Dialectics of Economic Turbulence

Peter Hudis

The new political reality introduced by the Republicans’ advances in the U.S. mid-term elections, along with the ongoing global economic crisis, calls upon radical thinkers and activists to reconsider their response to capitalism’s drive for unending austerity measures. Originally presented at a panel on “Marxism Beyond the Boundaries,” sponsored by the Hobgoblin Online Journal and the International Marxist-Humanist Organization, London, November 11, 2010 – Editors

Although capitalism can hardly claim to have extracted itself from the financial and economic crisis that erupted at the end of 2008, an awful lot has changed in the past year. No longer do we hear calls for stimulus packages and deficit spending. Everywhere we hear that fiscal deficits are out of control, that government spending must be drastically reduced, and that austerity is the order of the day. Willem Buiter, chief economist for Citicorp, goes so far as to claim, “the public finances in the majority of advanced industrial countries are in worse state today than at any time since the industrial revolution.”(1) Britain’s Prime Minister David Cameron asserts that Britain faces “decades” of austerity and has followed up the claim up by slashing public spending on an unprecedented scale. And the Republican victory in the midterm elections in the U.S. signifies that cuts every bit as extensive will soon be imposed in the U.S.

As one commentator puts it, “Liberals had hoped that Obama’s election marked the beginning of a long progressive era…Instead, from the West Coast to West Europe, the welfare state is in crisis everywhere. The future suddenly seems to belong to austerity and retrenchment—and even, perhaps, to conservatism.”(2)

Why the sudden shift to consider deficit spending the gravest problem of our times, when the bailouts that supposedly led to them—to the tune of $14 trillion—saved global capitalism from a near-total financial collapse only a year ago? The ghost of John Maynard Keynes no sooner stepped out of the grave, in the form of massive bailouts for banks and corporations in the fall of 2008, than it was quickly pushed aside by the specter of IMF and EU austerity measures aimed at repressing effective demand, in the spring of 2010. Is this debt crisis for real, or is it some ideological trick?

Surely, fiscal deficits have risen very sharply recent years. In the early 1930s, at the start of the Great Depression, the weighted average deficit for 24 of the world’s largest countries was 4% of GDP. Today the figure is much higher; the U.S.’s deficit is over 12%; in many countries it is even higher. Greece’s fiscal deficit is 13.6% —which the IMF and EU insists be brought down to 3% in only the next three years! As Martin Wolf put it, this cannot be achieved unless Greece “delivers a large fall in nominal labor costs, since Greece will need a prolonged surge of net exports to offset the fiscal tightening.”(3) In other words, the Greek workers will have to work more and consume less in order to pay off IMF and EU loans from wealthier countries.

At the same time, a lot of the talk about today’s unprecedented debt levels is overblown. Global deficits as a percentage of GDP are now 6%–just 0.3% more than before the financial crisis erupted in 2008. Spain is often talked about as the next in line for a debt crisis; yet it ran fiscal surpluses from 2005 to 2007. Moreover, government debt in the Eurozone actually declined from 72% of GDP in 1999 to 67% in 2007. Based on these figures, no one can argue that high levels of debt caused the financial crisis of 2008. On the contrary, the increase in public debt is a result of the crisis. History shows that the real value of government debt tends to explode after financial crises. Contrary to what we’ve been told, this is not mainly due to the cost of bailing out the banks but rather to the overall impact of the recession itself. (4)

Every financial crisis for the past 200 years has been followed, rather than preceded, by massive layoffs and unemployment. The reason is very simple: as inflated profits on fictitious financial capital dry up after the collapse of a speculative bubble, capitalism is compelled to restore profitability the only way in which it can—by reducing the amount of variable capital relative to constant capital. As workers get laid off, tax revenues decline, with the result that the costs associated with providing public services goes up.

In sum, the fiscal crisis is a result of a Great Recession that followed from the financial crisis. The banks and financial institutions that helped produce the financial crisis have been bailed out, at taxpayer expense, while those actually suffered from the brunt of the recession are being told they consume too much! The growing debt levels are being used as a pretext to reduce the relative amount of value that goes to the workers in order to allow the speculative appetites of unregulated global capital to again have free reign.

While all this may be clear enough, its overall meaning is not transparent—including to the social actors directly impacted by it. Today we actually face very perilous situation, as shown by the outcome of the U.S. elections. Whereas after Obama’s 2008 election many wrote off the Republican Party as in serious if not irreversible decline, since then the far Right has made striking gains, of which the Tea Party’s success in taking over the Republican Party is one indication. Meanwhile, the Left is seriously demoralized and on the defensive, due in part, but only in part, to the fact that much of it naively assumed that Obama would represent a reincarnation of progressive Keynesianism.

Why, we must ask, are those who are not suffering (like the doyens of the Tea Party) expressing so much populist anger and rage, while those who are suffering (like the mass of the unemployed workers) remain relatively quiescent in the U.S. at the moment?

There is no single or simple answer to this question. However, I will venture to say this much: the profits of speculative capital, which remains considerable, are largely invisible to the average person—whereas the rising levels state and federal debt, and the cutbacks that come with it, are all too visible. This serves as a perfect ideological screen to convince people to become accomplices in their own oppression by making them believe that the reason for their declining living conditions is that the government is spending too much of their money. We need to keep in mind Marx’s comment, “Reflection begins post festum, and therefore with the results of the process of development ready to hand.”(5) Although the government bailouts of banks and large corporations in 2008 and 2009 succeeded in preventing a global meltdown of world financial markets, the surge in unemployment that resulted from the financial downturn created a fiscal crisis in state and local governments that (along with layoffs in the private sector) have reduced living standards. With the structural reasons for the crisis largely hidden from view, the field has become open for the Right to argue that the crisis is one of the government’s making.

There is method to this madness. By getting voters to agree to cutbacks in government spending and social programs on the grounds that debt levels threaten their economic well being, capital can manage to redistribute value from labor to capital without the nature of the system itself getting called into question. The more people buy into this, the more prone they also become to accepting all sorts of racist imagery that blames the economic morass on factors such as “illegal immigration”—something which is becoming an increasingly serious threat within the U.S. itself.

At the same time, today’s situation presents us with a lot of promise. In many places capital’s big lie isn’t being swallowed so readily—as especially seen in the protests in Greece and France against the austerity measures. Nor is this confined to Europe. Students at the University of Puerto Rico shut the college down for over a month starting April 21 in a protest against cutbacks and tuition increases. And in many campuses in the U.S. protests and boycotts have been held to protest Arizona’s racist immigration law.

What has been the reaction so far from many trade unions, leftwing parties, and radical commentators to the effort to make the masses—especially the poorest ones—pay for the rising levels of debt that afflicts global capital? The most common refrain is to demand that the rich, the banks and the financial institutions instead pay for the crisis. Such demands are certainly reasonable: after all, there is no question that ruling elites are making use of their power and privilege to impose harsh austerity measures on the masses while they enjoy a free ride. Although Greece’s debt crisis was largely a product of the tacit understanding between government and the elites that the latter need not pay the taxes that they are nominally responsible for, the austerity measures imposed by its present government emphasize cutting the wages, benefits, and size of public service workers rather than increasing tax revenues. For the rest of Europe and the U.S., the situation is hardly different in a qualitative sense. Even though 80% of the economic growth in the U.S. over the past 20 years has ended up in the hands of the wealthiest 5% of the population, no one among the ruling class—and least of all Obama—is calling for redressing the situation through a serious redistribution of income. Clearly, the political and economic power of the elites insulates them, as always, from calls to “reduce consumption” that have become so predominate today.

At the same time, however, leaving matters at demands that the rich, the bankers, and the financial institutions pay for the crisis hardly represents a comprehensive response to the present situation. This is because capitalism is facing a profound crisis in which the relative proportion of value going to capital as against labor must be increased in order to ensured sustained capital accumulation—and appropriating even the massive wealth of the rich (even on the very charitable assumption that that would ever occur) cannot by itself supply the amount of value needed for such growth.

It is a staple of both bourgeois economists and vulgar “Marxism” to conceive of social wealth as being reducible to the revenue paid out to workers on the one hand and to capitalists on the other—without recognizing that the bulk of the value produced in capitalism is “consumed” neither by workers nor by capitalists but by capital itself. Capital accumulation primarily occurs through productive consumption—by capital itself consuming an ever greater-share of the social wealth as it “becomes big with value.”

The capitalists are not therefore being deceptive when they argue that a decline in living conditions is the only way to get the economy moving again. Their ideology matches the material conditions of which it is the expression. It is very appealing to demand that wealth be re-distributed to benefit the masses instead of feeding capital’s thirst for surplus value. However, so long as the capitalist law of value prevails any re-distribution that temporarily benefits the masses would in the long run undermine capital’s ability to generate a surplus. Such a re-distribution would, in fact, only make the crisis worse.

Marx spoke to perspectives that limited the workers’ struggle to obtaining a greater share of the surplus product that significantly reduce profits as follows: “The obscure man falsely attributes to me the view that ‘the surplus-value produced by the workers alone remains, in an unwarranted manner, in the hands of the capitalist entrepreneurs’….In fact I say the exact opposite: that the production of commodities must necessarily become ‘capitalist’ production of commodities at a certain point, and that according to the law of value governing it, the ‘surplus-value’ rightly belongs to the capitalist and not the worker.”(6)

Marx’s point is that so long as value production prevails it is necessary for capital to generate economic growth at the expense of the masses. To call for a greater share of social wealth to go the masses and for significantly less to go to profits while leaving aside the need to uproot the law of value can readily become, according to Marx, a recipe for stifling economic growth as a whole. And the ones who would be made to suffer most from that, he argued, would be the workers themselves.

As Marx put it, “If [the workers] were all to succeed in keeping wages so high that profits were significantly reduced below the average profits of other countries, or so that capital would grow more slowly, the industry of a country would be ruined, and the workers together with the masters even more so.”(7)

One can therefore ask, why do so many stop at simply demanding that the rich pay for the crisis? Why don’t we hear more demands for the system of value production to be overturned? The reason, it seems to me, is that nowhere in sight is there a viable conception of what form of social organization can replace capitalist value production.

And isn’t this why many fooled themselves into believing that “socialism” was suddenly back on the agenda just because capitalism temporarily returned to neo-Keynesian stimulus spending in response to the financial panic of 2008?  There has been plenty of evidence for three decades now that capitalism can no longer afford welfare-state liberalism. So why did so many believe in 2008 and 2009 that it was obtaining a new lease on life? The answer is that they deluded themselves into believing something that wasn’t there because they see no alternative to value production.

Here is where the International Marxist-Humanist Organization comes in. Obviously, we need to support the struggles against capitalist austerity wherever they occur. However, we have to specify what we have to say about the situation that is distinctive. The contribution we can make, which few others are entertaining, is to develop a viable concept of an alternative to capitalist value production. If that concept were to be developed and projected, the struggles against capitalist austerity would be able to go much further than simply issuing demands for the rich pay for the crisis.

[Parts of this talk are adapted from my presentation to the July founding conference of the International Marxist-Humanist Organization. Much of it, however, consists of new material written since then.]


  1. Quoted in “Fears Intensify That Euro Crisis Could Snowball,” by Nelson D. Schwartz and Eric Dash, The New York Times, May 17, 2010.
  2. “The Agony of the Liberals,” by Ross Douthat, The New York Times, June 16, 2010.
  3. “A Bailout for Greece is Just the Beginning,” by Martin Wolf, Financial Times, May 5, 2010.
  4. See “The Aftermath of Financial Crises,” by Carmen Reinhart and Kenneth Rogoff, Working Paper 14656, May 2009 [www.nber.org].
  5. Capital, Vol. I, by Karl Marx, translated by Ben Fowkes (New York: Penguin, 1977), p. 168.
  6. “Notes on Wagner’s Lehrbuch des politischen Ökonomie” [1881], in Marx-Engels Collected Works, Vol. 24 (New York: International Publishers, 1989), p. 558.
  7. “Wages” [1847], in Marx- Engels Collected Works, Vol. 6 (New York: International Publishers, 1976), p. 420.
  8. See “Factory Workers Swap Angst for Anger,” by Tom Mitchell, Financial Times, June 1, 2020.


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1 Comment

  1. Richard Greeman

    Wonderful and original analysis of the world economic crisis and the unexpected turn to the Right in the name of austerity. As I pointed out back in 2009, the US Left was mistaken in imagining a neo-Keynesian revival because they were not looking at the underlying systematic crisis of profitability which forces capital to squeeze ever more value out of labor (while looting the environment). See my ‘Is There Life After Capitalism’

    I think this ecological point is essential: in its search for profits to overcome the tendency for the rate of profit to decline, world capital has no choice but to destroy the natural environment which sustains human life. This decision was made very clear by Obama’s brutal intervention at the end of the Copenhagen world climate summit, which sabotaged any future enforcible limits on carbon emissions. Because today’s global crisis is double — both economic and ecological — the time left to humanity to replace capitalism by a sane and sustainable system is very limited. Do we have a generation? A decade before the climate reaches the catastrophic tipping point?

    I also agree with you that one of the main reasons why the Right gets away with bamboozling the public into paying Wall Street’s gambling debts through the austerity scare (aside from big capital’s near-monopoly ownership of the media and the political class) is lack of an alternative vision of a new society on the traditional Left. As you point out, this vacant lot naturally gets overgrown with the weeds of racism, xenophobia and misplaced anger against the welfare state and the poor, while the plutocrats pile up huge bonuses at their expense. (Never mind that the famous ‘debt’ is nothing but bank profits in the form of interest on loans!).

    In this respect, I think that the anti-globalization movement with its slogans ‘I am not a commodity to be bought and sold’ and ‘Another world is possible’ is superior to the traditional Left in that it recognizes the need to go beyond capitalism’s growth-mad productivism and to create a new society in harmony with nature and human nature.

    I have tried to project a Utopian vision — consistent with Marxism — of such a POSSIBLE future society and of POSSIBLE roads from here to there in an essay called ‘Ecotopia: A Bet You Can’t Refuse,’
    and I invite my Marxist-Humanist friends to join me in elaborating such a concrete vision on
    a Wiki established for such a project at http://billionairesandbillions.wikispaces.com/

    Yours in solidarity, Richard Greeman

    PS Another URL, for the piece on economics, Is there Life after capitalism?