Historical Materialism and the Inevitable End of Capitalism

Unlike idealist schools of history, the historical materialism of Marx and Engels sees both the origins of human life and the succession of economic and political forms that have marked the course of human history as rooted in the origins and transformations of human material production.

Unlike other animals, who are collectors of their means of subsistence, humans are producers who make and use tools to modify raw materials provided by nature.  Our ape ancestors over millions of years of both biological and social evolution were gradually humanized as they shifted from merely collecting foodstuffs and began to modify foodstuffs and other raw materials with the aid of tools.

Over the last ten thousand years, human society has evolved from classless primary communism—called hunting and gathering societies by academic anthropologists—to various forms of society divided into ruling non-working classes and direct producers who work for and are exploited by the ruling classes.

The successive ruling classes of history have ruled through a special organization called the state. According to historical materialism, the transition from classless and stateless primary communism to the various early forms of class rule through state organizations took place because of the development of new forces of production—particularly the development of animal husbandry and agriculture—that were no longer compatible with the traditional classless clan-tribal mode of social and economic organization.

In turn, the early class societies themselves were transformed as the instruments of production grew in power. Eventually, the forces of production grew to a point that they required the capitalist mode of production with its world market, free competition and wage labor. Unlike the earlier forms of class rule, capitalist society by its very nature is not local but engulfs the entire globe. It destroys any other form of human society that stands in its way.

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The ‘Long Cycle’—Summary and Conclusions

In this series of posts, I have examined the question of whether the capitalist economy experiences cycles that are considerably longer than the industrial cycles of approximately 10 years. It’s been proposed by various economists over the last hundred years that in addition to 10-year industrial cycles and shorter “inventory cycles,” there also exists a “long cycle” of approximately 50 years’ duration.

Over the last several months, I have examined the concrete history of the cycles and crises that have occurred in the global capitalist economy from the crisis of 1847 to the crisis of 2007-09. Over these 161 years, we have seen decades when economic growth surged ahead, and other periods dominated by prolonged depression or stagnation.

Changing patterns of cycles and crises

While industrial cycles of approximately 10 years have been a remarkably persistent feature of capitalism, there have been periods when these cycles have been suppressed by world wars and other periods when we have had only partial cycles.

For example, the two world wars of the 20th century suppressed to a considerable degree the entire process of expanded capitalist reproduction. Since industrial cycles arise within the broader process of the expanded reproduction of capital, wartime suppression of expanded capitalist reproduction suppressed the industrial cycle.

After the super-crisis of 1929-33—itself part of the aftermath of the World War I war economy—there was no complete industrial cycle. The brutal deflationary policy of the Roosevelt administration in 1936-37 prevented the cyclical recovery of 1933-37 developing into a real boom. The war economy of World War II replaced the recovery that followed the 1937-38 recession before it could develop into a boom. Therefore, in the years from the super-crisis of 1929-33 until after World War II we saw only partial industrial cycles.

No full industrial cycle between 1968 and 1982

There was also no complete industrial cycle between 1968 and the beginning of the “Volcker shock” in 1982. During the recessions of 1970 and 1974-75, governments and central banks attempted to force recoveries through deficit spending and monetary expansion. Under the conditions prevailing at that time, these repeated attempts to force a recovery simply led to panicky flights from the dollar and paper currencies in general, causing the recoveries to abort. Full industrial cycles of more or less 10-year duration only reappeared after the Volcker shock of 1979-82.

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The Dollar Empire and the ‘Great Moderation’

During the “Great Moderation,” the United States became increasingly dependent on imports to maintain its standard of living. When we talk about the standard of living of a nation, we should always be careful to distinguish between the standards of living of the different classes and strata of the population.

The decaying U.S. industrial base and the consequent absolute decline in the level of factory employment during the Great Moderation devastated the standard of living of factory workers. Those industrial workers who did maintain their jobs often had to accept wage cuts and worsening working conditions. This was particularly true for the young generation of factory workers. The unions often accepted two-tier contracts that protected the wages and benefits of older workers at the expense of those of new young workers.

The younger workers who found factory jobs during the Great Moderation were lucky. Many young workers, especially workers of color in the inner cities often couldn’t find any jobs—let alone factory jobs. If they could, it was usually in low-wage, non-unionized “service” establishments such as MacDonald’s or Walmart. It is significant that the biggest U.S. corporation in terms of revenues is not an industrial giant such as U.S. Steel, as it was early in the 20th century, or General Motors, at mid-century, but rather a trading company, Walmart.

The growing mass of more or less permanently unemployed, or at most marginally employed, youth has encouraged the growth of inner-city street gangs engaged in the drug trade. This has swollen the U.S. prison population. At any given time, there are now considerably more than 2 million people, disproportionality young people of color, in U.S. prisons and jails. Many more people pass through jails or prisons in the course of a year, or are in other respects “in the system,” fighting criminal charges, on parole or on probation.

It remains important, however, for the U.S. ruling class to maintain a large percentage of the population in a relatively comfortable “middle-class” lifestyle. This is a key difference between the United States as the world’s leading imperialist country and an oppressed “third world” country.

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From the Dollar-Gold Exchange System to the Dollar System

The Bretton Woods dollar-gold exchange standard began to unravel with the collapse of the gold pool in March 1968 and collapsed completely in August 1971, when Nixon formally ended the convertibility into gold of the U.S. dollar by foreign governments and central banks. The U.S. dollar, even dollars in the central banks or treasuries of foreign governments, was now a purely token currency and no longer a form of credit money. From now on, the dollar would follow the laws of token money, not credit money.

The question posed by Nixon’s August 1971 move was whether the U.S. dollar could maintain its position as the main world currency now that it was a token currency and not credit money. As long as the dollar had retained its convertibility into gold at a fixed rate by foreign central banks and treasuries—which also meant that the open market dollar price of gold could not move very far from the official $35 an ounce—commodity prices quoted in dollars and international debts denominated in dollars were in effect quoted and denominated in terms of definite quantities of gold.

But with the transformation of the dollar into token money, this was no longer true. The dollar no longer represented a fixed quantity of gold but a variable quantity. Its gold value could change drastically over a short period of time.

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Reagan Reaction and the ‘Great Moderation’

After World War II, the Keynesians reformers took unjustified credit for the postwar economic upswing. Similarly, in the 1980s the extreme right-wing governments that came to power in Britain in 1979 and the United States in 1980 also took unjustified credit for the end of the protracted economic crisis of 1968-1982.

These right-wing governments attempted to take back as many concessions as possible that had been granted to the working class after World War II. At first, the policies of the new reactionary governments was called “monetarist,” but later they were called “neoliberal” for reasons that will become apparent below.

As I mentioned last week, the “monetarist,” or “neoliberal,” era in the United States actually began with the appointment of Paul Volcker as chairman of the U.S. Federal Reserve Board by the Democratic administration of Jimmy Carter in August 1979. The post-World War II reformist era had been made possible by the generally expansionary economic conditions that prevailed between 1948 and 1968. The collapse of the London Gold Pool in March 1968 marked the end of the early post-World War II era of capitalist prosperity.

Attempts to relaunch the post-World War II capitalist prosperity through Keynesian methods repeatedly failed during the 1970s. This was the economic basis for the new era of reaction that was symbolized by the election of Ronald Reagan in the November 1980 U.S. presidential election, as well as the rise to power of Margaret Thatcher in Britain with her “there is no alternative” slogan.

What Thatcher really meant was that there was no “Keynesian” alternative to her reactionary “monetarism” as long as the British pound was plunging in value both against gold and even against the dollar on world currency markets.

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From the 1974-75 Recession to the ‘Volcker Shock’

As I explained last week, the devaluation of the U.S. dollar in terms of gold had temporarily halted by the end of 1974. After peaking at $195.25 an ounce on December 30, 1974, the dollar price of gold had fallen to $104.00 on August 31, 1976.

As a result, during 1975 the rate of U.S. inflation as measured by the government producer price index was “only” about 4.4 percent. Still, the official producer price index rose more in the recession-depression year of 1975 than it had in the inflationary boom year of 1965. This despite a slump that was considerably worse than that of 1957-58.

The U.S. workers—and workers in other capitalist countries—were hit in two ways. One, workers’ living standards were lowered by the rising cost of living in terms of the devalued currency their wages were paid in. In a more traditional type recession-depression, the cost of living would have been expected to fall.

Second, just like was the case in a traditional crisis-depression, wages were under downward pressure from the high rate of unemployment. In the case of U.S. workers, this was on top of the disastrous—for U.S. workers—wage and price controls that had been imposed by the Nixon administration.

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The Industrial Cycle and the Collapse of the Gold Pool in March 1968

Industrial cycles normally last about 10 years—give or take a year or two. The second industrial cycle after World War II began with the 1957-58 global recession. Given the fact that the industrial cycle lasts about 10 years, we would normally expect the next global downturn to occur around 1967. And indeed 1966-67 saw not only the “mini-recession” in the United States but the recession of 1966-67 in West Germany.

However, in 1967 the U.S. government and the Federal Reserve System were determined to avoid a recession on anything like the scale of the recession a decade earlier. As I explained in last week’s post, the bourgeois Keynesian economists believed that they understood the workings of the capitalist economy well enough to develop the “tools” that would allow the capitalists governments and central banks to avoid full-scale recessions in the future. Indeed in 1967, the U.S. economy escaped with only a “mini-recession.”

But just as the Keynesians were celebrating their final victory over the industrial cycle and its crises, there came the March 1968 run on gold, which led to the collapse of the London Gold Pool. The U.S. government and Federal Reserve System, seeking to stave off the complete collapse of the dollar-gold exchange standard, felt obliged to take deflationary measures. The fed funds rate, which on October 25, 1967, had fallen to as low as 2.00 percent, rose to 5.13 percent on March 15, 1968, the day the gold pool collapsed.

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The U.S. Economy in the Wake of the Economic Crisis of 1957-61

Thanks to the economic crisis of 1957-61, the U.S. economy entered the decade of the 1960s with high levels of unemployment and excess capacity. The millions of unemployed workers and idle plants and machines meant that industrial production could increase rapidly in response to rising demand.

Since supply was increasing almost as fast as demand, prices rose very slowly. At least according to the official U.S. producer price index, prices hardly changed between 1960 and 1964.

As is typical of the phase of average prosperity of the industrial cycle, long-term interest rates rose very slowly. Still, at around 4 percent or slightly higher they had risen significantly since the Korean War days. Back then, the Truman administration still expected to borrow money long term at less than 2.5 percent. Slowly but surely long-term interest rates were eating into the profit of enterprise.

The 1960s economic boom begins

During most of the early 1960s, the U.S. economy was passing through the phase of average prosperity that precedes the boom. But starting in 1965, the industrial cycle entered the boom phase proper.

The transition from average prosperity to boom is part of the industrial cycle. However, in the mid-1960s this transition was helped along by government economic policies. These were, first, the Kennedy-Johnson tax cut of 1964 combined with the rapid escalation the war against Vietnam. After remaining virtually unchanged through 1964, the official U.S. producer price index suddenly surged 3.5 percent in 1965. That was the year the escalation of the Vietnam War began in earnest.

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The Five Industrial Cycles Since 1945

About five industrial cycles have occurred on the world market since 1945. The first industrial cycle that can be traced after 1945 is the cycle of 1948-1957. The second extends from 1957 to 1968. When we speak of the post-World War II economic “boom,” we really mean the first two full industrial cycles after World War II, which were characterized by great capitalist prosperity.

Between 1968 and 1982, there were no complete industrial cycles. Indeed, the entire period from 1968 to the end of 1982 can arguably be seen as one drawn-out crisis with fluctuations or sub-cycles within it. The normal 10-year cycle resumed in the 1980s, peaking around 1990.

The industrial cycle that began with the 1990 recession peaked between 1997 and 2000. The crisis that ended that industrial cycle actually began with the run on the Thai baht in July 1997, though the U.S. economy didn’t enter recession until 2000. The industrial cycle that began with with the July 1997 run on the Thai currency ended 10 years later with the August 2007 global credit panic, which began in the United States and then spread around the world.

These cycles do not correspond to the National Bureau of Economic Research dates. The NBER is a group of bourgeois economists who decide the “official” periods of what they call “expansions” and “contractions.”

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Does Capitalist Production Have a Long Cycle? (pt 10)

The coming of World War II and the end of the Great Depression

According to the conventional wisdom, it was World War II that brought the Depression to an end. At least as far the United States is concerned, it is indeed true that it was the war mobilization that finally ended the mass unemployment that had existed since the fall of 1929.

Mass unemployment that was lingering in the United States as late as 1941 gave way to the “war prosperity” that the United States enjoyed during World War II. As far as many, perhaps most, Americans were concerned—the exception being those who faced actual combat—the wartime shortages and rationing, and even the rigors of military service, were a relief from the chronic idleness and hopelessness that had marked the Depression years.

Lives and careers that had been put on hold through the Depression decade could finally get back on track. People who had not been able to get any meaningful job during the 1930s could finally get jobs, get married, and start to raise families. This is the reason why the United States experienced a baby boom when the war ended.

As I have explained in earlier posts, a full-scale war economy is very different than the boom phase of the industrial cycle, even if both a boom and a war economy reduce or eliminate unemployment. The shift of the United States to an all-out war economy starting in 1942 implied a net consumption of the value of capital in the United States rather than the accumulation of capital that occurs during the boom phase of the industrial cycle.

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