Business As Usual: The Economic Crisis And The Failure Of Capitalism by Paul Mattick. Reacktion Books: 2011. £12.95
Just yesterday, we were all supposed to believe that the globalisation of capitalism and free markets was the route to freedom, peace and prosperity for all. Then, with barely an explanation, and somewhat out of the blue, the story changed. Now we are to believe that, due to circumstances beyond anyone’s control, prosperity will have to give way to austerity. The good times are over.
It is characteristic of crises that the stories we are expected to believe suddenly change. But how can we understand the change? And might there not be better stories than the rather grim and gloomy one we’ve been ordered to swallow? Paul Mattick Jnr’s short book is just such an alternative. For him the crisis signals the complete bankruptcy and destruction of mainstream economics.
Why crisis is impossible
Why did the crisis appear as a bolt out of the blue? Why was it not expected or anticipated by any economist or mainstream commentator? In short, because there is no place in the standard economic story for crisis, any more than there’s a place for wizards and interstellar travel in a 19th-century realist novel. The old story goes something like this:
“Capitalism is a system for producing wealth to satisfy consumer needs. Individuals set up in business looking out only for their own interest, but in doing so produce for society. Only what can be sold will be produced; money will be borrowed, land rented and labour hired only because the resulting production meets a need. The money earned by selling one’s product will then be spent either on consumption or further production. The economy therefore tends naturally to a balanced state, in which all products find buyers. There may be momentary imbalances between supply and demand, but rising and falling prices soon take care of those. In this way, capitalism creates the wealth of nations, and all is well in the best of all possible worlds.”
No doubt the story sounds reasonable – it is, after all, part of our cultural inheritance, as familiar as Noah and his ark, Jesus and the wise men, Little Red Riding Hood and her granny. But there’s no room in this picture for the kind of crisis we’re currently living through. The crisis appears as a shock and is regarded as a mystery simply because there’s no framework within which it makes sense. We can understand that a very small scale ‘crisis’ will result if a business fails to meet consumer need: it may go bust, and this will be a crisis for those relying on that business for their living. But there’s no reason why this should cause much of a problem for the system as a whole – and economists never expect it to. Within the framework outlined above, there is no room for the sort of crises we actually see in the real world – society-wide and global crises where vast amounts of real wealth and the means of producing it (factories, mines, offices and so on) exist side by side with grinding poverty and unemployment. This kind of insanity makes no sense in terms of the story. Surely, great masses of wealth would just go to satisfy consumer demand? And if wealth outstripped consumer demand, then, well, great! The age of leisure and abundance, long promised by capitalism, would finally be upon us, and we could collectively lay back and enjoy it.
Unable to find a satisfying explanation from within the story, the storytellers are obliged to smuggle in some bogeymen from the wings. The balance we expect from the story is then upset by one of various villains, which one depending on the predilections of the storyteller: state interference or largesse, insufficient (or too much) regulation, greed, and so on. Quite why these things sometimes cause a crisis and sometimes not when they’re always lurking in the wings is left unexplained.
Why crisis is inevitable
However, there are some thinkers, Mattick among them, who were not at all surprised by the crisis. This is not, as Mattick says at the start of his book, because they are cleverer than the mainstream storytellers. Nor have they access to more or better information – in fact, for the most part, rather the opposite. Instead it is a matter “of knowing how to think about what is going on”. Or, in the terms we’ve introduced in this article, of having access to better stories – stories that capture what’s actually going on in the real world. Here’s Mattick’s story:
“Capitalism is not primarily a system for producing wealth to meet consumer demand, but for making money. This is what business is all about: using money to make more money. The capitalist (or, increasingly, a capitalist institution subsidised and backed by the state) starts off with a sum of money, which he throws into circulation in the expectation that it will return to him as a greater sum than he started with. To this end, the capitalist buys means of production and labour power on the market, then puts these to work to produce goods, which he then takes to market in the expectation not just of sales, but of profits. If he is successful in his aim, and if he is to remain a capitalist and keep up with the competition, he must reinvest at least a portion of that profit in yet more production, buying yet more labour power and means of production, to produce yet more wealth and, potentially, money profits. And then the cycle begins again, on an ever-expanding scale.”
The motive here is not the satisfaction of consumer need – a relatively straightforward matter – but the production and appropriation of profits on an ever-expanding scale – a much more tricky thing to achieve. And as the production of social wealth increasingly takes on this capitalist character, the production of the things we need increasingly relies not on our need for them, nor on our ability to produce them, but on the ability of capitalists to make profits from the whole process. When they cannot make or do not expect to make a profit from production, or when they produce too much to sell profitably, they will not invest in production, but in speculation, or will not invest at all, and hoard money. This can affect not just their own line of business, but the whole system of wealth production. Crisis, in this view, is not caused by any bogeyman in the wings, but is a necessary result of the process itself.
What’s the answer?
Once we’ve understood this story, our expectations are turned on their head. We are no longer shocked by capitalism’s periodic crises, but expect them. The question then is, do we really need to forever make our lives hostage to capitalist profit; or might we be able to do things in a different way? In the mainstream, the debate over how to resolve the crisis is between two alternatives. The first is to just let things collapse so the economy undergoes the necessary correction, restoring profitability and eventually returning the system to business as usual. The second is that the central banks should continue to print money and the state bail-out bankrupt banks and countries and so on, so that ‘business as usual’ is not disrupted by potentially catastrophic upheavals (as was the case in the Great Depression of the 1930s). The debate is between the needs of business, on the one hand, and the need to preserve social cohesion (for the needs of business) on the other. Businessmen and policy-makers are damned if they do, and damned if they don’t. But what are usually thought of as ‘socialist’ alternatives are unlikely to work either – history has shown that reformist social democracy and ‘communist’ central planning have been no better at controlling capitalism’s crises than anything else. It’s no good, says Mattick, demanding jobs from a system that would happily give us the jobs if it could.
If there’s hope, it’s in the belief that human beings will eventually tire of walking into brick walls and begin to look for a door. If you have a concern that produces socially necessary goods or services, on the one hand, and poor and unemployed people on the other, and there is no way of putting the two together in a way that produces profits for owners, then that’s what capitalism calls a crisis. The solution – bringing workers, the unemployed, the poor and the means of producing wealth together, not in order to make profits, but to provide for need – is called socialism.
The story has a name
We’ve left the name of this alternative story till the end because it is liable to scare unwary readers. That’s because, in the standard story, it’s portrayed as one of those bogeymen waiting in the wings. The name is Marxian socialism. Mattick’s is the second major book from a Marxist thinker to appear since the onset of the crisis (the first was David Harvey’s Enigma Of Capital, favourably reviewed in the June 2010 Socialist Standard). And we highly recommend it – it’s a brilliantly comprehensive and yet miraculously short history and analysis of capitalist crisis. The Marxists associated with this journal will have their differences with the details of Mattick’s account. In particular, we would say he puts too much emphasis on Marx’s law of the tendency of the rate of profit to fall, and throws the baby out with the bathwater when he rightly rejects the old left but places his faith seemingly more in the spontaneous appearance of mutual aid and communist formations than in working-class political organisation. But what’s more important than the minor disagreements is the framework that Marxism provides for understanding what’s going on in the real world, and for that, Mattick’s book is an essential guide.
Business as Usual: The Economic Crisis and the Failure of Capitalism
Reaktion Books, London, 2011. 128pp., £12.95 pb
Different mediums of struggle in response to the financial crisis of 2007 demonstrate an undeniable social momentum against the consequences of the capitalist system today. The Occupy movement across various continents, student riots against tuition fees in the UK, vociferous protests against the degrading and demolition of pensions, concerns for the effects of the Eurozone debt crisis … such responses collectively represent a subordinated and dissatisfied multitude retaliating, demanding change and demanding answers. Crisis is an undeniable and inevitable dynamic of capitalistic financial accumulation. However, the ‘Great Recession’, this particular quagmire of crisis, continues to find expression in the social form today, raising questions about how we got here. Paul Mattick’s book Business as Usual offers clarity concerning the burgeoning financial crisis, primarily through an investigation into its inherent economic characteristics. Mattick attacks the ‘failure of economic theory’ (8) in explaining the crisis, and proposes that through a Marxist-informed approach we might better comprehend this pernicious and omnipresent crisis.
Mattick’s opening chapters set the tone for this short, but effective piece. Information is condensed and integrated clearly, enhanced by an accessible, mainstream writing style. Using the words of Paul Simon, ‘it’s not just me, and it’s not just you, this is all around the world’ (6), the global interconnections and far-reaching repercussions of the present recession and its jobless recovery are situated explicitly. Although there is a global perspective interwoven throughout the book, its figures and content are primarily related to the crisis in America. Mattick’s purpose is to examine the long-term nature of capitalist development, combined with the weaknesses of traditional economic theory, and to suggest that through Marxist concepts we can know better ‘how to think about what is going on’ (9). Marxism is not an anachronism, rather it is the economic approaches towards the crisis which have proved insufficient and muddied the waters of our understanding. Mattick effectively deconstructs the rationalities of economics over the last century (chapters 2-5), actively encouraging the reader to question taken-for-granted, pre-digested social ‘norms’. The history is comprehensive, and concentrates on the effect to which profit and money drive the capitalist system. The concluding chapters consider the relationship between the state and the economy, from the post-world war two golden age to the present mêlée. Mattick discusses how Keynesian policies and austerity measures indicate an inadequate redistribution of capital, where the state and predominant social form remain subjugated to continuing unemployment and poverty. Mattick’s writing is subtly Marxist, and not vehemently anti-capitalist; he suggests (contentiously) that the Left has disappeared. However, Mattick does envision that in the future we will see an essential move towards the ‘construction of a new system for producing and distributing goods and services … beyond the increasingly dysfunctional system, subordinated to the imperative of private profit-making and capital accumulation’ (108-9). This is likely to represent another ‘new wind for capitalism’ (89), rather than a world without it.
The content is easily read, enriched with empirical data and sound quotes. The ‘crisis’ of economic effectiveness is introduced in chapter one, outlining the historical development of the science, from classical (Smith and Ricardo) to neoclassical (Keynesian and Monetarist) practices. The narrative continues into chapter two, and is one of the inherent strengths of the text. Weak and inadequate aspects of economic theory are interwoven with different historical perspectives (not exclusively from the left). Mattick expresses concern over how ‘even those attempting to face up to the current debacle of economic practice and theory continue to accept the basic dogma of the now discredited approach to economics: the idea of an essentially problem-free nature of capitalism’ (21), that the free market is self-regulating. One of the key points of the book is to ground the current crisis in the long-term historical development of capitalism, rather than looking for short-term solutions. Chapter 4, ‘After the golden age’ considers the roots of today’s crisis in the boom and bust periods following world war two and questions the solutions that were applied to mediate their effects. Self-regulation became more akin to state regulation and ineffective policies (chapter 5), resulting in the accumulation of increasingly large amounts of government debt. Thus, at the beginning of the twenty-first century, we had a global economy that was predicated on expanding amounts of speculative debt vehicles and credit, illusory assets. In consistently attempting to readjust and manipulate the market out of depression-induced crises, state governments and finance markets eventually succumbed to the inevitable and collapsed. Just like the man who built his house upon the sand. Fictitious capital had increased in conjunction with the expansion of the financial sector, culminating in implausible figures: ‘By mid-September 2007 the world’s estimated $167 trillion in financial assets had given rise to $596 trillion in derivatives, basically bets on the future movements of asset prices’ (61). The contradictions of the capitalist market are exposed effectively by Mattick, who relates the financial risks (debt repayment, readjustment, stagnation and uncertainty) to the state, national economies and individuals. As we are all aware, the significant effects of the global crisis continue to find contradictory expression today, as wealth inequalities increase and economies smoulder, but Western bankers still continue to receive phenomenal bonuses.
One of the limitations of the book is that although it is jargon-free and explanatory, when Mattick discusses concepts such as money, profit and the form of society, he fails to take the opportunity to deepen the reader’s understanding of some of the key Marxist ideas (the exception to this is his approach to the tendency for the rate of profit to fall). There is no denying that the book is informed by Marxist thought, although if you were entirely new to such concepts you might miss them, many are implicit rather than explicit. It can be appreciated that Mattick has done this to avoid complexities and dense language, but it is also questionable whether a reader entirely unfamiliar with Marx would come away with any greater knowledge of his critique. In terms of the discussion of money, profit and business cycles (chapter 3), the circuit of capital is alluded to indirectly, and more critique is presented of the capitalist system through analysis of the wage-labour relationship. Money is classified as the great (and necessary) mediator in capitalism, with the social significance of money directly related to the expenditure of labour, and the accrual of more money in the form of profit. Consumption, under/over production and their inherent effects on profit are considered from the perspective of an investor or businessman, rather than the subordinate wage labourer, even though ‘it is the social system that produces profit, though individual companies get to keep it’ (46). The tendency of the rate of profit to fall following a slowdown in a particular investment, or indeed national economy, results in a contraction and eventual depression. Such is the cyclical nature of the business cycle. However, in an abstract way, such a downturn in profitability, which can have painful effects for certain investors/economies, will prove generally beneficial to others in the market, who can indulge in investing when values are diminished and an influx of capital, a stimulant, is needed for recovery. Mattick proposes that ‘a depression … the cure for insufficient profits … is what makes the next period of prosperity possible, even as that prosperity will in turn generate the conditions of a new depression’ (50). Indeed, this is the long-term historical dynamic of the capitalist system throughout the world, which Mattick has demonstrated through his writing, yet there is no suggestion of how such effects can be negated, nor how this critical approach may lead us to something better.
The conclusions drawn in chapter 6 apprehensively look to the future of capitalism, and the further crises that could be encountered ahead. Specifically, Mattick discusses the limits of the system, the weaknesses of policies and the potential for ecological catastrophes. He maintains that, due to the depth of this crisis in particular, the manifestation of almost forty years of failed appeasement policies and financial strategies, this is a crisis which must be endured – as there can be no other solution. Economic power will gravitate towards emerging markets experiencing different, more positive movements along the business cycle, where profit will see growth. However, overaccumulation of capital in the Western world has resulted in a recovery for which the majority will suffer, as there are no apparent solutions available within the system. It is the old story of the antagonistic capitalist system, where ‘the working-class majority will pay for whatever mix of stimulus and respect for market freedom governments decide upon, with lower wages and benefits or greater unemployment – in fact, as we can already see, it will be both’ (91). Mattick offers no suggestions for what or how change can be implemented, although he recognises change is necessary, that the profit-making circularity of capitalism needs to be altered. Illustrated by the rich historical and empirical research provided, the powerful message of this suggestive, Marxist-informed critique is how present-day economics, combined with our preconceived notions of capital and governance, is an inadequate, failing perspective on the capitalist system.
1 May 2012
Business as Usual: The Economic Crisis and the Failure of Capitalism