Workers World, Vol. 21, No. 40
October 10 – The virtual collapse of the stock market may approach world historic proportions. If, as is now widely predicted by many economists in the bourgeois camp, the recession deepens significantly, it will not be merely because of the Federal Reserve’s intervention and the raising of the prime loan rate to a staggering 14.5 percent. Rather the opposite will be true: that the deepening recession and the spiraling inflation forced the Carter administration to take the drastic measures it did.
The massive sell-off of 81.62 million shares and the loss of hundreds of millions of dollars by small investors, which probably wiped out a whole segment of the upper middle class from the market, is merely one casualty out of many which will be set in motion by this turn of events. This may be easily translated into volatile political protests, either to the right or the left, depending upon whether there is a resurgence of the working class movement.
The collapse of the market, however, in and of itself is merely a symptom of the subterranean malaise within the capitalist system. The sharp market drop will merely bring it to the surface and before long it will manifest itself in long unemployment lines, bankruptcies, consolidations (or rather the swallowing of small by large corporations), and state capitalist intervention to rescue the larger and more viable capitalist corporations.
There is also, however, a tremendous political loss, a loss of face, not only for the capitalist government of the U.S., but for the very summits of the individual finance capitalists in the U.S., the really big ones, including the Rockefellers, the Wristons, the DuPonts, and the other financial and industrial dynasties.
This entire train of events merely confirms the correctness of the Marxist conception of the cycle of capitalist development, which entails the stages of crisis, depression, recovery, and boom and which no amount of financial manipulation or fiscal jugglery can mask or overcome. The experience of the world capitalist system since 1825, when the first world capitalist crisis occurred, attests to this.
Much as the Carter-Volcker strategy may seem a radical departure from previous efforts to deal with galloping inflation, it did not in reality represent a sharp departure from what was tried almost a year ago, although it is much more massive in character. At that time Secretary of the Treasury Blumenthal, Chairman of the Council of Economic Advisors Schultze, and Federal Reserve Chairman Miller concocted a plan to launch a two-fold economic rescue mission to save the dollar. Guidelines were established to de-escalate the rate of wage and price increases to be sure wages were held in line. And what was regarded as most important at the time, an increase of a full percentage point was made in the rate at which the Federal Reserve lends money to banks.
For a while it seemed that inflation was abated. But after several months is became clear that it was merely a mirage. As a matter of face, the capitalist economy was slowly slipping into a recession at that time.
To understand the Volcker-Miller-Carter strategy, it is necessary to focus on the day preceding the Belgrade monetary conference and the conference itself. More than anything else the financial and fiscal representatives of U.S. finance capital wanted to demonstrate to the world financial community – the ruling finance capitalists of Japan and Europe – that they could bring capitalist order out of existing chaos.
Through the entire course of the conference, speaker after speaker oozed pessimism about the state of the capitalist economy. Pessimism was dripping from every prepared speech by the representatives of imperialist finance capital, including the Dutch, Belgians, Japanese, British, French, and above all the Germans. In so many words, they all seemed to say to the U.S. delegation: “You presume to be the leader, the boss, of our capitalist commonwealth. Can you bring order out of the perilous chaotic state of our economies?”
The Germans, in particular, were not only questioning but ribbing the U.S. delegation. But the Volcker-Miller-Carter administration had been preparing for this. And as the leading spokesmen for the biggest banks in the country, Volcker (an avowed conservative in financial matters and a rightist) put together a package, the avowed purpose of which was to stem the tide of inflation and show the Europeans, Japanese capitalists, and for that matter the rest of the world that they could by sheer will “turn the situation around.”
To have done this successfully would have earned them respect and reestablished the U.S. as the preeminent leader and guardian of bourgeois interests in general and of financial and economic health in particular. It need hardly be stated that had it succeeded, it would have brought not merely prestige, and not only dividends of a pecuniary character, but also those of a military character by strengthening the NATO military machine with far less pain and expenditures.
What has really happened? The purpose of administering the so-called package was to demonstrate that they could control the blind forces of the market. They did not attempt to use a sledge hammer, but to administer a medicine in careful doses so that everything would be orderly and effective.
But what have the past three days shown to anyone whose eyes are open and who is not deluded by the self-serving propaganda of the administration and the U.S. bankers and financiers?
The last three days have demonstrated that it is the blind forces of the capitalist market, notwithstanding long-standing practices of rigging and manipulating, which dominate the ruling class leaders and make them an instrument of capitalist chaos and destruction, rather than the reverse. To the extent that will and determination are evidenced, they are the will of the forces of capitalist chaos and not of orderly growth in the capitalist economy.
The hundreds of millions, if not billions, of dollars that have been destroyed in the last couple of days are testimony to this. What the Volcker-Miller-Carter team had projected was an orderly retreat by the stock market. Instead, as one of them put it, it was a “restrained terror.” Panic reigned supreme and ruin and destruction was wreaked as a result of the attempt by the Federal Reserve, as the servant of the biggest banks, to salvage a deteriorating situation. It proved again what has been evident for several decades: that the Federal Reserve, like the Treasury Department, is an engine which fuels the fires of inflation and only rarely puts on the brakes. When they do so, it furthers a collapse and nota so-called orderly retreat.
What was it that Volcker, Miller, and Carter really had in mind from the point of view of economic theory? For quite a number of years now bourgeois economists, as well as bankers and industrialists in general, have been enamored with a tantalizing theory which has its origins in the so-called Phillips Curve Doctrine. According to this theory, it is possible to trade off unemployment against inflation. The Phillips Curve supposedly shows that as unemployment rises a certain number of percentage points, prices decline in a certain proportion, and vice versa.
It was possible in the middle 1960s to give some credence, of a superficial character, to this theory, which is merely a supine rationalization of two of the abiding and chronic manifestations of capitalist decay – intractable, chronic unemployment and galloping inflation. From the point of view of reality, even during the whole period of the 1960s, the Phillips Curve could not be confirmed. But it has its greatest attractions for bourgeois economists. If they can only fine-tune the economy in accordance with the Phillips Curve! If they can delicately balance just enough employment against inflation! If inflation rises too rapidly, then the need is to artificially foster unemployment, which in turn would cut down on inflation.
The difficulty with the theory is that it is a fantasy, a prejudice born out of desire and not based on objective facts. For several years unemployment has been chronic in the U.S., having slipped two or three points, but inflation has galloped and is utterly uncontrollable. What the Volcker-Miller-Carter team had anticipated with this latest package was that it would delicately balance growing unemployment with declining inflation, all in a slow and orderly fashion. Instead it has created a panic, a rout in the stock market and disorder in the world financial markets.
The most immediate proof that the Volcker-Miller-Carter strategy failed was the fact that gold rose on the world market simultaneously with the market collapse. That in itself indicated lack of confidence in the U.S. remedy and a disbelief that it would substantially lessen inflation.
The basic element pushing up inflation is the one that is least of all mentioned – the ever-increasing military budget and the incredibly high profits of the giant multinational corporations. Even if some prices do drop, it will only be of an episodic character. The ordinary worker in New York, for example, will find that whatever medicine is applied by the Carter administration to fight inflation, the subway fare will not be reduced, the telephone company will not reduce its rates, the buses and trains will not reduce their rates, and oil and gas will continue to rise as will most foods. And the efforts of workers to raise their wages will be fought as vigorously as ever by the bosses, who will utilize the pittance of any small de-escalation in prices as a reason to dampen wage demands.
Previous economic crises have, after a period of time, resulted in a working class upsurge, and there is every reason to believe that the coming one will be invested with an even greater political significance.
Last updated: 11 May 2026