In 2008 the global financial crisis devastated millions of lives and kicked off a major recession. Governments around the world responded by printing money and bailing out the capitalists who had caused the crisis while working people lost their homes and savings. Today we are on the brink of another economic crisis, so it’s important to grasp why these crises happen in the first place and how to organize during them.
A bread line during the Great Depression. People all over the country had to wait in lines like these for hours just to get food.
We’re constantly told that capitalism is the best, most efficient, most stable, and most just of all economic systems. But if we look at the history of capitalism we see that this is clearly not the case. Capitalism has led to big advances in our ability to produce goods, but it has also created huge numbers of poor people and has spawned two disastrous world wars which killed tens of millions of people. It is also based fundamentally on the exploitation of the vast majority of people by a tiny minority of ultra-rich capitalists.
Another huge problem with capitalism is that it is very unstable. Capitalist economic crises happen pretty frequently. Sometimes they are major, worldwide disasters like the Great Depression or the 2008 financial crisis, and sometimes they are less severe, and contained to one country or to one region. Politicians, economists, and bankers often discuss these crises as if they are random “acts of god,” or say that they happen because of mistakes or mismanagement. But these economic crises are actually an inevitable result of the capitalist system of production. They will continue to happen as long as we live in a capitalist society, and these crises will continue to hurt poor and working people the most.
These crises clearly show that the myths that we are told about capitalism are actually lies which are spread to disguise the brutal reality of this system. Even when capitalism is “working normally,” and is not in a period of acute crisis, the daily reality of living under capitalism is brutal and desperate for the vast majority of people. Currently in the U.S., 66% of Americans are living paycheck-to-paycheck, and are unable to afford an unexpected $500 expense. Many cities around the country are experiencing massive increases in homelessness as rents become too expensive for people to afford.
Meanwhile, the amount of wealth owned by the richest people in the U.S. has massively expanded over the past century. On the one hand, we have a small number of billionaires and millionaires who live incredibly decadent lives of luxury and consumption. On the other hand we have, all around the world, billions of people who live in abject poverty.
A graphical representation of wealth inequality in the U.S. as of 2011. Since then things have only gotten worse. This is the inevitable result of the capitalist system.
This is the pain and misery of the capitalist system under its normal operation, and during times of crisis it only gets worse. When capitalist crises like the Great Depression or the 2008 crash happen it is poor and oppressed people who suffer the most. Many lose their homes and their savings, and have to struggle day to day just to get enough food to eat.
During the Great Depression of the 1930’s, many people in the U.S. lost their jobs and had to scrounge whatever they could to survive. The U.S. government’s official unemployment numbers (which are misleading underestimates) reached 25%, meaning that tens of millions of people had no job and no income. Many of these people had to eat weeds and garbage to survive, and lived with constant aching hunger every day. A whole generation of children grew up malnourished, leaving them with life-long health effects.
The great scandal of the capitalist system was that this enormous economic crisis, which left millions of people hungry, wasn’t caused by a shortage of food. In fact, at the time more than enough food was produced to feed all the hungry people in the U.S. But under the capitalist system it was impossible for them to get enough to eat for a simple reason: they didn’t have enough money to buy it.
The capitalists who owned the food preferred to destroy the food than give it away for free, despite the fact that so many were going hungry. Because of this, huge amounts of food were destroyed or left to rot during the Great Depression.
This is one of the ways that capitalism is different than earlier forms of production. Earlier forms of production also experienced periodic crises, and these were also very painful periods for the people. Under feudalism in Europe, for example, there were sometimes crop failures, which could leave thousands unable to feed themselves after they pai rent to the landlord. Often in these situations people rebelled, refusing to pay rent or even overthrowing the landlords.
However, capitalism is unique because even when more than enough food is produced to feed everyone there are still economic crashes which result in large numbers of people going hungry. These crises don’t have to do with crop failures or difficulties in production.
Instead, they are rooted in a fundamental problem with the capitalist system which cannot possibly be resolved without getting rid of capitalism. This is why it’s so essential for the people to get organized all around the world, so they can overthrow the exploitative and oppressive capitalist system and replace it with an economic system that serves the people.
This fact is one that the capitalists try desperately to hide. They will blame economic recessions on anyone and anything other than capitalism: the weather, Russian agents, mistaken policies, etc. They will often even blame the working class for these problems, saying that working people are lazy, or that they don’t spend enough of their money on consumer goods. But the fact that capitalist crises continue to happen, and the fact that they have not shown any sign of going away, shows us that these explanations are lies meant to distract from the destructive reality of capitalism.
As the 2008 financial crisis intensified, both the Democrats and Republicans worked together to bailout the banks by stealing money from working people in the form of new taxes and printing money.
The 2008 crisis and its aftermath clearly showed how these economic crises are a result of core problems with capitalism. In the immediate wake of the 2008 crisis, governments and banks around the world rolled out a series of policies and programs to “deal with” the crisis. In many countries these policies have created the appearance of economic growth and a “recovery” from the crisis, but the reality is that the underlying problems are still present. Moreover, this so-called “recovery” was only possible through a lot of superficial methods—like “printing” electronic money and giving it to the banks—which temporarily masked the crisis and kicked the can down the road for a few years.
Recently, a number of economic indicators have shown that we are likely facing a resurgence of these economic problems in the near future. Over the past decade, debt around the world has grown to insane levels. A number of central banks have been printing money hand over fist in desperate attempts to keep stock prices rising. The central bank of Japan has, in an unprecedented maneuver, started directly buying tons of stocks of Japanese corporations, hoping to artificially inflate stock prices by reducing the supply. All of these measures have not fundamentally addressed the problems that surfaced in 2008, and have instead simply masked them.
Right now we are quickly approaching a situation where these measures will stop working, and the problems that surfaced in 2008 will come back more severely than before. A serious economic crisis is a real disaster for the people, but it also provides a lot of openings for people to get organized and fight for their interests. In order to be ready to take advantage of these openings, we need to study what happened in 2008, understand what’s been going on since then, and learn about the connection between economic crises and the fundamental relations of exploitation under capitalism.
2008 and the Recovery without a Recovery
The 2008 financial crash was one of the worst in a long time, and probably the worst economic crisis since the Great Depression. Many people lost their homes, their jobs, and their savings. Dozens of countries went into recessions. Reactionary governments around the world, like the U.S. government, took drastic measures to “save the economy,” generally by giving huge gifts to the very people whose speculation and profiteering caused the crisis.
The crisis was set off by the fundamental problem of overproduction in the capitalist system. Essentially, all across the U.S. there was—and in fact still is—a massive surplus of homes. Just before the financial crisis there were, according to official statistics, just under 18 million vacant homes in the U.S. Right now we have around 17 million extra homes sitting vacant – a very similar situation. Even in 2008 contractors and construction companies were still building new homes, despite the fact that unsold homes were starting to pile up.
During and after the 2008 crisis there was a big effort by the ruling class and their media talking-heads to blame the poor for the recession. This was aimed at distracting people from the underling problems in the capitalist system.
This surplus of vacant homes began to reach huge levels in the early 2000s, when home prices hit record highs. The capitalists who owned these homes needed to find a way to start selling them so that they could keep making money. Together with big banks, they came up with a solution: sub-prime mortgages. Basically they changed some of the requirements for getting a mortgage so that people who weren’t actually able to pay off the mortgage could qualify. Then they pressured a whole lot of people into getting these mortgages using the ideology of the “American Dream,” advertising, and some fast-talking con-artists who worked for the banks.
This initially worked out great for the capitalists who owned the homes and for the banks. The capitalists were able to sell the homes, and because they got paid as soon as the loan was approved they didn’t care if it was going to be paid off or not. And as for the banks who created the mortgages, they too didn’t care what happened with the loan, because as soon as the ink was dry on the contract they would turn around and sell the mortgage to a different financial entity. The problem arose with what happened to these mortgages after they were sold. These mortgages would get bundled up with thousands of other mortgages into a big package, and investment banks would then sell the rights to a portion of the mortgage payments made on all the mortgages. This bundling process is called securitization, and the shares that the banks then sold are called mortgage-backed securities.
The idea behind this was that if enough mortgages were bundled together it wouldn’t matter much if one or two of them defaulted, because there would be enough other mortgages that didn’t default that it would all sort of work out in the end. Enough payments would still be flowing in that the securities would still be worth something. This, at least, was what the organizations making and selling the securities were claiming. But, of course, they were lying about how many subprime mortgages were in the mix, and they were lying about how likely those mortgages were to end up in default.
In the end these mortgage-backed securities ended up setting off the financial crisis because growing numbers of defaults showed that they were essentially worthless. But before that happened they had become a hot commodity, and a huge number of banks and other financial institutions were buying and selling them and using them in all sorts of transactions. This reflected a real decadence in the system: a lot of financial institutions were frantically searching for new profitable investments, so when the new mortgage-backed securities came along they gobbled them up. So then when it came out that these securities were worthless, it rapidly led to severe crisis where all sorts of ongoing financial maneuvers essentially had the rug pulled out from under them.
Although the mortgage-backed securities ended up being the thing that set off the financial crisis, the crisis itself was the result of a much deeper problem. There is massive overproduction in a whole bunch of different sectors of the economy, not just in housing. So while it happened to be the housing market that set off the crisis in 2008, the crisis could have been set off by any number of other things. It’s a problem with the fundamental structure of the capitalist economy, not just with this or that particular industry.
Since the 2008 crisis, governments around the world have tried to deal with the underlying economic problems that were exposed. But the problem that they face is that the underlying issues which caused the crisis cannot possibly be resolved under capitalism. The problem in question, overproduction, exists as a result of the most fundamental and basic economic relations of the capitalist system. For this reason it cannot be addressed without getting rid of capitalism.
The ratio of global debt to GDP, showing both the massive growth of debt historically and the huge spike after 2008. Governments and corporations around the world have borrowed from the future to stave off the crisis.
Of course, for reactionary capitalist governments, getting rid of capitalism is clearly off the table. Governments around the world are run by and for the capitalist class, so any “solution” they have for an economic crisis like 2008 is going to be one which is compatible with capitalism. And given that the problem in question can’t resolved without getting rid of capitalism, the solutions that they come up with are inevitably some type of non-solution. Generally they settle for temporarily masking the problem and putting it off for the future.
For instance, a lot of the post-2008 economic growth has been driven by a massive expansion of debt. This debt, which is essentially “borrowing from the future,” creates a bigger headache down the road, even if it appears to temporarily solve a problem. Since 2008 in the U.S. there has been a massive expansion of debt, with a lot of people racking up credit card debt, city and town governments taking out loan after loan, and a huge growth in the number of student loans.
This has happened because of the fundamental underlying problem of overproduction, which we explain more fully below. In short, under capitalism more goods are produced than the working class is able to buy. This is a major problem that leads to the periodic economic crises that afflict capitalist economies, since tons and tons of goods are produced which cannot be profitably sold to the impoverished working class. The creation of debt, and especially consumer debt like credit cards, mortgages, and auto loans, is a way to temporarily mask the problem by increasing the purchasing power of the working class.
The basic problem with fueling economic growth using debt is that there is a limit to how much debt can be paid back. People need to pay for basic essentials: rent, food, clothing, transportation, etc. If their debt payments increase too much, to the point where they can no longer afford these basic things, they will be unable to keep paying off the debt. When this happens people will start defaulting on their loans and going bankrupt because they’re faced with a choice between eating and making a credit card or mortgage payment.
When this happens in a big way, as it did in 2008, it exposes that a whole house of cards has been built on top of debt. Each financial entity which is involved in creating debt is counting on payments coming in, to pay off debt of their own, to pay for their day-to-day operations, and to make profit. Moreover, a ton of stores like Wal-Mart, Macy’s, Amazon, and Best Buy are counting on people to charge things to their credit cards so that they can turn a profit. This means that when a lot of people are unable to pay off their debts it can set off a crisis where a whole series of different companies suddenly go out of business. This is one of the ways that the fundamental problem of overproduction rears its head.
Since 2008 there has been a huge increase in debt around the world. In the U.S., a big part of this has been increases in government debt, but consumer debt— meaning debt owed by people on car loans, mortgages, credit cards, and so on—has also expanded a lot. Following the 2008 crash consumer debt levels declined for a few years, but in 2013 they started climbing again. This increase in debt has been a key driving force behind economic growth in the past few years, but right now there are serious signs that this is reaching its limits. Debt levels are getting to a point where people can’t keep up with payments anymore, and rates of defaults are climbing.
Unlike other forms of household debt the deliquency rate on student loans has only continued to increase since the 2008 crisis. Since this chart was published in 2016, deliquency rates on other forms of debt have also increased.
Student loans are a good example of this. In 2008 the total student loan debt in the whole U.S.—meaning the total amount owed on all existing student loans—was around half a trillion dollars. In 2019, around 12 years later, it has almost tripled, to around $1.46 trillion dollars. The amount that individual people are borrowing has also increased, averaging $37,000 in 2016, a 78% increase from 10 years earlier. From 2005 to 2016 the average monthly payment on student loans nearly doubled, increasing from $227 to $393. Since people’s wages have been essentially flat during the same period, a lot of people haven’t been able to keep up with payments, and they’re simply not paying their loans. 44.5 million Americans have student loan debt, and currently around 10,000,000 of those people are not making any payments on their loans.
Of these 10 million, right now 3.3 million people are deferring their students loans, meaning they are not paying them off because they meet certain requirements, like being in school. 2.6 million people’s loans are in forbearance, which means that they haven’t been making payments but they haven’t yet defaulted. And 4.7 million people are in default, meaning that they haven’t made any payment on their loans for more than a year. Altogether, this means that around 23% of the student loans that exist are not being paid at all. The situation is similar for car loans. After the 2008 financial crisis the amount of car loans initially dropped rapidly, falling from a high of $0.8 trillion in 2008 to $0.7 trillion in 2009. Since then it has expanded significantly, hitting a high in 2019 of $1.3 trillion. And similar to student loans, a growing percentage of auto loans are not being paid at all. The current percentage of car loans in delinquency—meaning that they have not been paid for more than 90 days—is around 4.6%. This means that right now in the U.S. one out of every twenty people with a car loan is not paying it, probably hoping that they can manage to scrape together enough money to make a payment and avoid having the car repossessed by the bank.
Hundreds of thousands of people are living day-to-day with the possibility of losing their means of transportation hanging over their heads. Even with this massive expansion of auto-loan debt, auto sales in the U.S. have still just barely regained the levels they were at before the financial crisis. U.S. auto sales in 2019 are on track to be at around the same level as they were in 1999, around 17 million units, down from a peak in 2016.
Even with massive amounts of debt creation in the form of auto- loans, new vehicle sales are at the same level as 1999.
This massive increase of debt since 2008 has allowed for the auto industry to “recover” somewhat, but, like the economy in general, this “recovery” is actually the same fundamental problem being masked through massive expansion of debt. The underlying problem of overproduction is still there: the car industry in the U.S. is churning out far more cars than people can actually buy. This is clearly shown by the fact that auto sales in the U.S. have peaked at around the same levels as just before the 2008 crisis, and now appear to be on the downturn.
Since working people’s wages haven’t increased much, it isn’t possible to sell more and more cars every year. But because the capitalists who own the auto companies need to increase their profits every year, they have to find a way to increase sales. They run headlong into the stagnant purchasing power of the masses, and the “solution” has been to more than double the amount of car loans in the last 10 years.
Like all economic growth fueled by debt this is very fragile, since debt can only pile up so much before people start defaulting left and right and the crisis comes thundering back. The fact is that they haven’t been able to increase sales beyond pre-2008 levels even with the massive expansion of debt. This shows how serious the problems are.
All around the world the amount of debt has been increasing rapidly since the financial crisis. For the whole world, the ratio of debt to Gross Domestic Product (GDP) is 225%. GDP is a measure of total economic activity over a year. So a ratio of debt to GDP of 225% percent means that the total outstanding debt in the world today is equal to the total economic activity of the whole world for more than two years. So, even if somehow all economic activity could go purely towards paying down the debt it would still take more than two years to pay it off. This is an absolutely staggering amount of debt.
A 2017 estimate of the Bank of Japan’s ownership of companies on the Japanese stock market. Since then the BoJ has only continued to buy more stocks.
Short term solutions, like creating huge amounts of debt, are how the capitalist system around the world has “dealt with” the problems of the 2008 financial crisis. These “solutions” haven’t dealt with the fundamental problems of capitalism, and they haven’t even dealt with the particular manifestations of these problems that popped up in 2008. This is why the “recovery” since 2008 isn’t really a recovery, and why the problems of 2008 are essentially all still around.
But creating mountains of debt isn’t even the most absurd thing that has happened since 2008. In a desperate attempt to shore up the Japanese economy, the Bank of Japan started to buy up tons of stock in Japanese companies in 2013. Their plan is to restrict the supply of stocks in Japanese companies in order to artificially inflate the price. By doing this they hope to curb deflation, keep stock prices rising, and keep profits rolling in for big Japanese corporations.
At this point the Bank of Japan has purchased so much stock that it is now a top-10 shareholder in 50% of Japanese companies, and it is the single largest shareholder in a growing list of companies. This means that the central bank now has the power, whether it uses it or not, to direct huge portions of the Japanese economy all by itself. This is an unprecedented level of centralization of ownership by a central bank.
It’s also a major gift to the Japanese capitalists and an attack on the Japanese working class. One of the major goals of the stock buying program has been to eliminate deflation. Deflation is the opposite of inflation, meaning that over time money is gradually worth more. This means that the purchasing power of, say, $100 will gradually increase over time, rather than decrease. This is generally a good thing for working people, since it means that their purchasing power and therefore their standard of living increases.
In contrast, capitalists really do not like deflation and they generally try to do whatever they can to avoid it. They don’t like it particularly because deflation makes it more difficult to pay back debt. If a capitalist takes on debt to start a new factory or open a new branch of a store, the debt will be for a certain dollar amount. The capitalist will have to make regular monthly payments until the debt is paid off. These payments will be for the same dollar amount every month, but if there is deflation that dollar amount will represent more value than it did when the loan was taken out. This means that over time the loan payments will take away from the capitalist’s profits.
By contrast, if there is inflation the same debt payment will be worth less over time. So for the capitalist inflation is a good thing, since it makes it easier for them to pay off their debt. For the working class it means that every year the money they make is worth less and less. It means continued impoverishment and misery, and constant reduction in their standard of living.
Here in the U.S. we have pretty serious inflation, so that $100 ten years ago bought a lot more than it does today. The official number is around 2% inflation right now, but this is a misleading underestimate. If we just use instead the method that the government used in the 1980’s to calculate inflation we can get a more realistic picture, and the number is around 5%. Other estimates are as high as 10%, meaning that prices of basic goods rise by around 10% every year. But whatever the precise number is, it is clear that there is significant inflation in the U.S. which continually erodes the standard of living for the working class.
A graph contrasting the official U.S. government inflation numbers (red) with an estimate based on their old way of calculating inflation (blue).
In Japan, largely because of economic stagnation in the country since the late 1980’s, there is generally either close to 0% inflation or even deflation. Some years the deflation is significant, like in 2009 when deflation was over 1%. Deflation like this means that for working people, their money is worth more without them doing anything, and over time their purchasing power actually increases.
But as outlined above, although this is good for working people, it is inconvenient for capitalists. So, the Bank of Japan’s policy of buying stocks is aimed at ensuring that Japan’s currency, the Yen, starts inflating rather than deflating. This happens through increasing the money supply. When the Bank of Japan buys stocks it is essentially printing new money to buy them. This money creation adds a whole bunch of money to the money supply, and creates a whole series of new transactions that wouldn’t have happened otherwise. This has an effect of diluting the value of the money already in circulation, leading to inflation.
But in Japan, as in the U.S., these policies are not working. Even with such massive purchases of corporate stock—which are just another bailout for the Japanese ruling class—the Japanese economy is still not doing well. Inflation is still low, auto sales are flat, and debt has been piling up. The fundamental economic problems are still there, so unless these problems are addressed by overthrowing capitalism in favor of socialism they will continue.
All around the world capitalist governments are failing in their efforts to address the problems that surfaced in 2008. Debt is piling up to unsustainable levels, central banks like the Bank of Japan and the U.S. Federal Reserve are printing money like crazy, and still there are a lot of signs that we are heading towards another crisis. The methods that the capitalists use to “address” these problems cannot possibly work, because they refuse to really consider the source of these problems.
For capitalists they cannot possibly deal with the real roots of economic crises precisely because the root of the problem is also the source of their wealth and power. So of course they and their supporters have to put forward all kinds of half-baked explanations for why crises happen.
But the working people of the world do not have the same interests as the capitalists. The working class is cruelly exploited by the capitalists and is therefore under no obligation to defend capitalism. The whole capitalist system is built on the exploitation of the working class, so it is in their interest to study how it works and figure out how to overthrow it. Understanding why crises occur is a key part of this since the inevitability of crises under capitalism is a major reason why it is a decadent and outdated social system which must be done away with. It also shows that myths about capitalism being “stable” and “efficient” are vicious lies. So with that in mind, we’ll discuss why crises occur and how they relate to the fundamental relationships of capitalism.
Why Do Capitalist Crises Happen?
Capitalist crises occur because of an inherent contradiction in the capitalist system. On a basic level, the vast majority of consumer goods which are produced under capitalism need to be bought by the workers who produce them. For example, a capitalist who owns a car factory isn’t going to buy the hundreds of Honda Civics that the workers produce every day. Instead, these cars will be mostly bought by working people. However, the exploitation of the workers, which the whole capitalist system depends on, means that the workers can never actually buy all the commodities that they produce.
Despite all the propaganda about capitalists being “job-creators,” they are really social parasites who steal the wealth created by working people.
Workers are exploited under capitalism by the capitalists. While workers produce a given amount of value every day—and sometimes it’s quite a lot of value—they are not paid the full value that they produce. If they were paid all the value they produce then capitalists would be unable to make any profit. Instead workers are only paid for the cost of being able to return to work the next day—that is, the cost of food, clothing, transportation, shelter, etc.—and all the rest of the value they produce every day is taken by the capitalist who employs them.
For example, say that a worker at a paper mill produces an amount of paper products which have a value of $800. This value can be broken down into two parts: the value transferred from raw materials and from machinery, and new value created by the worker during the work-day. Let’s say that $200 of the value in the paper is the value of the wood pulp for the paper and other raw materials as well as the cost of operating the machinery. This value is transferred to the final product from the raw materials, but in this simple transfer of value there isn’t a way for the capitalist to make a profit. $200 of value from the raw materials and machinery becomes $200 of value in the paper.
To see where the profit comes from we have to look at the value created by the worker. If the total value of the paper products is $800, and the cost of the raw materials, operation of the machinery, and so on is $200, then the difference, $600, is all value created by the worker. This is the basis of the capitalist’s profit and of capitalist exploitation overall. Of this $600, the worker takes home $100 as wages for the day’s work. The capitalist, who did nothing other than own the factory and hire the worker, pockets the other $500. This is called surplus value, because it is new value produced by the worker which is in excess of the inputs of wages, raw materials, and other production costs.
Even though it was the worker’s labor that produced those paper products, under the system of private property, the mill owner is the one who is “entitled” to the value of these products. The capitalist must use some of this value to pay workers’ wages and the costs of operating his mill but ultimately keeps the surplus value, the difference, as profit. This exploitation of the worker by the capitalist is the source of both the poverty of the worker and the wealth of the capitalist.1
As rents have skyrocketed in major cities across the country, working people have been unable to even afford to keep a roof over their head.
This system totally screws over the workers. The vast majority of workers under capitalism are just scraping by. For example, the minimum wage in Massachusetts is $12 an hour, but the average rent for a two bedroom apartment in Boston was around $2,860 a month in November 2019! This means that in Boston, someone who is working 40 hours a week at minimum wage would only make $1920 a month before taxes—and on average around $1500 after taxes—so to afford a two bedroom apartment they would have to take a second job and maybe even a third. Most working people in the U.S. have to deal with difficulties like this and are struggling just to scrape by day-to-day.
However, this system also presents the capitalists with a problem. As we described above, the workers cannot buy all the commodities they produce. At the level of a particular factory this problem may seem strange. In order to really get at why this is an issue we need to look at the workers as a class. The workers produce more value in the form of commodities, than they take home in wages. With the wages they receive they buy things they need in the market. But all the workers in society can never buy all the commodities they produce because they are always producing more value than they are actually capable of buying.
So using our above example again: if a worker produces $800 worth of goods a day, but only has enough wages to buy $100 of those goods, the remaining $700 is more than that worker can afford to buy. If there are a thousand other workers at that factory, then each day those workers as a group are producing $700,000 worth of goods that they can’t afford. And if there are 10,000 other factories like that one, then all the workers in that industry are producing $7,000,000,000 worth of goods they can’t afford, each day! This problem gets especially serious when we consider that in the U.S. there are tens of millions of workers and therefore more and more goods from a whole series of industries which can’t be purchased by the working class. This tendency is characteristic of capitalist production and is called overproduction. This is because under capitalism more goods are produced than can be purchased.
By 2016, General Motors had almost 1,000,000 extra unsold cars sitting on the lots of dealers across the U.S. The numbers are similar for other companies. This shows how much overproduction there actually is under capitalism.
It’s important to emphasize that this is only overproduction because of the systematic theft by the capitalists who exploit the workers. Even though millions of shoes which no one can buy are produced, the workers in the shoe factory will themselves be wearing worn-out shoes. Even as cars sit and rust in lots because no one is buying them, the auto workers will be hoping to get one more year out of an old pickup truck. The workers in capitalist society in general need all kinds of basic necessities which they can’t afford.
In a socialist society the distribution of goods is handled in a different way. Goods are produced and distributed more and more to meet social needs and not on the profit motive. This means that the full productive capabilities of society can be used, the standard of living of all the workers can be raised, and pointless waste can be reduced and then eliminated.
The capitalists want the worker to produce as much as possible in a given period of time in order to maximize their profits. But the capitalists profits can’t be realized if their commodities can’t be sold. If the capitalists who own paper mills have tons of warehouses of unsold paper, these are worthless to them. Or to give a concrete example, right now Indian car manufacturers are taking huge losses because the supply of cars far outstrips the amount of cars that people are buying. As a result, millions of unsold vehicles are being left to rust in lots.
These cars represent the wealth produced by the workers which the capitalists own. But if the capitalists cannot sell the cars for cash then that wealth cannot be converted into a form that is useful for the capitalists, and the cars will eventually rust and become worthless. At the end of the day, the capitalists are mainly concerned with their bottom line, their profit. They carry out production primarily to make a profit, and if they don’t make a profit they will inevitably go out of business.
Simply put, the capitalists can’t make a profit if these goods are not being sold! If they can’t sell their goods, then it is a waste of money for them to hire workers or buy raw materials. These goods do not go unsold because no one needs them, but simply because workers are unable to afford them.
For instance, in the U.S. there are more than 17,000,000 extra homes–and this doesn’t even account for excess apartments! And yet we still have hundreds of thousands of homeless people across the country. Despite the fact that millions of people in the U.S. live in poverty, the capitalists would rather let unsold goods rot, or even destroy them, than give them away. For example, in 2016 U.S. farmers dumped 43,000,000 gallons of milk that they could not sell—enough to fill 66 Olympic swimming pools.
U.S. consumer debt has skyrocketed to new all-time highs in the wake of the 2008 financial crisis. Working people have been forced to take on more and more debt just to pay the bills.
In order to hold off the inevitable crisis of overproduction, the capitalists encourage people to take on debt. This is done through things like credit cards, mortgages, and various types of loans, including student loans and car loans. In the short-term this debt increases people’s purchasing power, allowing them to buy more commodities. However, this is just borrowing from the future—people buy goods with money they don’t have now, but hypothetically will obtain in the future. In order to make this profitable, lenders give out loans at interest, meaning over time the amount of money people owe to the lender gradually increases. Because of this, people’s purchasing power actually ends up decreasing in the long run when they take on debt. The more debt people take on in the short-term, the less likely in the long term they will ever be able to pay it off.
The problem of overproduction eventually leads the capitalist system headlong into a crisis. As long as they can, the capitalists will promote the illusion of great prosperity in the markets to encourage economic growth. However, sooner or later, it will become apparent in one or several industries that production has far outstripped the purchasing power of the masses. The capitalists have difficulties selling their goods, and as a result, banks stop lending to industries, and capitalists grow wary about investing to increase production when demand is falling.
This dynamic causes growth to slow and soon economic anxiety spreads to other industries. For example, if a boom in the construction industry starts to slow then inevitably all the related fields will be affected by this—steel and timber production will take a loss, banks will be less likely to lend money, etc. Soon, massive quantities of unsold goods pile up and their market price plummets. Unable to turn these goods into profit, the capitalists decide to make drastic cuts to production by laying off thousands of workers and shutting down factories and stores. Investments and loans become unprofitable and some capitalists become unable to repay their debt which causes banks to close and people’s savings to disappear overnight. Small and medium-sized businesses fold. Stable work becomes difficult to find, and unemployment skyrockets.
Unable to pay their bills, many people lose their homes and are forced to live on the streets. This chaos affects the whole society, but the worst effects are felt by the working class. Moreover, the capitalists will always try to find a way to place the blame of the crisis on our backs—blaming the people for being too stingy and not spending enough on commodities, or for making bad financial decisions.
For example, in 2008, victims of predatory mortgages were blamed as being too “greedy” or “naive,” when it was the banks and lenders who peddled these loans to poor people in the first place. The capitalists spread the lie that poor people being unable to pay their mortgages nearly led to the collapse of the world economy! Some talking-heads even argued that the crisis was because people left their refrigerator doors open too much! All of this serves as an ideological cover for a series of austerity measures that the capitalists and their government roll out. To preserve their interests and protect their profits, the capitalists depress wages, cut social programs, raise taxes, and increase inflation.
A political cartoon depicting the boom-bust-bailout cycle. The cartoon portrays this as a viscious circle, but in reality it is a downward spiral.
Capitalism operates on a “boom-bust” cycle, so eventually the crisis gives way to a “recovery” of sorts. The laws of this absurd and oppressive system dictate that since the crisis is caused by overproduction, it can only be resolved by massively limiting production. The capitalists accomplish this by destroying massive amounts of capital (such as factories and unsold goods). With many businesses going bankrupt, entire factories will cease production and be left to rust and fall into disrepair.
This is one way for the problem of overproduction to temporarily resolve itself. As a whole bunch of factories close and companies go out of business the level of production will drop far below a “boom” level, and the economy will settle into a depression. This in turn creates a whole series of new opportunities for investment and for economic growth to replace the now-disabled factories. In this way the emergence of an economic crisis and depression can form the basis for a new boom.
However, these sorts of recoveries are quite lopsided. With the destruction wrought by the crisis, a few big and successful capitalists are able to eat up many failing enterprises and gain an advantage over their rival capitalists. This means that with the completion of each cycle capital tends to be concentrated in fewer and fewer hands. Thus with every “recovery” the contradictions of capitalism heighten, and working people are left worse off than they were before the crisis hit. Even if people are able to recover a bit, they must contend with another crisis just a few years down the road.
For this reason, the classic “boom-bust” cycle was very common in the early history of capitalism. During the second half of the 1800’s the boom-bust cycle itself helped the capitalists to consolidate control over the whole economies of capitalist countries. This led to the creation of huge monopolies and multi-national corporations. The biggest firms which were better-able to “weather the storm” of a crisis, were often able to buy up a number of their bankrupt competitors on the cheap and thus gain greater and greater control over markets and resources.
As these huge corporations got bigger and bigger they consolidated control over the markets and resources of whole countries. This led them also to gain a large degree of control over the governments of those countries. From this point onward the nature of capitalist crises changed somewhat: the crises still happen, the overproduction is still there, but the biggest corporations and banks very rarely go out of business.
The German city of Dresden during WWII after the U.S. and Allied Forces firebombed the city. The destruction of huge amounts of capital in cities and factories created the basis for the Post-War Boom.
The “bust” portion of the boom-bust cycle is partially prevented through massive government intervention in the economy, such as the stock-buying program of the Bank of Japan, and the 2008 U.S. bank bailout. In the case of Japan, if the “bust” were allowed to simply go forward without the intervention of the government, a whole series of Japanese corporations would go out of business and the Japanese economy would suffer a major recession. With the state intervention, the economy instead settles into an extended period of stagnation and slow growth. This is because the intervention is unable to really resolve the underlying problem but is able to temporarily mask it for a time. But there are limits to how long they can do this, and when these measures finally stop working the resulting crisis will be even more severe.
The only other real “way out” of crises for the capitalist system is to destroy huge amounts of capital through war. During wars—and especially during the two massive world wars of the 20th century—factories, infrastructure, housing, and even whole cities are destroyed. Huge amounts of social wealth are totally destroyed, creating a huge need for building materials, new machines and tools, transportation infrastructure, power plants, and so on. The temporary increase in demand can alleviate the overproduction crisis for a time, but the increased demand due to rebuilding does not last forever.
For instance, in World War II the industrial base of Japan and of most of Europe was essentially totally destroyed. In Japan this led to massive economic growth following the war as Japanese and American capitalists rebuilt the Japanese cities and factories which had been brutally destroyed by U.S. bombing campaigns. Although it was very strong for a time, this economic growth did not last, and by the late 1980s the Japanese economy was experiencing major difficulties. This led to an extended period of stagnation from which the Japanese economy has not yet escaped.
This is the case with the U.S. economy as well. After the 2008 crisis a whole series of efforts were made to stave off economic collapse from outright printing of money to massive expansion of debt. These measures have prolonged and temporarily alleviated the fundamental economic problem of overproduction, but the problem is still there. At some point in the future, and possibly fairly soon, this problem will re-assert itself with disastrous results for people in this country and around the world. Many people will lose their jobs and their houses, a lot of companies will go under, and things will get much more unstable around the world.
Organizing During Crises
Although capitalist economic crises are times of major difficulty for a lot of people, it is also true that they are major political openings for revolutionary politics. The great masses of people are screwed over, and a smaller and smaller amount of rich people reap the benefits of the “recovery.” This presents a lot of opportunities for revolutionaries to clarify to people the basic structure of capitalist society and how it screws over working people.
A protest of the Unemployed Council in 1930, outside the White House. This protest, organized by the Communist Party - USA, was one of many integrated protests they organized during the Great Depression which emphasized the unity of white and Black workers against capitalism.
Outside of a crisis the capitalist class generally has success in convincing the masses that capitalism is either the best possible system or the only possible system. Especially in a powerful imperialist country like the U.S., workers are bombarded with ruling-class ideology that convinces many of them that they have a chance of becoming wealthy and successful themselves within the system. These ideas are very powerful, and they are crammed into people’s heads in movies and TV from a very young age. However, during a crisis these illusions are more easily defeated. The daily suffering of the masses increases significantly, and the ruling class often has to take drastic measures to protect their interests, such as the massive bailout of the banks in 2008. All this makes it easier to expose to people how they are being screwed over by the capitalists.
Although crises provide a fertile ground for revolutionary organizing, it is also possible for reactionary forces to use them to their benefit. The capitalists may have some success in using far-right politics to distract the masses from the real source of the problem, for instance by blaming the economic troubles on immigrants. So while we should be ready to organize in response to economic crises, we also need to keep in mind the ways these crises can provide openings for far-right forces as well.
To understand better how capitalist crises are political openings, it’s worth looking at a concrete example. In the aftermath of the 2008 crisis, many young people saw the ugly reality of capitalism for the first time. They saw how the state worked to enrich the big capitalists at the expense of the many. They saw the injustice of the bank bailout and the Federal Reserve printing trillions of dollars to keep the financial system afloat. They also saw the contrast with their own lives: many were burdened with crushing student debt and were finding grim employment prospects.
In September 2011, having seen little change in the situation for the masses, thousands of people flocked to New York’s Zuccotti Park to protest against widespread economic inequality in what became known as Occupy Wall Street. The protestors saw the need for sustained protests and actions. They set up tents in the park for weeks, and similar encampments soon sprung up all over the country. They took up the slogans of “the 99% vs. the 1%” and “we are the 99%”—recognizing their struggle as the struggle of the great masses of people against a tiny minority of exploiting parasites.
This movement was not without issues. From the beginning, the “Occupy” movement was disorganized, and struggled to provide a clear way forward. Mass meetings were organized during Occupy to decide key political questions, but these meetings were run on the basis consensus instead of on majority-rule. This meant that everyone present had to agree to proposals before they could be implemented which made it very easy for police infiltrators to disrupt things. All they had to do was send one person in to vote “no” on any radical proposal to defeat it. Even if the person voting “no” could offer no good explanation as to why the were opposed to the proposal, they could still block the whole movement from going forward.
These issues prevented Occupy from developing into the kind of movement that could persist and grow and really change things in this country. Instead when the weather started to get cold, the police and other repressive forces were able to eventually evict all the protesters from the park leading to an effective end of the movement. During Occupy a lot of people saw issues with the approach being taken, but they weren’t able to successfully struggle to change them. Ultimately things fell apart because of these issues with the movement.
Occupy Wall Street marched across the Brooklyn Bridge in September, 2011. This was just one of the many successful actions they took during the brief existence of the movement.
Although Occupy was ultimately unsuccessful in many respects, we can still take a lot of lessons from it. For one thing, people all across the country were so fed up with their situation and the lies of the ruling class that they got involved in Occupy as soon as they heard what was going on. In Zuccotti park there were people from all over the country, and other Occupy encampments sprang up in dozens of cities. This shows us that when the economic situation gets really difficult a lot of people will want to get involved in politics, some for the first time in their lives. This is itself a good thing, but it poses difficulties as well.
When a lot of members of the masses are getting involved in politics for the first time, it’s especially important to have pro-people forms of organization ready to work to advance the struggle. At Occupy, one of the major difficulties was that there was a relatively spontaneous form of organization that was set up. Decisions to adopt certain ideas and principles, such as consensus-based decision-making, weren’t made on the basis of a careful study of the history of people’s movements. Instead, consensus-based decision-making was adopted because it seemed to some like it would be oppressive or hierarchical to have simple majority rule instead.
But if people had learned a bit about revolutionary history, they would have known that the police and reactionary forces will go to very great lengths to disrupt and attack people’s movements, so it’s necessary to adopt forms of organization that prevent infiltrators from disrupting things. Moreover, struggle over the way forward is the lifeblood of any movement, and consensus-based decision-making ignores the fact that differences over the way forward cannot be resolved immediately. Instead, ideas and principles should be decided by a majority, tested in practice, and subjected to debate and criticism on a long-term basis. In this way, the majority may over time decide a new position based on their practical experience.
This is one of the concrete reasons why it’s necessary to have a developed revolutionary movement and revolutionary organization. Without it, and without a study of revolutionary history, surges in mass enthusiasm like Occupy tend to either fizzle out without accomplishing much or persist as reformist efforts drained of their radical politics. To guide things forward in a better way we have to study revolutionary history so we don’t repeat errors of the past. We also need to build struggles based among the working class for the overthrow of capitalism.
Lenin and other revolutionaries have always been clear about the importance of winning the support of the vast majority of working people.
This is not to say that other classes are not important in the struggle against capitalism, but that the nature of the working class makes it uniquely suited to play a leading role in the revolution. In a capitalist society the workers ultimately produce all the wealth of the society, so they have the ability to withhold their labor and threaten the profits of the ruling class.
Under capitalism, a large section of the working class works in large workplaces with many other people, such as factories or big stores like Wal-Mart. This means that working people have a lot of experience working together on a large scale. It also means that their political struggles at workplaces entail a large number of people working together for a shared goal. This experience gives them a unique ability to organize for large-scale change and even revolution.
What’s more, the working class faces a unique form of oppression. Most groups of oppressed people have specific issues to overcome in their struggle for liberation: for women, patriarchy; for Black, Latino and indigenous people, white supremacy; for immigrants, xenophobia. Each of these struggles are significant, but each is only a partial struggle towards the ultimate goal of the elimination of all oppression. Each can achieve the end to their particular form of oppression without ending oppression as such.
The oppression of the working class, on the other hand, is the most general form of oppression. Other forms of oppression affect particular groups, and while struggles against them should be taken up by all people, it’s possible for other forms of oppression to be eliminated without eliminating oppression as such. This is not the case for the liberation of the working-class from exploitation. Precisely because the oppression of the working class is a general form of oppression, there is not a specific or particular form of oppression that working class can eliminate to liberate themselves. Instead, they must overcome all forms of oppression in order to be free from the general oppression of wage slavery. Therefore, the emancipation of the working class is bound up with the liberation of humanity from all forms of oppression. For this reason the working class has a key role to play in the struggle to overthrow capitalism and the struggle to eliminate all forms of oppression.
Some involved in Occupy understood the necessity of a revolutionary organization based in the working class, but there were many who disagreed. A lot of people who joined the Occupy protests were not themselves from a working-class background, but were college-educated people from a middle-class background.
Fred Hampton, Deputy Chairman of the Black Panther Party, spoke about the ability of revolutionary movements to overcome the crackdowns and violence of the oppressors.
Many of these people were facing severe downward economic pressure because of the crisis, and generally had worse career prospects than their parents. Many of them were serious about the struggle, but they also had a lot of limitations which narrowed the scope of the movement.
Of course, the ruling class in this country will still attack and try to destroy even a mass movement with serious issues. They will attempt to co-opt its leadership and seed it with informants and agent provocateurs, in hopes of running it into the ground. The state was keeping tabs on activists even before the Zuccotti park encampment was started during Occupy Wall Street. This is because they know that as the people unite in struggle and begin to sum up their successes and failures, they may well start to see the need for a more revolutionary approach.
The ruling class is not willing to risk this possibility and they do everything in their power to ensure that mass movements either fizzle out or turn into some sort of dead-end. But if people get organized and learn from previous big political movements like Occupy and from revolutionary struggles around the world, we can build a big revolutionary movement to fight against exploitation and oppression. Ultimately it’s possible for the people to unite and overthrow capitalism, even in the face of harsh repression from the ruling class. In the words of Fred Hampton: “You can kill a revolutionary, but you can never kill the revolution.”
In the inevitable coming crisis, the task of revolutionaries is to seize on the many political openings that will arise. When the capitalists attack the people with austerity measures, layoffs, evictions, and foreclosures, people will inevitably fight back in both big and small ways. We will need to unite with these struggles wherever they arise and draw them together into an unstoppable force.
We also need to study how the capitalist system functions, and work to build broad awareness that the only solution to the problems of capitalism is to overthrow the ruling class. In the U.S. at present, we are a long way from revolution, so we must bear in mind that revolutionary work must be patient work. However, in the coming crisis the people can make a lot of advances, provided we get organized.
So, let’s build the revolutionary movement!
A better world is possible!
For a more in-depth analysis of capitalist exploitation see “Wages and Exploitation Under Capitalism” in Issue #1 of Red Star. ↩︎