Introduction

‘Marxism is out of date, Marxism is dead.’ That was the recurrent theme of mainstream academic and journalistic comment throughout the 1980s and most of the 1990s. Capitalism, it claimed, was much more ‘dynamic’ than the left held in the past. The success of the East Asian economies was proof of this, while the collapse of the USSR and the political revolution that swept Eastern Europe in 1989 showed there was no better way of running things.

Then suddenly the message changed briefly in the autumn of 1998. ‘The global capitalist system that has been responsible for so much prosperity is coming apart at the seams,’ the global speculator-in-chief, George Soros, told the US Congress. [1]

In fact the mainstream message was always spurious. What some economic historians have called ‘the golden age of capitalism’ – the great quarter century long post-war boom – came to an end in 1973. After that the system went through three great recessions, in 1974–76, in 1980–82 and at the beginning of the 1990s. The average annual economic growth rate of the combined Group of Seven (G7) industrialised economies in 1979–80 was only about 60 percent of the figure for 1960–73 – by 1990–96 it had fallen to 33 percent. In the two most industrialised East Asian ‘Tigers’, South Korea and Taiwan, growth was also substantially down compared with the 1960s and 1970s, even if it was still higher than in the G7. The ‘economic miracles’ promised for the countries of the old Eastern bloc when they embraced market capitalism after 1989 failed to materialise anywhere. Only Poland had a higher gross domestic product in 1997 than in 1990. All the rest, from the Czech Republic to Georgia, had contracted, with the Russian economy shrinking by more than 40 percent.

The same period, however; saw a global tendency for the share of wealth going to the rich minority in each country to rise. Hence the euphoria of commentators who catered for them – until suddenly in October 1998 it looked as if stock markets were going to go into a tailspin. The economies of East Asia had already slumped (driving 100 million Indonesians below the poverty line in a matter of weeks), the slump had spread to Russia, Japan was entering into recession as its government was forced to nationalise banks to keep them afloat, and the Latin American countries faced their biggest difficulties since the debt crisis of the early 1980s. The Financial Times began running stories about ‘the meltdown of capitalism’, commentators spoke of the world economy as ‘a house of cards’ and Soros made his speech.

Yet within a couple of months apologists for capitalism were assuring themselves that nothing had gone amiss. The ‘core of the system’ was not affected, they claimed, as if Japan, the world’s second largest industrial power, was not part of that core. It is worth remembering that only a few years before they had confidently predicted that Japan would have overtaken the US by the year 2000. It is also worth noting that their assurances ignored the global overproduction afflicting industries like steel, paper and petrochemicals.

The whole episode showed all too clearly how little understanding supporters of capitalism have of the dynamics of their own system. Unable to see beyond the end of their own noses, they are blindly euphoric when stock markets rise, plunged into spells of equally blind panic when they fall, and then swing back to euphoria when some of them find there are still profits to be made. [2] Meanwhile, hundreds of millions of people suffer as their jobs are destroyed and their lives torn apart.

It is possible to have a much better grasp of what is happening than that provided by their conventional wisdom. But it means basing yourself on the understanding of capitalism provided by Karl Marx.

Marx’s economic writings appeared more than 130 years ago. This leads many people to believe they must be out of date. But he wrote just as industrial capitalism was developing into a world system and showing many of the features which persist today. He was able to go further than the founders of mainstream political economy, Adam Smith and David Ricardo. They had stressed the dynamism of the new capitalist system. Marx acknowledged his own debt to them but, writing after them, he was able to carry their analyses further and to see that the other side to this dynamism was a pattern of recurrent crises, with a tendency to worsen as the system aged.

In this, his approach differs fundamentally from the now dominant school of economics, the ‘neoclassical’ or ‘marginalist’ school. It relies on an alleged ‘law’ formulated by Jean Baptiste Say, writing well before Marx, claiming that generalised crises of overproduction are impossible providing there are no obstacles to the free play of market forces.

The great slump of the inter-war years forced many mainstream economists to follow John Maynard Keynes in attempting to come to terms with the obvious fact of crisis. They provided a set of arguments for those who believed simple ‘tax and spend’ reforms to the present system could stop it misfunctioning. But a new period of crises since the mid-1970s has witnessed the re-emergence of all the old, unadulterated, pre-Keynesian ideas, as presented by economists like Milton Friedman and the late Friedrich von Hayek.

It is their arguments which underlie claims that somehow ‘supply side measures’ like increased ‘labour flexibility’ and pressure on welfare recipients will do away with the crises which have afflicted the system periodically for the last 170 years. [3]

The main part of this book first appeared 18 years ago as a series of articles in the journal International Socialism. They attempted to use Marx’s insights, not merely to show that capitalism was crisis prone, but also to grasp the character of the new period of crises the system entered in the mid-1970s. That required taking up additions and amendments to Marx’s own ideas made by successive generations of Marxist theorists as they attempted to understand the major trends in the system over the previous century – the imperialism of the 1880s and 1890s, the drive towards world war in 1914 and again in the late 1930s, the great slump of the inter-war years, the long boom of the 1950s, 1960s and early 1970s.

I believe the analysis has stood the test of time very well – certainly much better than any by mainstream pro-capitalist economists of any school. For that reason I have left the text of the first edition of this book (published in 1984) completely unchanged. This does, however, mean there are occasional dated references (for instance to the then still intact USSR).

The appendix contains critical accounts of other attempts to explain the new period of crises which arose in the 1970s and early 1980s – for instance, those which pointed the finger at ‘high’ labour costs, levels of welfare spending, ‘long waves’ or the price of oil. Again I have left the text unchanged, since many of these ideas still recur. [4]

There have, of course, been important developments in the character of capitalism in the last 19 years – the increased internationalisation of finance, the growth of European and Japanese multinationals, the rise and crisis of the East Asian economies, the collapse of the state capitalist command economies into versions of market capitalism, the fashionable talk of globalisation, new fears among influential capitalist commentators that we are entering an era of deflation.

I have dealt with these in several articles I have written for International Socialism in the last decade: The State and Capitalism Today (IS 51), Where is Capitalism Going? (in two parts – on the advanced countries (IS 58) and on the ‘developing’ countries (IS 60)), Globalisation (IS 73), and The Crisis of Bourgeois Economics (on developments in mainstream ‘neoclassical’, Keynesian and ‘neoliberal’ economics (IS 71)). Anyone who wants to follow through the arguments in this book should look at these.

Finally, to repeat an apology I made in the first edition. On occasions readers new to the ideas of Marxist economics might find what I have to say a little difficult to follow. I have tried to deal with many objections to the Marxist account, and this sometimes involves technical discussions. As far as possible I have put these into footnotes. But this has not always be possible. For this reason, I suggest readers who are new to the Marxist terminology first read my introductory account of what is wrong with capitalism, The Economics of the Madhouse.

Chris Harman, 1999

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Notes

There were no anchors for the footnotes in the printed edition containing this introduction. We have tehrefore added anchors where they seemed appropriate. – Note by MIA

1. The Guardian, 26 September 1983.

2. For a detailed examination of these theories, and where they fall down, see the Appendices: Other Theories of the Crisis.

3. Nigel Harris, Of Bread and Guns, Penguin Books (Harmondsworth 1983).

4. For those who wish to refer to the originals, they may be found in ISJ series 2, issue 9 (summer 1980), issue 11 (winter 1981), issue 13 (summer 1981) and issue 16 (spring 1982).

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Last updated on 28 June 2019