Understanding The US Political Crisis - Part 9

In order to understand these relations, it is necessary to consider the nature of modern capitalism as a global system. In the post-war period, it was not just within the confines of the capitalist nation state that the ideology of Social-Democracy became dominant, as a reflection of the interests of big, industrial capital. That same big, industrial capital became truly global in the form of the multinational corporation, which increasingly broke its links to any one particular nation state, as I set out 30 years ago – Imperialism, Industrialisation and Trade.

The international framework, created at Bretton Woods, is an indication of how Keynesianism was adopted in the arena of the international, as well as the national, economy, and the supra state structures, that were introduced, were just another reflection of the social-democratic state. The fact that these structures frequently resolved economic problems on the backs of reductions in workers' pay and conditions is in no way a refutation of that. The social-democratic state, even with openly social-democratic governments in power, has frequently been used in precisely that manner. One of the first acts of the 1945 Labour Government was to use troops to break strikes. The fundamental principle of social democracy is that the need for capital accumulation comes first, and only then can workers expect to benefit.

But, this necessarily involves a process of combined and uneven development. Not only must it be the case that Capital is growing more rapidly in one place rather than another, but it is also the case that one form of Capital may be prospering in one place, but declining in another. Furthermore, the reflection of these material changes must, thereby, manifest itself in complex forms. The ideas that dominate the state do not appear out of the ether. They exist in the heads of real human beings, who form those ideas as a consequence of their own experiences, including the education they receive.

In the period after WWII, Keynesianism was the dominant economic doctrine. The fact that it succeeded in cutting short five recessions, during the period of the post war boom, reinforced the notion that it provided capitalism with a means of resolving its contradictions. It is no wonder then that for about a decade, when it was clearly failing to perform that function, and where economies descended into stagflation, state officials continued to apply the same remedy in increasing doses. Within the Tory Party, into the mid 1980's, the social-democratic wing of the Party – the so called Wets – continued to argue for a continuation of that policy, and believed that the Austerian policy adopted by Thatcher must lead to economic disaster. They were right, it did, but Keynesianism could not have helped under those conditions either.

History is always written by the victors, and so the history of the 1980's has been written by the Thatcherites and Reaganites, who portray it as a period when the harsh policies of austerity succeeded in turning the economic tide, leading to the sunny uplands of prosperity. But, of course nothing could be further from the truth. In fact, not only did those policies of austerity have devastating effects on the lives of millions of people, on the destruction of communities, and infrastructure, but as I pointed out in my post Thatcher, A Disaster For Capital, A Bigger Disaster For Workers , she also caused the devastation of large elements of productive capital, as did Reagan in the US. The policies they pursued, which led to that situation, were policies that played to the interests of the section of society they represented – the plethora, of reactionary, small-capitalists and the social layers tied to them by social condition or outlook. It was policies that encouraged the development of the growth of such businesses that could only exist on the back of low wages, poor conditions, and state support in the form of easy credit, the creation of Enterprise Zones, and so on.

It is 25 years of policies pandering to the interests of these reactionary sections of capital that led to the development of the Tea Party in the US, and to UKIP in Britain. Yet, during that time it still remains the case that the underlying nature of these states was social-democratic, even if the governments were not. The state continued to account for around 40-50% of economic activity; welfare payments to individuals may have been cut, and conditions made harsher, but welfare payments in total continued to increase; Keynesian intervention did not go away, these states not only continued to run budget deficits, but often increased them. The average budget deficit under Thatcher and Major, as a percentage of GDP, was about double what it was under Blair and Brown between 1997 and 2007. The budget deficit under Reagan soared, leading to the twin deficits crisis, which sparked the stock market crash of 1987.

The reason is that the basic theory of the Neo-Austrians is wrong. Value is not created by exchange, but only by production. Commercial capitalists in the US and UK could share in the surplus value created by Chinese workers, by selling their commodities to US and UK workers. US and UK money-capitalists could share in the surplus value created by Chinese workers, by providing money-capital to Chinese productive capitalists, by lending to US and UK commercial capitalists, and by lending money to US and UK workers to spend in buying those goods, and in order to blow up asset price bubbles in property, bonds and shares. But, they could only do so if Chinese workers produced that surplus value in production in the first place, and if US and UK workers were able to enable it to be realised when they bought those commodities.

In the end, a scheme by which US and UK workers do not produce value themselves, but earn wages working in stores selling commodities produced by workers elsewhere in the world, which they then use to buy those commodities, and make up the shortfall in their incomes by borrowing money against increasing asset prices, whose real value is falling, but whose nominal price is rising because of money printing and speculation, is a Ponzi Scheme. It is a huge bubble that must ultimately burst.

It is that reality, which meant that the state and governments in the US and UK could never wholly detach themselves from the needs of big industrial capital.

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