The impending crisis of U.S. capitalism

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The following are major extracts from the Political Resolution adopted at the August, 1987, meeting of the Socialist Action National Committee-two months before the stock market crash. It is, essentially, a reaffirmation of the fundamental principles of revolutionary Marxism upon which Socialist Action is based and challenges the widespread myth that capitalism has been so restructured The historical period since the 1930s Depression is reviewed and analyzed from the vantage-point of the effect of the economic cycles upon the struggles between classes. The document describes the crisis that engulfed world capitalism after the 1929 stock market crash and the It explains how the labor bureaucracy in the U.S. and their bureaucratic counterparts in reformist Socialist and Communist parties throughout the world have led the working classes into repeated defeats.

It describes how these missed opportunities allowed world capitalism to establish the most prolonged period of relative economic stabilization Black Monday, Oct. 19, 1987, however, will go down in history as the beginning of the end of the nearly 40-year period of world capitalist stability and the opening of a renewed struggle by working people for their liberation from the scourge of unemployment, inflation, and war.

Socialist Action Special Supplement SOCIALIST ACTION NOVEMBER 1987 9 Scientific socialism, Engels once explained, is based on Karl Marx's two great discoveries: The materialist conception of history and the secret of how the capitalist system of production works. It is necessary from time to time to analyze the current political situation not merely from the standpoint of the last few years' analyses, but from this longer historical perspective.

The Great Depression of the 1930s was a destabilization of world capitalism on a previously unseen scale. Marx and Engels's description of the periodic crises inherent in capitalist production was seen by many as prophesy realized. The process of overproduction was hidden until the 1929 crash set loose what "The Communist Manifesto" referred to as "an epidemic that in all earlier epochs, would have seemed an absurdity-the epidemic of overproduction."

"The Communist Manifesto" suddenly came to life for tens of millions of workers. Society found itself "put back into a state of momentary barbarism; it appear[ed] as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem[ed] to be destroyed; and why? Because there [was] too much civilization, too much means of subsistence, too much industry, too much commerce." (Ibid.)

This major economic destabilization provided the objective conditions for a worldwide revolutionary tide of proletarian revolution. Mass consciousness was conditioned by the living proof that capitalism had outlived itself. Capitalists, ruthlessly dumping millions onto the jobless scrap-heap while arbitrarily cutting wage levels of those still working down to the bone, brought into sharp relief the diametric opposition between them and the working class.

Socialism was seen by millions of workers as an imperative necessity, not merely as a better way to organize society. In response to the standard anti-socialist catch-phrase, "It sounds good on paper, but it won't work," socialists effectively responded, "But, we know capitalism doesn't work."

This belief translated into an explosive growth of socialist political organization on a world scale and with it, a cycle of ascending mass mobilizations in country after country.

Betrayals rescue capitalism

The reformists' class-collaborationist strategy, the "people's" or "popular" front, led to the defeat of promising revolutionary opportunities in Europe and Asia. This also opened the door to the mind-boggling slaughter of World War II. Having undermined the struggle for workers' power, the reformists extended their collaboration to supporting the imperialist aims of the "democratic" capitalist states in Europe and America.

The conflict between imperialist factions Wall St. frenzy on Black Monday, Oct. 19, 1987.

that there cannot be another major crisis like 1929.

opening of two decades of wars and revolution.

that the modern world has experienced. over the right to exploit the semi-colonial world was falsely portrayed as a struggle between capitalist democracy and fascism.

Under cover of this false counterposition, the reformists mobilized workers in support of their imperialist rulers' war aims, again through the medium of multi-class governments.

After the end of the war, the reformists, led by world Stalinism, maintained their Andrew Popper counterrevolutionary popular-front strategy. Again, the power, which lay in the streets of Europe-primarily France, Italy, and Greece—was handed back to the discredited capitalists of these countries, most of whom had profited from their shameless wartime collaboration with the fascists.

In France, the workers of Paris liberated their city from the Nazi power in 1944 and were in de-facto control of the nation. The reformist parties joined a coalition government—a "people's front"-which disoriented the revolutionary workers with the myth of a capitalist class divided between "progressive" (democratic) and "reactionary" (fascist) wings.

The people's-front strategy required that workers subordinate their instinctive struggle for independent class power to goals acceptable to the "progressive" capitalists. This effectively blunted the workers' struggle for power and gave the clear-eyed capitalist politicians time to regain full control before discarding their reformist partners from the government.

In Italy, too, the workers had state power within their grasp after they hung Mussolini by his heels and were in de-facto control of the streets. Again the Communist and Socialist parties saved capitalism. Serving as ministers in the capitalist government, only these "workers' representatives" could pacify, discipline, and demobilize the insurgent masses.

In a larger sense, the great betrayals of the revolutionary opportunities which had been opened up by the 1929 collapse of capitalist economy gave world capitalism precious time to regain its balance. Hitler was able to revive the German economy by a massive rearmament program, which received discreet support from the "democratic" imperialists. (Seeing Hitler's conquest of political power as a dagger pointed at the Soviet Union, the "democracies" had assisted the rise of fascism in Germany.)

Later, Hitler believed he could ride his success beyond the goals he shared with world capitalism to force Germany's imperialist rivals to redivide the colonial world.

This precipitated a worldwide arms race which found the reformists in full support of their own bourgeoisies. The idle factories were reactivated, and the worldwide orgy of war and war production began to follow its grotesque logic. Stagnant economies were revived, profits again rolled in, the rich got richer, and new millionaires bloomed in soil fertilized with workers' blood.

Seeking to avoid another 1929 At the same time, the United States and its allies set in motion a long-term countercyclical strategy, especially for the period after the imperialist war. The strategy was intended to postpone for as long as possible another 1929. John Maynard Keynes, an English economist, became the main theoretician of the scheme. It was designed to flatten out the six- to 10-year cycles of production, postponing for as long as possible a major breakdown in capitalist economy.

Even though the scheme's monetary and other mechanisms for regulating the capitalist economy are intricately complex and beyond the scope of this report, the (continued on page 10)

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... economic crisis WELL... THERE GOES THE NEIGHBORHOOD (continued from page 9) basic idea can be simply described: When production begins to wind down because unsold commodities are beginning to pile up, regulations restricting credit are loosened, and government spending is increased. These and other inflationary measures put more money into the hands of consumers, helping to absorb some of the surplus commodities.

And, conversely, when the economy swings to the opposite pole-toward ever-increasing levels of production-credit is tightened and government expenditures are reduced. This tends to slow the pace and limit the extent of overproduction.The other key component of the stabilization policy is to transfer ever-larger portions of productive industry to making tanks and bombers, rather than cars and airliners. This provides another lever for countering the tendency toward saturation of the market for consumer goods.

Manipulating the rate of taxation— primarily through more or less tax-breaks for the rich—also functions in the Keynesian scheme as one of the inflationary levers for regulating the cycles of production. The overall counter-cyclical effect is to cool an overheating economy before it reaches its height and to start reheating it when it begins its downward spiral. Restraining abrupt movement in either direction reduces the risk of losing control over market forces.

But for this simple idea to work, a maze of complex adjustments in the world capitalist economic mechanism was necessary. The most important adjustment was to begin a process of dethroning gold from its natural position as the regulator of value relations and the inflexible instrument for settling accounts between nations to make up for imbalances in trade.

Institutionalized inflation

The first big step was carried out by the U.S. government, which held the world's largest gold reserves: A fixed rate of international exchange between dollars and gold was decreed, together with a prohibition of conversion of dollars into gold by American citizens. So long as there was worldwide confidence in the dollar, the gold safely remained in Fort Knox, Ky., and the dollar functioned as the basis of the world monetary system.

A more flexible monetary system based on dollars (backed by the mass of inflationary effect of this deficit-spending policy.) With ever-more paper dollars chasing after the given amount of commodities, long-term inflation becomes endemic.

This mechanism gives capitalism some measure of "control" over its basically anarchic system but it also guarantees that a world monetary system primarily based on the dollar and other strong currencies institutionalizes inflation on a world scale.

The first warning of impending doom came at the end of the 1960s with the eruption of a world monetary crisis caused by a well-founded decline of confidence in the dollar. President Nixon was forced to decree that dollars were no longer convertible into gold.

The heavy costs of the Vietnam War undermined the previous level of stability. The gap between tax income and other revenues and expenditures was significantly widened. This meant that another barrier to vastly increased deficits-the convertibility of foreign-held dollars into gold—was removed.

The interest on the growing public debt further increases the gap between tax revenues and government spending. This debt now stands at over $2 trillion and is expected to double in the next five years— as it has in the last five. And private debt had grown to $6.7 trillion by the end of 1986, further aggravating the credit/deficit foundation for long-term stability.

A sword of Damocles But a time must come when it becomes clear that the public debt is unpayable and, what adds up to the same thing, increasing private debt is not backed by the growth of real wealth.

Expanding government debt to keep the world economy afloat is not just an American sword of Damocles. It is a threat to the entire capitalist world. Some of the biggest debtors to U.S. banks-Brazil, Mexico, and other dependent countrieshave long since halted payment of principle to U.S. banks. In recent months, many have halted or reduced interest payments as well. These defaults would have already set off a chain reaction of bank failures were it not for government intervention.

The immediate impact on the weaker economies of dependent countries, however, has triggered uncontrolled increased rates of inflation. Bolivia's inflation rate, for instance, rose for a few months to 50,000 above water only as long as the major imperialist powers maintain an overall economic equilibrium.

When the powerhouses of the capitalist economy break down, there will be little reserves available for rescuing bankrupt countries. The resulting qualitative reduction in living standards-extending deeply into the ranks of the middle class-will inexorably lead to revolutionary social explosions.

Putting such a longer leash on the demons of inflation and public debt is the closest capitalism can come to control over its anarchic economic system. This is a "control" that is not unlike feeding the engines of a steamship, chronically short on fuel, with pieces of its superstructure.

Social welfare "safety net"

The enormous government spending required to absorb excess productive capacity and maintain purchasing power mostly goes to feed the war machine. But an important share of national surpluses also goes to finance a variety of social welfare programs. (European workers, independently organized into class political parties, were able to extract a level of social security never before seen.)

Even in the United States, where the working class remains politically atomized, the so-called "safety net" of social welfare programs has made profound changes in the lives of the nation's poorest. Unemployment insurance, social-security pensions, medical assistance, aid to dependent children, and other forms of aid to the poorest families serve to buffer the harshest effects of capitalist injustice.

This, parenthetically, is the material basis for the changing form of the family as the basic economic unit of capitalist society. Not too long ago, before the introduction of the social security system, a more extended family was required to care for the very young and the very old and other helpless family members. The nostalgia for the close human relations of the past within the extended family, however, is far outweighed by the overwhelming acceptance and demand for the extension of the social-security system.

This profound rise in social consciousness, muddied as it certainly is, has tremendous significance for the future.

Despite this safety net, however, the number of families below the poverty level continues to increase. The U.S. Census Bureau has just revealed that the "overall inequality between the richest and poorest has worsened." Census figures show the gap between rich and poor widening steadily since 1969. Moreover, it has accelerated rapidly during the 1980s.

In 1969, for example, the bottom 40 percent of American families had 18 percent of national income, and the richest 20 percent had 40.6 percent. By 1980 the gulf widened to 16.7 percent for the lowest 40 percent of families to 41.6 percent for the highest 20 percent. And one economist, using figures published by the Federal Reserve Board, calculates that 1 percent of