The current credit crunch takes origin from the huge amount of money that banks have borrowed form the saving accounts of the eastern emerging economies (more the 3 times of the total economic output, so called GDP) to make increasing investments in the house market and other businesses. Borrowing more that what they could afford, banks, created a huge dept (equal to 20% of the total economic output) raising alongside the proprieties prices. At the same time, to increase future profit banks lent money to more and more house buyers even if the latter could not give secure promise of repayment. Some of the most chancy banks did not get much of the money lent back. This created a state of non-trust among other banks which did not want to lend each other money anymore. Banks faced also a difficulty of paying out money because they did not have enough liquidity (money available). In August 2007 British banks had to give back £625bn to creditors (other banks and financial institutions). The British banks were even more financially exposed, with £1200bn of mortgages and £127bn of commercial propriety deals an amount of money equal to the total economic output. Banks had to pay back £250 of these debts within 3 years. They could not pay it and therefore the government decided that the tax payers would have paid this money. This has been going on for more than a year and a half and it seems to be the reason to the recent recession.
But is this the ultimate reason of the actual economic crisis?
Cyclic nature of capitalist crises
Capitalism is based on profit. The ultimate aim of Capitalism is to accumulate money to be invested in the production of new commodities in order to make more and more profit. The key of making profit lies in underpaying workers. The production prices of the commodities produced are, in fact, proportional to the quantity of labour spent by the workers on producing them. If the owner pays to the workers wages equal to the value of the commodities that they produce, the owner would not make any profit at all. For example, oversimplifying, if a worker produces 20,000 plastic bottles per day, for a total value of £100, and the owner would pay the worker justly £100 per day, the owner would not make any profit. Conversely, if the owner pays only £50 per day, the remaining £50 would be of the owner.
Whoever invests money in a business (capitalist), for example an industrial production of goods, does it for profit, that is to say, more money. In order to stay in business the capitalist ought to accumulate always new money to invest in their business. This creates a tendency to invest more money in the means of production to increase the commodities produced to be sold leading to more money yielded. On the other hand, the capitalist tends to keep the wages low, also because, profit comes from unpaid workers labour. This tendency creates a difference between production and consumption. Indeed, workers who are also the main consumers can not keep up buying all what is produced. Therefore, overaccumulation of investments leads to overproduction of commodities which crates a reduction of realization (the commodities can not be sold entirely) and this causes and economic crisis.
There are some ways to counteract this tendency. The first is to underpay even more the workers. This will increase the profit associated to the commodities which are in any case sold. But this technique does not work in a long term. Nowadays, this fact is quite evident in the move of industries to the growing countries where the labour-power is much cheaper than in Europe and US for example. Another way of counteracting the “overproduction” tendency is technologic progress which lower the cost of production. However, such technologic progress requires money for research and when the profit goes down investments for Research go down too. A further way is to increase stock capital. Profit can be made by selling shares. Anyhow, to virtual profit must correspond a real profit so the stock market it is destined to fall sooner or later whenever the real profit is missing.
When all these methods are not able to stop an economic crisis the capitalist system has still two extreme weapons. With the first, governments try to ensure the effective demand, for example by increasing economic activity by public works and deficit-financing. We have a recent example in Britain the government decided that tax-payers must give money to banks to sustain economy growth. The government intervention can temporary help the economy, but does not solve the problem of overproduction at all. Moreover, workers who are also tax-payers are robbed twice, first during the production to sustain the economy of the owners and secondly by the taxes to sustain the economy of the bankers. The ultimate weapon for a capitalist system in crisis is to conquer new market. This can be achieved politically, by agreement with the other capitalist powers; when the other powers can get something out of it. Otherwise this market enlargement must be conquered by war, when the other powers are in the same situation and can not afford any market loss. By war the capitalist system can work out two problems. On the one hand, it can create new market and on the other it can get rid of the overproduction. War will hit mainly the workers, who are at the same time soldiers, civil victims as well as consumers and tax-payers. At the end of the day, capitalism for its on nature brings to cyclic crises that in extreme circumstances will lead to war, destruction therefore to barbarism. It must been underlined that those crises do not overthrow capitalism by their own. In fact after a war, capitalism starts again with the same system and the same contradictions. Who is anyway exploited in this system, that is to say the majority of people, workers, consumers, soldiers, unemployed people, etc, can organise themselves in worker’s councils to actively design a new system of production and overthrow capitalism.
Is a better economic system possible?
We think it is. A advanced and functional economic system can not be based on profit making, which generates disparities between people who own the means of production and people who sell their labour force to survive. Production of goods is necessary. The scale of production needs to be very large since it has to satisfy the world population’s needs. A new system must come from the most advanced
How to achieve a better economic system
The goal of the working class is liberation from exploitation. This goal is not reached and cannot be reached by a new directing and governing class substituting the bourgeoisie. It can only be realised by the workers themselves being master over production.
Mastery of the workers over production means, first, organisation of the work in every shop and enterprise by its personnel. This body, comprising all kinds of workers, specialists and scientists, all taking part in the production, in assembly decides everything related to the common work. The role that those who have to do the work also have to regulate their work and take the responsibility, within the scope of the whole, can be applied to all branches of production. It means, secondly, that the workers create their organs for combining the separate enterprises into an organised entirety of planned production. These organs are the workers’ councils
They are no permanent board of leaders, but can be recalled and changed at every moment. They are to play an increasing role in future working class developments
(Anton Pannekoek, Theses on the fight of the working class against capitalism, 1947)