and 1970s to the 1980s
and 1990s, the rentier share in the UK had increased by 143 percent, in
the US 92 percent, in Korea 112 percent and in France 155 percent.
“It is precisely because the money form of value is its independent and
palpable form of appearance that the circulation form M ... M`, which
starts and finishes with actual money, expresses money-making, the
driving motive of capitalist production, most palpably. The production
process appears simply as an unavoidable middle term, a necessary evil
for the purpose of money-making” (Marx, Capital Volume 2, p. 137).
That is why the historic crisis of the capitalist system as a whole makes
its appearance as a financial crisis, because the very process of financial-
isation has raised all the contradictions of the capitalist mode of produc-
tion to a new peak of intensity.
While her specific assessment was wrong, history has certainly vindi-
cated her emphasis on the crucial role of the less developed regions of
the world.
The ideological preparations are already being made. The latest issue of
the Nation contains an article by William Greider, who points out that
a stimulus policy by one nation alone will not work because “the most
complex barrier to recovery is globalisation and its negative impact on
the economy.” The Obama stimulus package, he continues, might restart
factories in China, but leave US unemployment high.
26 A WSWS Online Pamphlet
What is the answer? A global stimulus package. But what if other pow-
ers do not agree? “The United States could propose the outline with
one crucial condition: if the trading partners are unwilling to act jointly,
Washington will have to proceed unilaterally.”
So much for the “lefts” criticisms of George W. Bush. And what would
such a program involve? Tax penalties plus national economic policies
to induce multinational corporations to keep more of their value-added
production at home, to be enforced through the tax code and “if neces-
sary, a general tariff that puts a cap on imports.” Back to the national
hearth—a return to the policy of “beggar thy neighbor”.
“The credit system has a dual character immanent in it: on the one hand
it develops the motive of capitalist production, enrichment by the ex-
ploitation of others’ labour, into the purest and most colossal system of
gambling and swindling, and restricts ever more the already small num-
ber of the exploiters of social wealth; on the other hand it constitutes the
form of transition towards a new mode of production.”
All kinds of social and political struggles are going to develop all over
the world. This will create new opportunities and challenges for our
party.
Our central task in the coming period is to introduce into these struggles
a Marxist perspective, based on the analysis carried forward by our
movement, and only by our movement, of the historical lessons of the
strategic experiences of the working class throughout the past century.
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