Capitalism has a problem

[Thinking Man's Idiot]

Capitalism has a problem

(Monday 13 October 2008)





IAN JOHNSON looks into the fatal flaws of the free market system.


"HOUSTON, we have a problem" are the famous words credited to astronaut James Lovell in a message transmitted to NASA from the ill-fated Apollo 13 lunar-landing mission when it was crippled by an explosion during its 1970 flight.

Lovell, whose actual words were: "Houston, we've had a problem," reveals that one of the most frequent questions he was later asked was whether they had suicide pills on board.

Although today, another catastrophe - the financial crisis hitting Wall Street and the rest of the world economy - has not as yet seen financiers reaching for their suicide pills or jumping to their deaths from office windows, as occurred after the 1929 crash, ordinary people have seen thousands of home repossessions, the collapse of their pensions and a rise in unemployment.

Perhaps, this time, the financial sector is more confident that the burden of their crisis can be put entirely onto the backs of working people.

The package recently pushed through the United States Senate and House of Representatives is the greatest transfer of public money to the financial sector in US history, yet it offers no protection to the millions of workers and their families, who are the real victims of this unfolding social disaster.

Moreover, the 700 billion dollar bailout is merely a first instalment because the full extent of the debts of the financial sector run into trillions of dollars.

Likewise, in Britain, the Brown government is committed to bailing out the banks and financial institutions and is perfectly willing to use taxpayers' money to cover worthless mortgage-backed securities.

Having already poured more than £100 billion into Northern Rock - more than the entire annual budget of the NHS - the government has now agreed to cover Bradford and Bingley's £51 billion of mortgages and loans, yet its savings arm and its 197 branches are to be taken over by Spanish bank Santander for a mere £600 million.

This bailing out of the financial sector by the Labour government, which is, in effect, privatising profits and socialising losses, is in sharp contrast to its attacks on welfare, pensions, health and education.

Furthermore, by pumping billions of pounds of public money into the banks and financial institutions to keep them afloat and by guaranteeing to cover their losses and take on their worthless securities, the government is heading for state bankruptcy.

When Prime Minister Gordon Brown, who, as chancellor, told us he had "overcome the economic cycle of boom and bust," today tells us that he will do "whatever it takes to defend the British financial system" and that "my job is night and day to work for the stability of the system," he apparently forgets that capitalism is an inherently unstable economic system.

Moreover, the current tendency to say that capitalism at present is infested with financial risk-takers and, if only this tendency were curbed, we could return to a more "enlightened capitalism" is sheer nonsense and shows a complete lack of understanding of capitalism and its workings.

Even a cursory glance over the last 60 years can detect capitalism's struggle to offset the tendency of the rate of profit to fall.

For example, the ending of the post-war boom period saw the suspending of the Bretton Woods agreement in 1971. This agreement was initially set up at the end of World War II and established the convertibility of the dollar into gold, meaning that every 35 dollars was backed by one ounce of gold.

This was a mechanism that attempted to ensure stability in the financial markets. However, the falling rate of profit and the increasing debt of the main post-war economy in the US caused the Nixon administration to suspend this arrangement.

The rise of finance capital and the mass privatisation programmes of state industries, beginning in the late 1970s, were followed in the '80s by the unregulated introduction of vast amounts of credit into the system, the proliferation of credit cards, the conversion of building societies into banks and the introduction of various financial instruments such as subprime mortgages - an attempt to extract profit from workers outside the production process.

These were necessary developments for capitalism to maintain the rate of profit and not merely developments emanating from the whim of one capitalist politician or another. On the contrary, profound economic processes led capitalism into the crisis it faces today.

However, this does not mean that the hedge fund manager or financial trader is conscious of the contradictions within the system. For them, an analysis covers weeks and months only, not decades or centuries.

They do what they think is necessary to make their bonuses each month and have no regard for the social implications of their actions on the vast majority of the population.

These historic processes have now led to record levels of social inequality, both in the US and Britain, whereby since 1997 alone, under this Labour government, the top 1 per cent of Britain's richest individuals have seen their wealth increase by 152 per cent.

In contrast, the poorest 50 per cent of the population have seen their share of the nation's wealth actually decrease over the same period.

The deepening financial crisis currently raging will only serve to spur on the government's privatisation plans as they attempt to impose the full effects of the crisis onto the backs of workers. It is its belief that every penny spent on unemployment and incapacity benefits, on pensions or on health is a drain on profits.

It is generally accepted, even within ruling circles, that the current economic crisis is the deepest since 1929. Let us recall that, as politicians sought to overcome that crisis, the world was plunged into the great depression of the 1930s with mass unemployment, followed by the rise of fascism and a world war costing the lives of millions of workers.

Shall we walk into that scenario again, this time with nuclear options?

This begs the response that the struggle for and the establishment of a socialist system is not merely a preference but is an absolute necessity.

[Thinking Man's Idiot]

Gold and the Collapse of Fiat Paper Money.

[Thinking Man's Idiot]

Tendency of the general rate of profit to fall