Recently, I received via e-mail an audio recording of a discussion of an article of mine posted on this website in March of this year, entitled “The Crisis and Speculative Capitalism” (MLT, March 14, 2008). I was honored that a group of Communist activists chose the article as part of their study of capitalism. Moreover, their remarks were sharp, insightful and thought- provoking. For that, I am grateful. The fast-moving events of the last six months coupled with their discerning comments offer an opportunity to take a fresh look at many of the claims presented in the article.

Since the article appeared, the financial crisis has occupied center stage with the health of world-wide financial institutions reaching a critical, nearly fatal condition. In addition, the cancerous financial sector has spread its malignancy to nearly all other sectors of the US economy: state and municipal government, the industrial sector, retail, transportation, etc.,  as well as the rest of the global economy. The human toll is expanding rapidly and acutely with home loss, unemployment, underemployment, hunger, deferred retirements, depleted retirement funds, shrinking education funding, reduced access to health care and medicine, and unsustainable personal debt.

There is both a growing fear of looming economic disaster and a developing sense that elites in the US and internationally are powerless and clueless to halt the economic slide.

When I authored the article over six months ago, there was a widespread confidence that the US government had the tools to fix the ailing financial sector; “the economy is fundamentally sound,” we heard again and again. References were made to earlier financial disruptions occurring in the late twentieth century. The tools that worked then – massive injections of capital – were thought to be sufficient to tame the current crisis. But this time they have failed dramatically. Instead, more and more policy-makers are looking to the Great Depression for understanding and policy ideas, recognizing that the ills of capitalism are far deeper than they thought. Unfortunately the sharp rightward turn over the last forty years towards the infallibility of markets and capitalist triumphalism has left ruling elites with a poverty of ideas. Indeed, the solutions so far offered go no further than the remedies advanced by the Hoover administration and the early New Deal in the US. They failed then and they are failing now (see my “The Real Lesson of the New Deal for the US Left,” MLToday, March 3, 2008).

The expanding crisis brings into sharp relief the idea that speculative capital bears a great deal of the responsibility for this blow to the world economy. But it is even more important to understand the capitalism itself is the ultimate cause of its own failings. Speculative capital, as we know it, developed at a particular time and place for reasons that reflect the evolution of the capitalist system. With the expansion and de-regulation of world markets, much productive capital moved away from the old centers of production – the so-called “developed world” – to regions of substantially lower labor costs. The advanced capitalist countries took on a more pronounced role as centers of finance. This division of labor is well-reflected in the share of total US profits accounted for by the financial sector: At the peak of the pre-Great Depression boom (1929) financial profits represented 15.2% of corporate profits; after recovery, the percentage hovered around the 10% mark until 1960 when the financial sector accounted for 16.6% of profits.  Through the next two decades financials stabilized at roughly 20% of all corporate profits. Nineteen ninety-one marked another watershed when 30.2% of all corporate profits went to the financial sector. Financial profits marched further to hit an all time high in 2002, securing 41.2% of all profits! From 2004 to 2006, before tax profits grew by 46% in the financial and insurance sector in the US. 

Several conclusions can be drawn from these data:

1.    The division of labor in the global capitalist world is a reality. As production shifted from many advanced capitalist countries, economic activity moved to the financial sector, particularly in the US and the UK. Smaller countries like Iceland were lured into this change with disastrous consequences as witnessed by the current collapse of its economy. For the most part, the competition in the global economy between the productive sector and the financial sector for the surplus created by productive activity was unnoticed by analysts. Commodity production in Asia and other areas where extremely low labor costs were attracting productive activities grew exponentially. As trading partners, the US and the UK and other centers of finance had little to offer. But in order to sustain their markets for consumer goods – primarily the US – the commodity-producing countries used their surpluses to purchase government securities in the areas of ultra-consumption – again, primarily the US. Fundamentally, they were trapped by the market place. The People’s Republic of China, for example, lacked an adequate domestic market to absorb its burgeoning commodity production. If it failed to transfer much of the surplus from its opening to capitalism and from its entry into global markets back to the US in the form of purchasing relatively low-yield government securities, it risked losing its economic momentum. Thus, by holding a competitive advantage (an exploitative advantage), the most advanced imperialist country was flooded with capital, extorted from the productive sector of the world market.
2.    This extortionate transfer – a kind of big-power tax – coincided with a period of domestic US super-exploitation and wealth concentration and led to the enormous pool of liquidity that fueled the explosion of speculative capital. For the US domestic market, the massive concentration of capital was transferred to consumers in the form of credit – credit for home mortgages, auto loans, credit card expenditures, and investments. For a working class pillaged by a relentless class offensive against wages, benefits, and public services, credit was the only recourse available to maintain or advance living standards. With average consumer debt extending beyond the average annual salaries of working people, financial institutions were constantly devising new strategies to take the credit time line – the deferral of payment – further into the future. The logical solution was to expand home mortgages. Since rising home values was the last, seemingly reliable, source of wealth enhancement for working people, this strategy proved to be fertile – for a while. The financial sector bet that housing values would continue to rise, justifying new, risky strategies for expanding debt. They were wrong.
3.    Profit is at the center of the rise of the financial sector and its collapse. The competition for a greater share of the international surplus – a rising profit margin – drove financial markets to devise new tricks, new instruments to draw investments. High profit margins were essential to attract capital that could otherwise be drawn to other, competitive sectors of the global economy. Of course, fees, commissions, and interest payments feed, and have always fed, the financial sector. But with pressure on profitability – the classic Marxist tendency for the rate of profit to decline – new instruments and strategies were necessary to bolster profitability. The era of hedge funds, private equity firms, securitization of debt, credit-default swaps, and so forth, ensued.

The evolution of the financial sector does not signal the emergence of a new stage of capitalism beyond the finance capital described by Lenin in Imperialism, but its further development. With the centralization of finance in the leading, most economically powerful countries, the activities of what Lenin described as “coupon clippers” took on a leading role. The tendency towards decay and stagnation, also recognized by Lenin, remains a feature of monopoly capitalism. To counter this, the financial sector employed technologies and strategies that multiplied and amplified the risks; they created fictitious values that were supported by assets that were a mere fraction of their potential liabilities; they borrowed money promiscuously (thanks to government financial policies that shrunk the cost of borrowing) in support of their risky strategies; and they did most of these maneuvers behind a curtain of secrecy. A crisis was inevitable.

Of course, all of this does not spring simply from bad judgment about the housing market. Certainly, the downturn in the housing market spurred the collapse. But more importantly, the decline in housing values and the increase in foreclosures exposed the fragility of the financial superstructure based literally upon a paper-thin foundation. The estimated $72 trillion of “weird” securities – an amount equal to roughly 5 years of US GDP – constitutes a fantasy amount, unrealized and unrealizable. Once the weakness of this structure became apparent, no one wanted to hold it and no one wanted to deal with those who did. And the structure began to collapse with over seven trillion dollars disappearing recently from the stock market in the US alone.

It is crucial that the financial collapse is not viewed apart from the general crisis of capitalism. For the better part of a century, Soviet theorists linked the general crisis of capitalism to the emergence of the USSR and its historical-political impact upon world events: the war against fascism, the expansion of the socialist community, decolonization, etc. While these changes undoubtedly intensified the contradictions of capitalism, this explanation gives only a partial picture of the deep internal socio-politico-economic problems that drive capitalism from one failure to another. The financial collapse reveals profound weaknesses in the global market economy’s ability to generate adequate profits to sustain growth. The wholesale destruction of personal wealth and incomes will drive consumption to new depths, further shrinking production and reducing profitability and consumption even further. The ability for US imperialism to impose its will on the world is challenged by the powerful economic blow to its foundations. In adding to the economic crisis, anti-imperialist forces in the Middle East have fought the US military might and its Israeli junior partner to a standstill. And the movements for anti-imperialist independence have grown powerful, especially in Central and South America. Working people in the US and in other capitalist countries have shown a latent and deep class-consciousness in the face of the economic catastrophe. In the sphere of ideas, the reigning philosophies of radical individualism, market fetishism, and capitalist triumphalism are in full retreat.

Indeed capitalism is a wounded animal. Throughout the world, the objective conditions for profound change could not be better. At the same time, the wounded animal is still a desperate and powerful adversary. One of the discussants in the study group mentioned above reminded me, correctly, that wars of aggression are always in the capitalist toolbox. Indeed, war, and the threat of war, has served capitalism well, both as a distraction and as a wasteful, but effective economic stimulus (military Keynesianism).  Also, the working class and its allies – the agents of revolutionary change – are battered viciously by the economic collapse. They desperately need the kind of leadership that will offer real solutions, solutions that are bold and worthy of the moment. Since the two-party, one class system of bourgeois democracy has dominated most of the advanced capitalist countries in recent years, bourgeois democratic illusions present a particularly difficult roadblock to challenging capitalism. This only underlines the importance of a vanguard party for the tasks of building an anti-monopoly front, an anti-monopoly party, and pressing the agents of the less reactionary of the two bourgeois parties.  

Finally, I must turn to the sharpest, most telling criticisms of my original article from March of this year. The Communist activists who used my paper for their discussion found the conclusion – “…a long, hard road lies ahead.” – to be entirely too negative and pessimistic. Also, they faulted the article for its poverty of programmatic content; more should be said about how to proceed down that road. I think both comments are fair and worthy charges.

There is a real and substantial basis for revolutionary optimism. Based on the weaknesses of capitalism, the objective conditions for radical gains have never been better in my lifetime; the dominance enjoyed by a seemingly unstoppable capitalist dynamism and an all-pervasive neo-liberal ideology have crumbled in a shockingly short time. Similarly, the international interventions of the greatest military and economic power in world history – the US – have been met and halted everywhere, notably in the Middle East, Central and South America, and Eastern Europe. US aggression in Iraq and Afghanistan is stalled in a political and military quagmire. The on-going effort to destabilize independent regimes in the Americas remains threatening, but has largely been answered with a united and determined resistance. The so-called “color” counter-revolutions in Eastern Europe are failing, unstable, or in crisis. From an internationalist perspective, we must take pride in and offer our support to our class brothers and sisters who have sacrificed so much to confront the imperialism of the US and its mercenary partners.

But by the same token, those of us living in the US must own up to our special responsibilities in building a revolutionary, anti-imperialist movement. If we do not make a greater effort to do so, we are mere cheerleaders for those who are confronting the beast of imperialism. Instead, the left in the US has embraced a stance of riding on the tails of the Democratic Party and the more backward leadership of the trade union movement. We are resigned to achieving very little because we ask for very little. At this moment, most of the energy of the US left is pressed into the candidacy of Barack Obama, a candidacy that offers little more than a fresh face and a more adroit approach to the goals of US imperialism.  To my mind, this attitude is profoundly pessimistic, especially at a time of such great revolutionary potential. Instead, we should be pressing before the people a program of advanced demands that address the current economic and foreign policy crisis. We should be crafting an anti-monopoly program that answers to the people’s need for jobs, social security, health care, education, public transportation, and housing, while excising the drive for profits from the fulfillment of these needs.  The Communist Party USA’s well-known slogan, “People before Profits,” would serve as a more than adequate touchstone for devising such a program. In addition we should be working with third-party candidates like Ralph Nader and the Green Party. Despite their weaknesses, they offer platforms far to the left of the Democratic Party.   

While my programmatic comments are far from specific, I think a concrete and comprehensive program should come from the collective efforts of a vanguard revolutionary organization – a Marxist-Leninist party – and not an individual writer. Those parties which have turned away from post-Soviet revisionism and are well-rooted in their respective working classes offer good examples of solid programs. The programs of the Greek, Portuguese, and Canadian Communist Parties can be accessed through the MLToday website. Unfortunately, social democratic tendencies are retarding the development of a revolutionary program in the US.

Of course we must be tactically flexible when events move as quickly as they have in the last weeks. For example, in the earlier article on the financial crisis, I advocated nationalization of failed financial institutions. But as events have shown these corporations are as hollow and debt ridden as their fantasy securities; consequently, my views have changed. Instead, I think the best approach to preserving the real economy and protecting the living standards of working people is to simply by pass these wealth-devouring predators and offer public financing through new, profit free and democratic agencies. The latest ruling class strategies are to take public equity positions – “ownership” – in these bankrupt, corrupted bodies. This is simply a ruse to quiet an aroused public angry at the shameless bailouts already enacted. These faux-nationalization plans have seduced some on the left to see in them as some kind of incipient socialism, as though the ruling class had suddenly undergone an epiphany like Paul on the road to Damascus. This is lazy and misguided thinking. There is no advantage to the working class in owning the unsalvageable flotsam and jetsam of financial speculation. To some extent, the ruling class has recognized this by offering direct credit to monopoly enterprises through the Federal Reserve. The same direct, profit-free, speculation-free opportunity should be available to small businesses and debt-ridden consumers.  At the same time, nationalization of the entire financial system and productive, monopoly industries should always be on the revolutionary agenda, a demand that promises to garner great traction with an angry citizenry looking for real solutions. 

Note: our most prolific contributor, Zoltan Zigedy, has launched his own blog. You can read it at