The end of illusions

The course of Wall Street stocks, after five years and two months of almost continuous growth, from 13 August 1982, when it reached its lowest point with the Dow Jones index at 776.82, to its peak in October 1987 at 2670, an increase of 243%, suffered an overwhelming collapse that far exceeded the famous Black Friday Crash of 1929, triggering general panic on all stock markets around the world. The similarity of events is striking. At that time, too, share prices had risen almost continuously for five years and three months, from 1924 to 1929, with the New York Times index rising from 106 to 469, a 342% increase. Then, as now, the immediate cause of the crash was the rise in interest rates, and in particular the Bank of England’s decision to raise its discount rate from 4.5% to 6.5%. Even recently, the Bundesbank raised its rate, pushing up that of the Central Bank of the United States, as it did then.

History does not repeat itself, say the bourgeoisie, to reassure themselves; we Marxists draw the conclusion, once again, that nothing has changed under capitalism since Marx undertook the analysis of its economic laws using the English example of the Victorian era. The repetition of the two events, 58 years later, marking ‘the end of illusions’ as the bourgeois newspapers headline, fully confirms those laws. Marx alone suffices for us, in particular the fifth section of the third volume of Capital, to describe and understand the significance of the current stock market crash.

The three phases of the cyclical process

The speculative frenzy from Wall Street spread to all financial centres like a worldwide Maelstrom, in contrast to the stagnation of production. But the contradiction is only apparent: to enable capitalist production, which peaked in 1979-80, to emerge from the recession of 1980-82, the credit system was developed on a hitherto unprecedented scale, enabling the reproduction process to be kept going beyond its historical possibilities. This, although stock market speculation is but a ‘house of cards’, and built on quicksand, is part of an already general speculation.

Marx distinguishes three stages in the production process that precede the general crisis of overproduction (Volume Three, Chapter 30, I).

1. ‘After the reproduction process has again reached that state of prosperity which precedes that of over-exertion, commercial credit becomes very much extended; this forms, indeed, the “sound” basis again for a ready flow of returns and extended production’.

Here we are talking about the moment in the cycle, which follows a severe economic crisis, after there has been not only a sharp fall in industrial production, but also, through deflation, a strong revaluation of commodity capital, as, for example, during the crisis of 1847-1848, or, closer to us, of 1930-1932. This moment corresponds to the years of economic recovery, which in this post-war period coincides with the period of reconstruction and precedes the second moment, when industrial production has already far exceeded the maximum reached before the crisis.

2. ‘On the other hand, those cavaliers who work without any reserve capital or without any capital at all and who thus operate completely on a money credit basis begin to appear for the first time in considerable numbers. To this is now added the great expansion of fixed capital in all forms, and the opening of new enterprises on a vast and far-reaching scale. The interest now rises to its average level’.

Finally, the moment immediately preceding the crisis and the crisis itself.

3. ‘[The interest rate] reaches its maximum again as soon as the new crisis sets in. Credit suddenly stops then, payments are suspended, the reproduction process is paralysed, and with the previously mentioned exceptions, a superabundance of idle industrial capital appears side by side with an almost absolute absence of loan capital’.

Credit and speculation

Credit, Marx explains, is the basis of the whole ‘complex process of reproduction’. Without it, production would be asphyxiated if not paralysed. The merchant who buys goods from the industrialist cannot pay him before he has sold them, as he does not possess the necessary capital, and not even when he has sold all his previous stock, because the volume of production is constantly increasing and thus also the value of capital. But the industrial capitalist, or rather the enterprise, cannot stop production and wait for the realisation of the commodity capital value to start a new production cycle. So he advances the capital to the wholesaler in exchange for a bond, i.e. a bill of exchange or receipt payable on maturity. This same wholesaler advances the same goods to other merchants in exchange for bank receipts. All this time, the industrialist, in order to acquire the raw materials necessary for the production process, will offer in payment the bills he has received in exchange for his goods, i.e. he will turn to the bank which will exchange them at a certain discount rate; the discount rate is the percentage the bank asks for turning the bills into money or new credit. With these the industrialist will be able to pay wages and buy raw materials. It will then be to the bank that the merchant will pay the bill of exchange, once negotiations have taken place. If the bank needed cash in the meantime, it will have resold it, at a certain discount rate, to another bank. And so a whole mass of bills of exchange circulates on the market, in place of money, as a means of payment, the volume of which increases as production increases.

Alongside this commercial credit, which forms the basis of the entire credit system, other forms are added, of which the three main ones are: Bonds, long or medium-term loans with fixed interest rates, issued in the form of securities by large companies or by states (in the latter case we speak of Treasury bonds); Shares, which are ownership titles that entitle the holder to a share of the profit in proportion to their value; finally, direct credit from a bank. Credit, particularly commercial credit, offers the possibility of accelerating the process of capital reproduction, while the intermediation of banks makes available to industry and commerce the entire mass of social capital, i.e. capital that belongs to others, but which banks and industries use as their own. This mechanism makes it possible, on the basis of bourgeois society, to go beyond the limits imposed by individual property relations, until production, forced to the maximum, blows up these same relations causing their general rupture, the crisis.

Hand in hand with the increase in production and the corresponding swelling of credit, speculation grows, particularly when new branches of industry are created, which boast high growth rates and fat profits, thus attracting money capital from all countries. Marx gives the example of the railways in this regard, Engels of large public works, such as the construction of the Panama Canal at the turn of the century, the failure of which swallowed up the savings of a large section of the petty bourgeoisie (which happens regularly).

Speculation is not limited to production, it develops in even more gigantic proportions in trade.

‘The capital itself, which a man really owns or is supposed to own in the opinion of the public, becomes purely a basis for the superstructure of credit. This is particularly true of wholesale commerce, through which the greatest portion of the social product passes. All standards of measurement, all excuses more or less still justified under capitalist production, disappear here. What the speculating wholesale merchant risks is social property, not his own’.

And Marx cites, among others, the case of merchants who export to these distant countries, taking advantage of the time required by long journeys to discount at banks goods whose value remains to be realised, goods which, by the way, do not belong to them having received them from manufacturers in exchange for bank receipts. The money obtained in this way is reinvested in the purchase of other goods, from the sale of which it is hoped to make a good profit, or it can be used for other speculative purposes; for instance on the stock exchange. Let the goods fail to be sold due to a market glut, a major delay occurs and it is bankruptcy!

The other great avenue of speculation is that which is done on drafts, bonds, shares, etc. The inordinate hypertrophy of credit as a result of the needs of production leads to the accumulation of a gigantic mass of securities of all kinds (drafts, bonds, shares, etc.) that are nothing more than a mountain of paper whose value is purely fictitious. In the crisis their value deflates like a balloon, which everyone tries to get rid of in exchange for cash. But at that moment, cash is scarce, i.e. expensive.

How does this state of affairs come about? On the one hand, the increase in production creates a constant influx of money capital, on the other hand, the rise in the interest rate makes it increasingly difficult to valorise the immense mass of capital constantly thrown onto the market, eventually leading to the paralysis of trade and industry. Speculation itself, moreover, powerfully contributes to the growth of the interest rate: the cavaliers of credit who throw themselves headlong into speculation can pay high interest rates, since they do so by picking other people’s pockets, as Marx points out.

This whole process, which results in a gigantic accumulation of securities, some of which are speculative and whose mass far exceeds the amount of money in circulation or held in reserve in the vaults of the central banks (those authorised to mint money), is merely the expression of an industrial growth conducted increasingly on the basis of the credit system. If credit makes it possible to push beyond the limits offered by bourgeois society to production, it cannot suppress them and there comes a time when the bill must be settled. It is the moment when the interest rate rises and general overproduction becomes evident.

‘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 and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again. The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values’ (Ch. 30, V).

From euphoria to the crash: the rise of the interest rate in 1974 and 1980‑81

For a few months before the crisis, interest rates rise, to peak during the crisis, money becomes scarce and expensive, and the commodity capital that clutters the markets depreciates en masse, as do the bills of exchange that represent it, shares, etc.

If we go back to the statistics provided by the UN’s International Financial Statistics, we actually see this rise in the interest rate in every crisis.

Three interest rates are significant to follow: the central banks’ discount rate, which corresponds to the price they charge to lend money to other banks; the market rate for bonds, which corresponds to long-term loans and which in the US is now entirely taken up by the public Treasury; and the rate for short- and medium-term loans that banks make to businesses. For reasons of space, we report only the first table here.

To our statistics of the six western countries that we regularly follow, we add here Belgium, a country of long-standing industrialisation and which has a pivotal position in northern Europe, between France, Germany and England. Belgium was separated from France by the Holy Alliance at the beginning of the last century, precisely because of its geographical position, in order to act as a counter-revolutionary barrier.

It is verified that the interest rate peaked in 1974 (in 1973-74 for discount rates) and in 1980-81; lower in the period between two crises, it rises again just before the next one.

From 1982-83 there is a slow but steady decline in interest rates, a decline that accompanies the euphoric economic recovery in the United States and Japan from 1983 onwards. However, this fall in interest rates is not as strong as it seems and in real terms even reverses from 1985 onwards due to the fall in inflation that followed the industrial recovery. It will reach record levels in the most recent years, heralding a new recession, this time of historic dimensions!

The price of economic recovery 1983-84

Starting in 1983 there was a sharp industrial recovery in America. But this recovery was short-lived, with production increasing in 1984 by 10% in one year, slowing down in 1985 to only +2.6% per year and becoming negative in 1986 with a modest -0.8%. Japan’s industrial curve is exactly parallel to that of the United States. In Europe, economic recovery will be later than in 1984 and of lesser magnitude: most European countries will not reach or exceed their previous highs until 1985 and at the end of 1986 for Italy. 1986, however will be a year of general stagnation.

On the whole, the economic recovery was not a great thing, it came at the cost of fantastic indebtedness and was accompanied by speculation on a scale unheard of in the post-war period. Moreover, had it not been for the massive American imports of industrial products, the world would still be in recession today. To be convinced of this, one only has to look at the UN statistics of the trend of these imports: 1983 +11%, 1984 +25%, 1985 +12%, 1986 +15%.

American imports pull the world economy along

No other industrial country has imported as much. On the contrary, with Japan and Germany in the lead, they all try to export more than they import. At the same time, while the United States saw its export index rise slightly from 1983 onwards, it was still 14% below its 1980 peak in 1986.

The result has been a record trade deficit, which in turn implied a growing debt of the United States to the outside world. The balance of payments, positive until 1981, turned into a deficit: -$107 billion in 1984 and -$117.7 billion in 1985. After that things got even worse: the United States lives on the credit of other imperialisms.

The American foreign debt is growing at the rate of $12 billion every month. From 220 billion in 1986 it exceeded 300 billion by the end of 1987, and it is expected to equal the national product of countries the size of Italy or France by 1990. It is clear that this situation will not last. The consequences are the rise in interest rates and the devaluation of the dollar, which has done nothing but fall since 1985. This means that we are already in a situation of general overproduction.

World market shrinks

The same conditions prevailed prior to the 1975 and 1980-82 crises: devaluation of the dollar to save the US economy and a rise in interest rates. But in a general situation that has clearly worsened for capitalism: on the one hand the American market is tending to close itself off to European and Japanese exports, on the other hand the markets that had opened up after the 1975 crisis are now contracting sharply.

Due to their growing indebtedness ($126 billion for the Eastern countries and $200 billion for the others in 1987), the Eastern countries and the ‘developing’ countries tend to import as little as possible and export as much as possible; they also tend to increase their mutual trade by reducing their trade with the industrialised countries. The time when these countries imported capital and goods in large quantities to industrialise has passed. Today, in order to be able to pay their debts, not only have the poor countries greatly reduced their imports, but their factories, which are young and competitive, are competing fiercely with those of the old capitalist countries. From 1984 to 1986, the share of young industrialisms in the import of industrial products fell by 5%, representing a loss of revenue of $43 billion for the ‘old’ ones. Here is what Le Monde writes about the economic and social situation of these countries and the consequences of closing their markets:

‘In fifteen years, the evolution has been such, with an astonishing diversification of their competitive productions, that it should strike all those who doubted the industrial take-off of the Third World (...) Certainly, the greatly increased burdens due to the increase in interest rates and the rise of the dollar have contributed to the elimination of some inconvenient competitors. In Latin America, we are talking about thousands of factory closures, construction site stoppages, millions of men deprived of their jobs, a fall in income per inhabitant of 10% in three years, with long suffering and economic regression (...) In the immediate future, the required payments can only be ensured by a desperate commercial offensive on the part of the indebted countries, and the closure of their markets, with all the consequences and contradictions for the industrialised economies’.

As we can see, these countries are heavily exploited and pressed by international finance capital, but this will not prevent capitalism in developed countries from recession and deflation, as we wish upon them.

The situation in the new capitalist countries was further aggravated by the fall in the price of raw materials due to their overproduction, which was all the greater because of the general slowdown in world industry in 1986. At the same time, the collapse in oil prices devalued the imports of the OPEC countries (-24% in 1986 and -22% in 1987) and Europe, whose trade is highly dependent on the countries of the area, suffered the most.

According to the same bourgeois economists, world trade would never have exceeded the 1981 level without the contribution of American imports. Moreover, in 1986 the increase in profits and incomes resulting from the fall in oil and raw material prices, and thus the resulting expansion of the domestic market for industrialised countries, did not compensate for the contraction of the world market.

In this regard, Le Monde reports interesting figures on industrial growth and exports in the post-war period. It would be more useful to have the same figures for imports, which express market expansion, exports reflecting instead, as Marx teaches us, industrial growth. In a later work we will try to get those figures in order to compare, as we have done in the past, the growth of the world market with the growth of industry, in order to identify the moment when the two curves meet, indicating that this is the hour of the crisis.

In short, international merchandise exports would have increased by 9% between 1963 and 1973; by 4% between 1973 and 1979; and by 2% between 1979 and 1984, compared to 6%, 3%, 1.5% for industrial production, respectively. These two sets of figures are noticeably parallel, as expected, and confirm the theory of the tendential fall in the profit rate, in confirmation of which we have recently updated one of our extensive economic frameworks.

Galloping debt

To sum up. The economic recovery that followed the 1980-82 recession was not remarkable and shows the first signs of its end. The recovery came at the cost of hyperbolic indebtedness, both of states and of companies and individuals.

We do not have all the statistical data, but some figures we do have for the United States are eloquent enough. In 1986, the total debt (public and private) exceeded 7 trillion dollars, an increase in one year of about 1 trillion, truly colossal! One can better appreciate the enormity of this by comparing its value to that of the Gross National Product, resulting in a ratio of 177%! which is the highest ratio since the 1930s. The national debt accounts for about a quarter in this fantastic sum, i.e. 2,000 billion dollars in 1986, compared to 1,000 billion in 1981: twice as much, and starting from an already high figure. According to the newspapers, the public deficit absorbs two thirds of national savings.

But the American state is not alone in getting into debt in this way. As we have shown in our studies, other countries are sliding down the same slope. For example, in France they admit that the public debt could rise from 22.6% of the national product in 1984 to 31% in 1990.

The United States can only afford the luxury of such indebtedness because it lives on the credit of the entire world, yet the time will come when the burden of foreign debt will become intolerable, a time all the closer the more exponentially it grows. Then even the American state will be forced to declare itself bankrupt, as was the case for the British state in the great crisis of 1848.

For the time being, the result of such indebtedness is to push up the interest rate. In fact, the debt becomes so gigantic and the demand for money so great that foreign investors, particularly the Japanese, are increasingly turning a deaf ear to buying US Treasury bonds; the fall in the dollar itself will make the situation even worse, further devaluing the bonds already bought. Because of this, investors will only buy Treasury bonds under conditions that increase the risk premium, i.e. the interest rate.

The American debt, and more generally the growing indebtedness of all states, was one of the most important factors that contributed to the rise in interest rates that led to the most thunderous stock market crash since 1929.

Soul and body in speculation

Today’s economic situation is a repetition of the one that preceded the Great Depression of 1930-31; but more serious. At that time, US industrial production had increased by 11% from January 1928 to August 1929 (thus exacerbating overproduction), the federal government budget was in balance and the trade balance in surplus.

Just like today, the years 1928-29 had seen a speculative orgy. This had been preceded by a fall in the Federal Bank of New York’s interest rate from 4 to 3.5%. Here again the similarity of events is astonishing. In 1986, in a desperate effort to dope the economy, the Americans lowered the discount rate four times.

Same causes, same effects. In the general context of overproduction, these successive reductions, instead of stimulating industrial growth, stimulated speculation on Wall Street. Adolph Miller, of the American Federal Bank, and whose proposals are quoted by Galbraith in his book on the crisis of 1929, calls the effects of the discount rate cut in 1927: ‘one of the most costly mistakes made by that or any other banking system in the last 75 years’. Galbraith adds:

‘The funds that the Federal Reserve made available were either invested in the purchase of shares on the stock exchange, or (and much more so) became available to help finance the purchase of shares by others. Thus provided with funds, people rushed to the market’. Another bourgeois quoted by Galbraith concludes: ‘From this moment on, according to all evidence, the situation is completely out of control’.

The same events repeated themselves in 1986-87. The Dow Jones index had risen from 1,200 at the beginning of 1985 to 1,500-1,800 in early 1986, where it stopped for some time while waiting for a reform. Then, from the beginning of January 1987 it took off, with more than a 30% increase from 1,900 to 2,722, an all-time record reached on 22 August 1987. We find a description of the same scenes, but for 1928, republished by Le Monde:

‘From the beginning of 1928 a veritable speculative orgy mounted, encouraged by the practice of “carry-over sales” (i.e. margin trading Ed.): buyers instead of paying for all their purchases paid only 10% in cash and deposited securities as collateral for the remaining 90%, which was advanced by stockbrokers at rates much higher than those of the banking market. Brokers’ loans rose from $1.5 billion in the early 1920s, to $2.5 billion in 1926 and to $7 billion by the end of 1928, reflecting the extent speculation had taken’.

And it is certain that the modern yuppies, i.e. the financial institutions that hire them, have done no better than their 1929 grandfathers.

When capital reaches the end of the cycle, speculation is inevitable. It simply expresses the fact that: ‘industrial expansion is conducted more and more on the basis of the credit system’ and in order to preserve itself it increasingly demands the ease of payment. Credit, in allowing production to overcome the limits imposed by property relations, also allows, as we have seen, speculation. The more society lives on credit, the more speculation develops. Industrial and commercial speculation at first, not to mention real estate speculation on land and buildings; then, when production has swollen out of all proportion, so that overproduction and crisis are already being felt, speculation on the stock exchange. No bourgeois, under these conditions, can resist the prospect of easy and immediate profit. This temptation is also reinforced by the general slowdown in production.

A remarkable phenomenon, occurring for the first time in the post-war period, is that the decline in productivity growth is now accompanied by an easing of inflation, whereas hitherto it rose sharply with productivity growth and persisted even during economic crises. According to statistics for the OECD area, it remained at the rate of 1% to 2% per annum on average between 1952 and 1965, then rose to 5% per annum on average between 1965 and 1972, accelerated and peaked in 1980 with rates exceeding 10% in most countries. Then the process reversed: 4.5% in 1985, 2.7% in 1986. We do not yet have the figures for 1987, but it is known that inflation is slightly higher than in 1986 due to some acceleration of production in the United States, Japan and some European countries, including England, which only reached and exceeded its 1979 peak in 1985. Germany, on the other hand, saw its industrial growth continue to slow down due to the stagnation of its exports, and also their regression in volume. However, inflation has started to fall again in recent months, even setting some record lows.

This ‘disinflation’, as the bourgeois press calls it, merely expresses the state of flooding in which the markets find themselves, and thus the exasperated competition that capitalists engage in among themselves, who do not hesitate, in order to maintain their market share, to decrease profit margins until they are forced to sell at a loss.

Under these conditions it is clearly more profitable to speculate than to invest. We quote here the very eloquent statements of a French industrialist reported by Le Monde:

‘All the strong profits we made last year came from our investments in the financial market, the president of the Argentine subsidiary of a major French group told me recently’. And the journalist comments: ‘In fact, producers of real goods (industrial and agricultural products, raw materials, services) compete desperately with each other, which weighs on prices, helping to keep the inflation rate relatively low. The result is that it has become more profitable to buy securities than to make tangible investments (equipment, factories, etc.)’.

Why invest when there is no guarantee of selling?

Our journalist, and with him many of the bourgeoisie and the entire petty-bourgeoisie, believes that it is enough to stop speculation for investment to resume and production to return to healthier levels than before. He does not understand that the accumulation of capital has become so inordinate that it can only realise its value on credit. So the bourgeoisie throw themselves body and soul into speculation with a frenzy commensurate with the formidable capital accumulation of this post-war period. The world’s capital (real or fictitious) is flowing into the various stock exchanges, mainly Wall Street, the City and Tokyo. On this subject we read in Le Monde:

‘For the first quarter, foreign placements in American securities were at an annual rate of $37.2 billion, which is twice the net total of placements recorded the previous year and seven times that of 1985’.

The takeover of companies or participation in them often, not having an economic purpose but only a speculative one, obliges companies to go into debt in order to buy back some of their own shares at a high price so as not to lose control over themselves, the famous takeover bids (OPAs) of which so much is said in the press.

‘The largest wave of buying and selling of entire industrial groups in American history begins to spread general alarm. The quest for profit is driving up share prices to levels no one would have predicted in 1985. But in the process American industrial and commercial enterprises have become heavily indebted in order to pay off the billions of dollars needed to maintain their control (...) The Federal Reserve (the American central bank) states that the ratio of corporate debt to market value is 71.4%, a high level and in some cases a record. What makes this ratio alarming, according to economists, is that both the value of corporations and the level of their indebtedness are extraordinarily high; although there has been a vast accumulation of debt since 1981 in the wake of a wave of speculative profits, the increase in the value of corporations has roughly kept pace with the increase in debt, mainly due to rising stock market values and general economic expansion. But many fear that the burden of debt servicing could seriously affect American industry in the event of a deep recession and falling profits (...) A new type of control has appeared for the past five years; buying not with a view to expansion and diversification but solely to liquidate a company for immediate profit’ (The Herald Tribune).

A new, far worse 1929

This is where the mad accumulation of capital in this post-war period has led us: a gigantic engorgement of the markets in addition to colossal indebtedness, frenzied speculation, plus a recession and massive devaluation of commodity capital. This speculation, in turn, could not fail to push up interest rates: all these factors, the excessive swelling of commodity capital, colossal indebtedness both of companies and of the various states, and first and foremost, of course, of the United States, unbridled speculation, lead to the rise in interest rates, the prelude to the general recession which this time will be planet-wide.

After peaking in the 1980-82 crisis, the interest rate, while still remaining at high levels, has since nominally declined. However, net of inflation, the process is the opposite: in real terms interest has now reached historic highs. Since the end of March 1987, both because of speculation, which broke all records this year, and because of the insatiable demand for money by the US Treasury, all medium- and long-term interest rates have started to rise.

Bourgeois economists have directed their criticism at the US Treasury and the record US federal budget deficit. The latter have indeed an incomparable weight in the world economy, yet all states are now over-indebted and all compete with corporations for loans on the long-term capital market.

It is no less true that since the end of March, the yield on US Treasury loans has been rising regularly under pressure from lenders, in particular the Japanese, who are little reassured about the American economic situation and the decline in the dollar which devalues the bonds already traded by the same amount. In particular, the 30-year bond rate, considered a sample loan, rises regularly, gaining strength with each quarterly call by an increasingly insatiable Treasury. From 7.5% it rises to 8%, then 9% and finally 10% to reach a high of 10.44% just before the stock market crash. If we take the ‘prime rate’, which corresponds to the loans granted by banks to the best companies, we find the same phenomenon:

Under these conditions the discount rate of the various central banks could only rise in turn. It is this general upward movement of rates that causes the stock market crash.

Marx points out that the value of shares rises and falls in inverse proportion to the interest rate. When the value of stocks goes up, their yield (i.e. interest in relation to their value) goes down as well. This is what happened last October. On the other hand, the rising cost of credit has forced a number of institutions and companies to dispose of their securities in order to obtain cash,

‘Therefore, when the money-market is tight these securities will fall in price for two reasons: first, because the rate of interest rises, and secondly, because they are thrown on the market in large quantities in order to convert them into cash’ (Capital, Vol. III, Ch. 29).

All the bourgeoisie, having experienced the delights and delirium of rising stock prices, are then assailed by terror and each rushes to sell at the best.

‘When a panic exists a man does not ask himself what he can get for his bank-notes, or whether he shall lose one or two per cent by selling his exchequer bills, or three per cent. If he is under the influence of alarm he does not care for the profit or loss, but makes himself safe and allows the rest of the world to do as they please’ (Capital, Vol. III, Ch.25).

We know the result: millions and millions of securities sold in a single day. All the press spoke at the time of fabulous losses; $1 trillion on Wall Street, $405 billion on the Tokyo Stock Exchange, etc. All these astonishing figures are nothing but nonsense. The mountain of paper that these securities represent has no value in itself. The money capital that has been poured into its purchase has long since been consumed, either in production by industry, or sterilely in murky and speculative dealings, or unproductively for the needs of the state. In any case, there is no creation of value in the stock market, nor, if the stock market crash does not herald a general recession, do nations find themselves poorer than before.

As Engels points out in a letter we read at one of our party meetings, the stock exchange is first and foremost a place where the bourgeois exploit each other, and a stock market crash has the effect of concentrating stocks in the pockets of a few to the detriment of others.

‘[The] depreciation [of securities] in times of crisis serves as a potent means of centralising fortunes. To the extent that the depreciation or increase in value of this paper is independent of the movement of value of the actual capital that it represents, the wealth of the nation is just as great before as after its depreciation or increase in value (...) Unless this depreciation reflected an actual stoppage of production and of traffic on canals and railways, or a suspension of already initiated enterprises, or squandering capital in positively worthless ventures, the nation did not grow one cent poorer by the bursting of this soap bubble of nominal money-capital’ (Capital, Vol. III, Ch. 29).

Those who lose out, apart from a few speculators and the big bourgeoisie, are more the petty bourgeoisie, but of course we will not shed a tear over these cretins who well deserve the kicking and thrashing of big capital.

The gazetteers, who present the crash as a general catastrophe that would impoverish nations and could cause a recession, through the consequent reduction of the market, being incapable, for class reasons, of understanding the origin of value, invert the reality of things by taking the effect for the cause.

In conclusion we will give the analysis that Marx and Engels made in 1850, in the Neue Rheinische Zeitung, of the economic events that preceded the great crisis of 1847-48:

‘The years 1843-5 were years of industrial and commercial prosperity, a necessary sequel to the almost uninterrupted industrial depression of 1837-42. As is always the case, prosperity very rapidly encouraged speculation. Speculation regularly occurs in periods when overproduction is already in full swing. It provides overproduction with temporary market outlets, while for this very reason precipitating the outbreak of the crisis and increasing its force. The crisis itself first breaks out in the area of speculation; only later does it hit production. What appears to the superficial observer to be the cause of the crisis is not overproduction but excess speculation, but this is itself only a symptom of overproduction. The subsequent disruption of production does not appear as a consequence of its own previous exuberance but merely as a setback caused by the collapse of speculation’ (Pamphlet V-VI, May-October 1850).

 
Well dug, old mole: the 1975 crisis

The 1975 recession was the first major post-war recession to affect all major industrialised nations at the same time, including the countries of the East.

The great inter-war crisis that the party had been waiting for did not occur in 1975. Evidently capitalism, in the major industrialised countries, had not yet burnt through all its reserves and still had sufficient room for manoeuvre and resources to prevent the overproduction crisis from spreading with all its consequences: a sharp fall in production combined with the massive devaluation of commodity capital, including that enormous mass of paper that is securities of all kinds, with its sequel of bankruptcies of industrial, commercial and banking enterprises.

There was indeed a sharp fall in industrial production, with resounding bankruptcies, but it was not enough and lasted for too short a time to bring about the general devaluation of capital. Instead of deflation, inflation was maintained, which instead, with the economic recovery that followed, amplified to reach a peak during the 1980-82 crisis.

In the hardest hit sectors, such as steel production, cement production, shipyards, and construction, the states intervened with subsidies to support the industries and forced the industrialists of the same branch to agree to reduce production in order to support prices. This made it possible to raise the rate of profit, which had fallen to zero, to the detriment of the workers who were well and truly tormented.

At the same time, new markets opened up: the considerable rise in the price of oil allowed a considerable transfer of wealth to the OPEC countries, which in return provided an extensive outlet for western goods. From the point of view of technology transfer, the so-called third world countries (especially Latin America and Asia), renamed ‘developing countries’, were the object of multiplied attention, i.e. increased exploitation: export of money capital (on credit, of course) to allow the export of the imperialist nations’ overproduction.

At the same time, the indebtedness of the imperialist states themselves in order to stimulate production assumed unprecedented proportions.

Today capitalism has fired all the shells. The markets that had opened up after the 1975 crisis have closed again, both because of the weight of a debt that has become intolerable, which pushes poor countries to export as much as possible and reduce imports as much as possible, and because of the fall in the price of oil, due to overproduction due to the multiplication of wells and intense speculation in a sector that has become very lucrative, which also forces the OPEC countries to drastically reduce imports.

The American market, which has been pulling the economy along since the 1980-82 crisis, is in turn closing itself off to European and Japanese imports, using the de facto devaluation of the dollar, almost 100% against the mark and yen, as a customs barrier. Domestic consumption and economic activity itself, in particular construction, have been falling steadily in recent months in the United States, and industrial growth now relies heavily on exports. Against this backdrop, competition on the world market is becoming fiercer and fiercer, making any agreement even within the various branches of industry increasingly difficult. The inability of the OPEC countries to come to an agreement with each other is proof of this.

The indebtedness of states and the frenzied speculation of recent years, after having granted a respite to capitalist reproduction, now produce the opposite effects: by pushing up interest rates they precipitate the crisis, as the rise in oil prices once did.

Even in the eastern countries, the economic situation is far from shining. The ‘new’ economic and social policy of the Gorbachev government is identical to that of the western states – ‘deregulation’ to make the laws of the market work more inexorably, closure of unprofitable companies, dismissal of excess staff, price transparency – and is only an expression of the difficulties of Russian capitalism. In Le Monde one can read a ‘transparent’ description of the state of the Soviet economy reported by a state official:

‘What would be needed is a certain buffer of unemployment, a minimum of insecurity in employment so that people would make an effort at work (...) According to one of Gorbachev’s advisors for economic affairs, agricultural production today is lower than it was in 1978; there was no economic growth in the USSR from 1979 to 1985; the production of 40% of industrial goods has declined, productivity is low, as is the return on investment (...) For enterprises autonomy means that they have to balance their budgets and that, to a certain extent, deficit-ridden units will no longer be able to rely on state subsidies to maintain artificially useless and obsolete production’. And the journalist questions: ‘How will the authorities be able to practise a policy of truthful prices and wages and at the same time defend living standards, as they proclaim? Allow companies to dismiss supernumerary workers and continue to artificially maintain full employment when productivity is already dramatically low?’

Oil on fire

In the East as in the West, capitalism is ripe for a major crisis of overproduction. All the ingredients for such a crisis are in place. And the momentary fall in the interest rate, just as before the 1929 crash, changes nothing about this underlying reality. On the contrary, the way the game has been cooled has only made things worse. To prevent the stock market crash from turning into a general failure of finance capital, then into a commercial and industrial crisis, the Federal Reserve Board, immediately followed by the other central banks, instructed the various American banks to meet every demand for liquid cash. This implies that it guarantees that these demands will be met by dropping the interest rate. Federal funds rates dropped from 7.5% to 5.875%-6.125%. Those on 30-year Treasury bonds fell below 10%.

The intervention of the central banks thus helped to curb the paroxysm, but on credit. This movement is reinforced by the fact that since the beginning of the fall in stock prices, investors have flocked en masse to fixed-income securities, i.e. the bond market, considered, given the circumstances, to be safer. But as Le Monde points out:

‘In practical terms, this means that the American central issuing institute has begun purchasing public debt securities indiscriminately, which the banks are trying to get rid of in order to obtain cash. In the immediate term, this relieves the banks, but it also has the effect of increasing the mass of Treasury bonds practically frozen in their assets, this time of the US central bank’.

Yes, they put out the fire momentarily, but with oil! On the various markets, the mass of securities has become colossal; the American government, by flooding the bond market quarterly to meet its treasury needs, is only increasing this mass. Now, in times of crisis, what is needed is not securities but money! The central banks themselves, whose function is to respond to the demand for liquidity by building up monetary reserves, have tied up a good part of their reserves in such securities.

Since the Louvre Accords, the various central banks have actively intervened to support the dollar rate. They do this by massively buying dollars, which they recycle across the Atlantic by purchasing US Treasury bonds, which they hoard in their vaults because they are unsaleable. In 1987 they spent between $110 billion and $140 billion to prop up the US currency and between $32 billion and $37 billion on Japan alone. In the same article the journalist noted:

‘We are no longer far away from the moment when, firstly, the liquidity of the system as a whole is in danger of no longer being ensured, and secondly, the advantages of simple negotiability – the possibility to sell, but with price risk – will themselves be called into question (which is already the case for some types of lending on the Euromarket)’.

A great English bourgeois, quoted before a parliamentary committee of enquiry following the 1847 crisis, already noted:

‘Our system is this: That we have £300,000,000 of liabilities which may be called for at a single moment to be paid in the coin of the realm, and that coin of the realm, if the whole of it is substituted, amounts to £23,000,000, or whatever it may be; is not that a state which may throw us into convulsions at any moment?’

And Marx comments

‘Hence the sudden change of the credit system into a monetary system during crises’.

‘The quantity of circulating bills of exchange, therefore, like that of bank-notes, is determined solely by the requirements of commerce; in ordinary times, there circulated in the [1850s] in the United Kingdom, in addition to 39 million in bank-notes, about 300 million in bills of exchange – of which 100-120 million were made out on London alone. The volume of circulating bills of exchange has no influence on note circulation and is influenced by the latter only in times of money tightness, when the quantity of bills increases and their quality deteriorates. Finally, in a period of crisis, the circulation of bills collapses completely; nobody can make use of a promise to pay since everyone will accept only cash payment; only the bank-note retains, at least thus far in England, its ability to circulate, because the nation with its total wealth backs up the Bank of England’ (Capital, Vol. III, Ch. 33).

We do not know the ratio that exists today between the mass of bills of exchange in circulation, and in a more general way the whole house of paper that is bonds, Treasury bonds, shares, etc., which represent fictitious capital, and the real monetary mass, in circulation or locked up in the vaults of the banks, especially central banks. But one can imagine that this ratio must be dizzyingly high and far higher than it was in England in 1847.

In Russia, the shortage of means of payment could be aggravated by a fall in grain production, as happened in 1975, when it fell by 20%! The cyclical nature of crises in Russia and the current shortage would seem to support such a prospect. In this case, the Russian state would be forced to tie up large funds in foreign exchange in order to buy cereals. This outlay would, unfortunately, be taken advantage of by the American crony and competitor, a thousand times the vampire, which would be rid of an equivalent portion of its agricultural overproduction.

1847, prototype of every crisis

When the crisis arrives, sweeping in its wake all the paper castles of finance capital, imposing the bankruptcy of thousands of commercial and industrial enterprises, as well as the massive devaluation of the plethora of productive and merchant capital, sweeping away the mirages and illusions of bourgeois society, and, not least, shaking the historical proletariat from its torpor by bringing the class struggle back to life, we will then welcome it with all honours, exclaiming the words of Marx: well dug, old mole!

‘But all the newly erected factory buildings, steam-engines, and spinning and weaving machines did not suffice to absorb the surplus-value pouring in from Lancashire. With the same zeal as was shown in expanding production, people engaged in building railways. The thirst for speculation of manufacturers and merchants at first found gratification in this field, and as early as in the summer of 1844. Stock was fully underwritten, i.e., so far as there was money to cover the initial payments. As for the rest, time would show! But when further payments were due (…) recourse had to be taken to credit, and in most cases the basic enterprises of the firm had also to bleed.

‘And in most cases these basic enterprises were already over-burdened. The enticingly high profits had led to far more extensive operations than justified by the available liquid resources. Yet there was credit – easy to obtain and cheap. The bank discount rate stood low: 1¾ to 2¾% in 1844, less than 3% until October 1845, rising to 5% for a while (February 1846), then dropping again to 3¼% in December 1846. The Bank of England had an unheard-of supply of gold in its vaults. All inland quotations were higher than ever before. Why then allow this splendid opportunity to escape? Why not go in for all one was worth? Why not send all one could manufacture to foreign markets which pined for English goods? And why should not the manufacturer himself pocket the double gain arising from selling yarn and fabrics in the Far East, and the return cargo in England?

‘Thus arose the system of mass consignments to India and China against advance payments, and this soon developed into a system of consignments purely for the sake of getting advances, as described in greater detail in the following notes, which led inevitably to over-flooding the markets and a crash.

‘The crash was precipitated by the crop failure of 1846. England, and particularly Ireland, required enormous imports of foodstuffs, notably corn and potatoes. But the countries which supplied them could be paid with the products of English industry only to a very limited extent. Precious metals had to be given out. Gold worth at least nine million was sent abroad. Of this amount no less than seven and a half million came from the treasury of the Bank of England, whose freedom of action on the money-market was thereby considerably impaired. Other banks, whose reserves were deposited with the Bank of England and were practically identical with those of that Bank, were thus also compelled to curtail accommodation of money. The rapid and easy flow of payments was obstructed, first here and there, then generally. The banking discount rate, still 3 to 3½% in January 1847, rose to 7% in April, when the first panic broke out. The situation eased somewhat in the summer (6½%, 6%), but when the new crop failed as well panic broke out afresh and even more violently. The official minimum bank discount rose in October to 7 and in November to 10%; i.e., the overwhelming mass of bills of exchange was discountable only at outrageous rates of interest, or no longer discountable at all. The general cessation of payments caused the failure of several leading and very many medium-sized and small firms’ (Capital, Vol. III, Ch. 25).

Productive forces rebel against relations of production

Marx intends to avoid any misunderstanding of the causes of the crisis of overproduction when, analysing the crisis in its phenomenal complexity, he emphasises the role of credit and the scarcity of means of payment. In fact, considerable outflows of money, whether due to an agricultural crisis, or to a sharp rise in the price of a raw material indispensable to industry – such as cotton in England in the last century, or oil in 1973 and 1979 – or whether due to a strong demand for money by the state for its treasury needs, causing the interest rate to rise, do not cause the crisis, but hasten it. The crisis takes place because one is already in a situation of overproduction. In the upward phase of the production cycle, when the threshold of overproduction is still a long way off, considerable outflows of funds by the Central Bank may at most disrupt the cycle, cause a small crisis, but in no case a great historical crisis like that of 1847.

The cause of overproduction is not external to the process of capitalist production, but lies within that process itself. We reproduce here Engels’ outline of the crisis mechanism in his Socialism: Utopian and Scientific.

‘The enormous expansive force of modern industry, compared with which that of gases is mere child’s play, appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance. Such resistance is offered by consumption, by sales, by the markets for the products of modern industry. But the capacity for extension, extensive and intensive, of the markets is primarily governed by quite different laws that work much less energetically. The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable, and as this cannot produce any real solution so long as it does not break in pieces the capitalist mode of production, the collisions become periodic. Capitalist production has begotten another “vicious circle”.

‘As a matter of fact, since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilised peoples and their more or less barbaric hangers-on, are thrown out of joint about once every 10 years. Commerce is at a stand-still, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution. The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filter off, more or less depreciated in value, until production and exchange gradually begin to move again. Little by little, the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit, and speculation, which finally, after breakneck leaps, ends where it began – in the ditch of a crisis. And so over and over again. We have now, since the year 1825, gone through this five times, and at the present moment (1877), we are going through it for the sixth time. And the character of these crises is so clearly defined that Fourier hit all of them off when he described the first “crise plethorique”, a crisis from plethora.

‘In these crises, the contradiction between socialised production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange. The productive forces rebel against the mode of production for which they have become too great’.

It was not really necessary to give the whole long quotation, but it was hard to resist. What does Engels say: that the enormous force of expansion of the productive forces is opposed by the counter pressure exerted by the market. Since the laws of development of the market and those of production are different, a collision occurs which leads to crisis, then to social explosion in the event of revolution. The crisis results from the contradiction between the market and the expanding forces of industry, which overwhelms any obstacle.

Engels does not stop there, he goes on to point out that the crisis stems from the contradiction between ‘socialised production and capitalist appropriation’, leading to a rebellion of the mode of production against the mode of exchange and of the productive forces against the mode of production for which they have become too great. The contradiction is thus twofold; in effect it is one and the same contradiction seen from two different aspects: the contradiction between the social character of the productive forces and the private appropriation of the means of production and consumption. This contradiction is immediately manifested in the antagonism between production, with its own laws of development, and the market, whose laws of expansion are different.

However, if we stop at this aspect of things, the fundamental contradiction inherent in capitalism would remain external to the mode of production.

‘First of all, there is a limit, not inherent to production generally, but to production founded on capital. This limit is double, or rather the same regarded from two directions. It is enough here to demonstrate that capital contains a particular restriction of production – which contradicts its general tendency to drive beyond every barrier to production – in order to have uncovered the foundation of overproduction, the fundamental contradiction of developed capital; in order to have uncovered, more generally, the fact that capital is not, as the economists believe, the absolute form for the development of the forces of production – not the absolute form for that, nor the form of wealth which absolutely coincides with the development of the forces of production’ (Marx, Grundrisse, Notebook IV, 22).

Marx enumerates these different limits, all of which are related to the creation of value and thus to the private character of appropriation. All the contradictions that capital in its movement must constantly overcome can be traced back to this: capital in its hunger for living labour, or more precisely for surplus labour, i.e. surplus value, is forced to constantly increase labour power in order to reduce the amount of labour required. It follows that labour is relatively reduced in the face of the technological input and productivity of the means of production. In doing so, capital generates its own negation: on the one hand, in order to satisfy its insatiable appetite for surplus value, it socialises labour and concentrates it, on the other hand it relatively reduces the share of variable capital in relation to constant capital; thus it develops the technical productive basis of communist society on an ever larger scale while undermining its own basis as a producer and accumulator of surplus value. Hence the crises of overproduction after each cycle of accumulation, which become more and more terrifying each time.

‘The exchange of living labour for objectified labour – i.e. the positing of social labour in the form of the contradiction of capital and wage labour – is the ultimate development of the value-relation and of production resting on value. Its presupposition is – and remains – the mass of direct labour time, the quantity of labour employed, as the determinant factor in the production of wealth. But to the degree that large industry develops, the creation of real wealth comes to depend less on labour time and on the amount of labour employed than on the power of the agencies set in motion during labour time, whose “powerful effectiveness” is itself in turn out of all proportion to the direct labour time spent on their production, but depends rather on the general state of science and on the progress of technology, or the application of this science to production (...)

‘In this transformation, it is neither the direct human labour he himself performs, nor the time during which he works, but rather the appropriation of his own general productive power, his understanding of nature and his mastery over it by virtue of his presence as a social body – it is, in a word, the development of the social individual which appears as the great foundation-stone of production and of wealth. The theft of alien labour time, on which the present wealth is based, appears a miserable foundation in face of this new one, created by large-scale industry itself. As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of the general powers of the human head. With that, production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis. The free development of individualities, and hence not the reduction of necessary labour time so as to posit surplus labour, but rather the general reduction of the necessary labour of society to a minimum, which then corresponds to the artistic, scientific etc. development of the individuals in the time set free, and with the means created, for all of them. Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth’ (Notebook VII, 3).

And this fundamental contradiction – which is the other aspect of the antagonism between the social character of the productive forces and private appropriation, appropriation whose private character is determined by the relations of production that are the wage-earner and capital – is manifested by the law of the tendential fall of the rate of profit.

‘This is in every respect the most important law of modern political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law which, despite its simplicity, has never before been grasped and, even less, consciously articulated. Since this decline in the rate of profit is identical in meaning:

1) with the productive power already produced, and the foundation formed by it for new production; this simultaneously presupposing an enormous development of scientific powers;

2) with the decline of the part of the capital already produced which must be exchanged for immediate labour, i.e. with the decline in the immediate labour required for the reproduction of an immense value, expressing itself in a great mass of products (...)

3) [with] the dimension of capital generally, including the portion of it which is not fixed capital; hence intercourse on a magnificent scale, immense sum of exchange operations, large size of the market and all-sidedness of simultaneous labour; means of communication etc., presence of the necessary consumption fund to undertake this gigantic process (workers’ food, housing etc.);

‘hence it is evident (...) that the development of the productive forces brought about by the historical development of capital itself, when it reaches a certain point, suspends the self-realisation of capital, instead of positing it. Beyond a certain point, the development of the powers of production becomes a barrier for capital; hence the capital relation a barrier for the development of the productive powers of labour. When it has reached this point, capital, i.e. wage labour, enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter. The last form of servitude assumed by human activity, that of wage labour on one side, capital on the other, is thereby cast off like a skin, and this casting-off itself is the result of the mode of production corresponding to capital; the material and mental conditions of the negation of wage labour and of capital, themselves already the negation of earlier forms of unfree social production, are themselves results of its production process. The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms. The violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation, is the most striking form in which advice is given it to be gone and to give room to a higher state of social production’ (Notebook VII, 16).

Crisis, War, Revolution

The approaching crisis will sound the death knell for bourgeois society, bringing with it the class struggle and marking the end of sixty years of counter-revolution. Sixty years of oppression and lies, which have seen fifty million men exterminated in a filthy slaughterhouse to allow capitalism to go through a whole new cycle of accumulation over the last three decades, further brutalising the working classes, debilitating their consciences with the help of opportunism and doubly exploiting them: first as producers of surplus-value, then as consumer-electors, giving them a glimpse of a ‘welfare’ of a reified world, based on competition, the faux exaltation of individualism, the dissolution of all class and personal community. It passed off the most alienated behaviour as the pinnacle of human development, using and exalting the meanest instincts, debasing the highest sentiments, elevating thievery to the status of a system.

If the bourgeois and petty-bourgeois despair at the approach of the crisis, we, on the contrary, welcome it with joy, drawing new strength and vigour from it. It heralds the end of the nightmare that is bourgeois society. Like an earthquake it will bring down the entire social edifice to its foundations, sweeping away mirages and illusions, demystifying the propaganda of opportunism and of the bourgeoisie. It will ruin those ignoble swamps of social peace that are the middle classes and the working class aristocracy; it will massively and ferociously expropriate these debilitated and recoiled strata, the indispensable condition for revolution. It will shake the proletariat out of its torpor and lethargy, bringing it out of the state of brutalisation to which bourgeois society has reduced it, making it ready for action once again.

Engels wrote to his friend Marx in September 1852:

‘The workers would appear après tout to have become utterly bourgeoisified as a result of the present prosperity and the prospect of la gloire de l’empire. They will have to be severely chastened by crisis if they are to be good for anything again soon’.

Yes, the state of chronic economic crisis in which our bourgeois society has found itself for 13 years will have ‘prepared the ground’. The fraction of the proletariat that will separate from the masses to join the party will then be larger than it could have been if the great interwar crisis, which the party has long foreseen and awaited, had come suddenly in 1975, after thirty years of ‘prosperity’ and general recoil. On the contrary, it was heralded by two recessions that partly prepared the masses, crises that insidiously exerted a liming work on the moral influence of the bourgeoisie and its agents within the proletariat.

‘There’ll be a merry dance here when the crisis comes, and one can only hope that it still last long enough to develop into a chronic condition with acute periods, as it did in 1837-1842’.

If history re-establishes the link that the counter-revolution has broken between the party and the masses, by a process of years, following a curve that will not only be upward, after a long work of agitation, organisation and propaganda, the final assault against the bourgeoisie will be prepared. Against the crisis, the proletariat will not rise up on its own, fully armed, as one man, ready to overthrow the bourgeoisie, such spontaneist and anarchist illusions are not ours; the objective preparation of the proletariat for the seizure of power requires years of intervention by the party in order to win its trust and following.

The economic crisis, with the strikes and uprisings it provokes, will be able to create the conditions for a dress rehearsal of the revolution, just as 1905 was the dress rehearsal for the Revolution of 1917. During the period of economic recovery, which will follow the crisis and precede the Third World War, economic struggle and trade union organisation will then be of great importance. With the economic recovery, the balance of power on the terrain of economic struggles will actually be favourable to the proletariat. The party will then try to generalise and organise the class unions, which will have arisen or will arise, trying to take the lead.

In a time that is impossible to predict, the outbreak of the Third World War will present itself as inescapable. Unlike on 4 August 1914, it will be a matter for the proletariat to seize the great historical opportunity that will be offered to it, to fight, not to stop the war with peace, but to overthrow the bourgeoisie by force of arms, transforming, in Lenin’s words, imperialist war into civil war. Either the war passes, or the Revolution passes!

Our perspective for this end of the century remains the one outlined by the party for three decades now and which we repeat in these words from our Il Programma Comunista Number 9 of 1958.

‘1929 crisis and America today.

‘(...) The question is whether there will be a world crisis in the future with the same depth as then. Our answer derives from fidelity to the traditional original Marxist doctrine, and it is in the sense that such a crisis will come, and that it will precede a third world war by a long way, and will put before it the possibility of an international resumption of the class struggle and possible social war, the only alternative to the catastrophe of the imperialist conflict.

‘If today’s prodromes are not yet those of such a great crisis, they do, however, come to confirm the fallacy of all the welfare schools, and to reaffirm the classic Marxist thesis that in the mercantile economy every element of production, which only allows a fictitious rise in the standard of living, and to simulate a social levelling off, only prepares for the reversal of the process of advance and the real crisis.

‘The true and proper crisis that will historically arise between the Second and Third World Wars will be, even more than those between the First and Second, international, and proof of this is what we are emphasising about the collaboration of Russian state capitalism with “anti-crisis measures”; collaboration which, culminating in the therapy of the extension of world trade between the two alleged blocs, even if only through its ideological presentation, stands instead to prove, with dialectical force, that the next authentic crisis of overproduction will strike all the monstrous production machines of the world at the same time, it will be the crisis of the overproducing madness that unites America and Russia in the vaunted, by both, emulative competition.

‘And this crisis will put the world on the eve of another general war, if it does not put it on the eve of revolution, one of the conditions of which is the development, demanding decades, of a party whose programme is destructive of the “myth of producing” and the “myth of consuming”, linked by the “mercantile myth”’.