Conservative Social Democracy v Progressive Social Democracy (3)
There is a similarity between 1974, and the years following it, and 1999, and the years following it. Both represent major conjunctures in the long wave cycle; the first represents a conjuncture between the end of the uptrend and start of the downtrend, whereas 1999 represents the opposite. Conjunctures in the long wave, by their nature, result in crises of one form or another. The major conjunctures are those just described, but there are minor conjunctures within them. Within the uptrend there is a shift from the Spring phase, where expansion proceeds on the basis of intensive accumulation, and interest rates rise only marginally, to the Summer phase when extensive accumulation becomes dominant, and interest rates rise more rapidly. In the downtrend, it begins with the Autumn, or crisis phase, where extensive accumulation leads to rising wages and squeezed profits, causing interest rates to rise sharply, and then turns into the Winter or stagnation phase, where, in response to the rising wages, and squeeze on profits it creates, new labour saving technologies are introduced. This makes capital accumulation intensive. Output expands at a rate faster than employment; wages fall, profits rise; net output grows faster than gross output; profits grow faster than investment, so available money-capital expands pushing down interest rates; falling interest rates raise asset prices, encouraging speculation and the formation of bubbles.
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| 1962 Stock Market Crash |
There was a stock market crash in 1962, the turning point in the uptrend from Spring Phase to Summer Phase. There was a Stock Market Crash in 1974, the conjuncture between the end of the uptrend, and the start of the downtrend. There was an even bigger stock market crash than 1929, in 1987, the turning point between the end of the crisis phase, and start of the stagnation phase, and there was a stock market crash in 2000, the conjuncture between the end of the downtrend and start of a new uptrend, the fifth long wave cycle. As Marx says, interest rates hit their highest level during the crisis phase. They rise during the Summer Phase, because as profits start to get squeezed by rising wages and less rapidly rising productivity, the demand for money-capital to finance investment exceeds supply.
This intensifies during the crisis phase, but also, during this crisis phase, as firms start to go bust on a larger scale, and crises of payments from one firm to another starts to cascade, so that also credit becomes restricted, the demand for money itself, not as money-capital, but simply as currency to pay bills rises sharply. Firms demand money as currency, simply to pay their bills and stay afloat, and they become prepared to pay almost any price to obtain it.
Its no surprise that, in the late 1970's, and early 1980's, we see representatives of capital complaining that companies cannot borrow at affordable rates of interest, because government borrowing in the money markets is “crowding out” private borrowers. That leads to demands for government spending and borrowing to be cut. Thatcher comes to office in 1979, at a point where interest rates are nearing their highest point, and where this has a consequent effect on asset prices. As seen earlier, as a result of these rising interest rates between 1965-1985, asset prices in real terms fall. What hides this fall is inflation, an inflation that increases during the 1970's, as money is printed to finance Keynesian fiscal stimulus, as well as part of a global currency war, following the US ending Dollar convertibility to gold. Both of these factors come to an end in the 1980's. Firstly, the system of structured floating exchange rates, ends the global currency war. Secondly, Thatcher in Britain, and Reagan in the US, implement Austrian School policies of monetary restriction, which causes interest rates to initially spike higher, but, by squeezing inflation out of the system, and clearing out a lot of zombie capital from the system, reduces the demand for money-capital as currency/liquidity, releasing it for productive-investment. It goes along with the structural changes in the economy being caused by the switch from extensive to intensive accumulation, as new labour-saving technologies are introduced, which raise productivity, create a relative surplus population, cause wages to fall, and profits to rise. The consequence is that interest rates begin to fall from their peaks, and asset prices begin to rise.
Its hard for many people, today, who did not experience that time, to understand the effects of inflation. Let me try to illustrate it from personal experience. In 1977, after more than two years of very intensive saving, my wife and I saved enough to buy a house for cash. We paid £5,500 for it. That's equivalent to around £80,000 today. At that time, my wages were around £2,250 a year, or about £45 a week. Having bought the house, I left employment and went to University. I obtained a university grant. By the time I finished University, the grant, which was increased each year with inflation, amounted to around £3,600 a year, or about 50% more than my wages in 1977. Inflation during this period, was running at around 20% p.a. In fact, in the first couple of years under Thatcher, inflation rose even higher, peaking at close to 27%, which confirmed the thesis I had undertaken as part of the Econometrics part of my studies, using data going back 200 years, to show that, as Marx says, inflation is caused by a devaluation of the currency, but with the benefit of a mainframe computer and linear regression analysis that Marx did not have, I showed that it does so with an approximate 2 year lag. I will come back to my personal experience later.
Thatcher came into government reflecting the contradictory interests described in Part 10. It remained quite obvious, in 1980, that the future of capitalism remained within the framework of a social-democratic state. There were two ways forward. Either there was more planning and regulation, now extended to an enterprise level, in other words rationally promoting the interests of socialised capital, which would have involved also more integration of the activities of these separate enterprises, either via a greater role for state planning, as the progressive social-democrats advocated via their Planning Agreements, National Enterprise Board and so on, or via workers themselves gaining control over the capital of these firms, and organically developing closer cooperation at an enterprise level, as Marxists propose. Alternatively, these latter solutions had to be smashed, and the interests, not of the actual socialised capital, but of the owners of fictitious capital, primarily the shareholders, who did exercise control over that capital, had to be promoted. Its not hard to see why Thatcher chose the latter, and why the conservative social-democrats in the Labour Party, like Kinnock, offered little in the way of resistance to that view, and indeed, why Kinnock's heirs, Blair and Brown, themselves simply adopted the same Thatcherite stance, as it existed at that time.
In the early 19th century, a young and small working-class backed the bourgeoisie in the fight to gain political rights and freedoms denied them by the landlord ruling class. It is manifest, in events such as the Peterloo Massacre. The bourgeoisie themselves, as a result of their growing economic and social power, and this political struggle, did secure those political rights and freedoms, in Britain, via the 1832 Reform Act. But, the workers did not. The workers learned that they needed to organise on their own account to fight for those rights and freedoms, which they did via the Chartist Movement. As Engels points out, the 1832 Reform Act was a victory for the bourgeoisie as a whole, but the interests of the industrial bourgeoisie were not the same as the interests of other sections of the bourgeoisie. The merchant capitalists, and the money-lending capitalists had been in partnership with the landlord class for around 300 years, as the former's economic and social position had increased, and their shared nature of exploiters based upon unequal exchange, was expressed in their colonial joint ventures, during the period of mercantilism. To the manufacturing capitalists, these other sections of the bourgeoisie appeared as parasitic upon the profits they created. The manufacturing capitalists needed to demonstrate their own political dominance over these parasitic elements, and to do so, again, they required the assistance of the working-class. It manifests itself in 1848. In that year, the British manufacturers, with the aid of the working-class, push through the Repeal of the Corn Laws. Alongside it, the workers' demands for political rights for themselves is manifest in the high point for Chartism. On the continent, a series of bourgeois political revolutions erupt, with the industrial bourgeoisie being supported by the working-class.
In every instance, these political revolutions are defeated, and in every instance, the reason that they are defeated is that, the bourgeoisie, now seeing a large, potentially revolutionary proletariat, as an even greater threat to it than the existing ruling class, baulks and goes over to the reaction. It is what leads Marx to argue that, if such revolutions are to take on a permanent nature, to grow over from being merely a bourgeois political revolution to a proletarian revolution, the workers themselves must organise themselves as a class for themselves, and must do so by creating their own independent Workers' Party that fights for the workers interests. This is also the conclusion that Trotsky arrives at, not just in relation to these conditions, but also in relation to anti-colonial revolutions, in his Theory of Permanent Revolution.
It is easy to see the parallel between this situation and that which exists in the 1970's. In the 1970's, as profits get squeezed, interest rates rise, but the ability of capital to pay out additional amounts of interest/dividends itself declines. The higher rates of interest manifests itself as higher yields on the basis that share and bond prices fall, and rental yields rise, as land prices fall. Money-lending capital, as well as landed property, seeks to counter this tendency by seeking a greater proportion of profits go to interest/dividends and rents than goes to profit of enterprise, which is the basis of capital accumulation. As Haldane has shown, in the 1970's, only 10% of profits went to pay dividends, whereas today that figure is around 70%. But, as shown earlier, if capital is converted to revenue, this simply diminishes the capital base, and thereby impedes the potential for creating future profits and revenues. Continually, reducing the amount of surplus value that is utilised productively so as to increase the proportion that is consumed unproductively has a similar effect.
In short, the crisis of the 1970's could have been resolved at the expense of fictitious capital, or at the expense of real socialised industrial capital. For the former to occur, the representatives of socialised industrial capital would have needed to have rested on the working-class. In the 1970's, the working-class was at the height of its economic and social power. As the crisis unfolded, the workers expressed that power. Already, in 1968, the workers in France had undertaken a General Strike, occupied factories and begun to operate them under workers' control, despite the usual attempts of the French Stalinists to undermine that struggle. In Britain, the miners, with the support of other industrial workers, had brought down the Heath government. In a number of places, workers had taken over factories, and established cooperatives. The Lucas Aerospace workers had developed the Lucas Plan of alternative production. Its no wonder that the representatives of conservative social-democracy saw the danger of Permanent Revolution from unleashing this power further, by going along with demands for industrial democracy, for workers to be given even greater real power in society, and so on.
But, how was Thatcher, as a representative of conservative social-democracy, which represents only a minority, to overcome the problem of representing such a minority, not now in alliance with the working class, but in opposition to it. The answer, as is traditionally the case with Bonapartism, to ally with reaction, to mobilise the dangerous classes as the foot soldiers against the working-class, and to create a strong state. But, initially, Thatcher is too weak even for that. She still faced opposition from the Buttskellite conservative social-democrats inside the Tory Party, and her position looked increasingly fragile. Then as now, the first major assaults on bourgeois-democratic rights occur not in open physical combat, but via constitutional channels, and use of the courts. It is once, again the ruling class's judges that are utilised, as the government seeks to abolish local representative democracy, wherever democratic opposition to its writ is challenged. Thatcher enters office still as a representative of conservative social democracy, but she is forced to lean ever more heavily on the forces of reaction for support, until such time as the workers are cowed. She leaves office as the gatekeeper to these same forces of reaction.
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