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In socialism where everything is owned in common exchange of commodities will not exist and therefore money becomes redundant as it would serve no useful purpose.
It is the capitalist system which causes huge costs to society. In truth, the mere existence of buying and selling always raises the possibility of crisis, but the drive to accumulate capital—the lifeblood of capitalism—ensures that periodically crises become very much a reality, and nothing the politicians do can prevent them. When capitalism is in boom, enterprises are in a position where their profits are rising, capital is accumulating and the market is hungry for more commodities. But this position does not last. Enterprises are in a perpetual struggle for profits—they need profits to be able to accumulate capital and therefore survive against their competitors. During a boom this inevitably leads some enterprises—typically those which have grown most rapidly—to over-extend their operations for the available market.In capitalism, decisions about investment and production are made by thousands of competing enterprises operating without social control or regulation. The competitive drive to accumulate capital compels enterprises to expand their productive capabilities as if there was no limit to the available market for the commodities they are producing.Growth is not planned but governed by the anarchy of the market. The growth of one industry is not linked to the growth of other industries but simply to the expectation of profit, and this gives rise to unbalanced accumulation and growth between the various branches of production. The over-accumulation of capital in some sectors of the economy soon appears as an overproduction of commodities. Goods pile up, unable to be sold, and the enterprises that have over-extended their operations have to cut back on production.As commodities lie unsold revenue and profits fall, making further investment at the same time more difficult and less worthwhile. Accumulation stalls, saving and hoarding increase and the unstable forces of money and credit soon transmit the downturn to other sectors of the economy. The initially over-expanded enterprises cut back on investment and this leads to a fall in demand for their suppliers products, who in turn are forced to cut back, causing difficulty for their suppliers' suppliers and so on. Profits fall, debts mount up and the banks push interest rates up and contract their lending in a vicious downward spiral of economic contraction. In this way, what started as a partial overproduction for particular markets is turned into general overproduction with most sectors of industry affected.Crises and slumps invariably follow this general pattern. Sometimes the initial overproduction takes place in consumer goods industries, as it did in 1929, and spreads from there. At other times, like in the mid-1970s the initial over-expansion is in the producer goods sector where enterprises produce new means of production like industrial steel or robotics equipment. In the slump of the early 1990s a major factor was the over-extension of the commercial property sector and some of the high-tech 'sunrise' industries. Whatever the cause, the result is always the same—falling production, increased bankruptcies, wage cuts and unemployment, with an attendant growth in poverty.In a slump there is simultaneously a problem of falling market demand alongside declining profits. Attempting to deal with one problem (say consumer demand) at the expense of the other (profits) as the Keynesians have, will not improve the situation.A number of quite distinct and separate things need to happen before a slump can run its course. Firstly, capital has to be wiped out if excessive productive capacity is to be tackled with devalued capital being bought cheaply by those enterprises in the best position to survive the slump. Secondly, destocking needs to take place, with overproduced commodities bought up cheaply or written off entirely. Investment will not resume if overproduction still exists. Thirdly, after this has occured there needs to be an increase in the rate of industrial profit helped by both real wage cuts and falling interest rates (which tail off naturally as the demand for more money capital eases off in the slump.) This will help renew investment and increase accumulation. Also, if recovery is to be sustained, a large proportion of the debt built up during the boom years will need to be liquidated if it is not to act as a drag on future accumulation. Through these mechanisms a slump helps build the conditions for future growth, ridding capitalism of inefficient units of production.Continuous CycleWhen these processes have run their course, accumulation and growth can begin once more with capitalism again creating a boom situation which will be inevitably followed by a crisis and slump. This has been the history of capitalism ever since it first developed. No reform intervention by governments—however sincere—has prevented or can prevent this cycle from operating. The supporters of laissez faire and the free market have failed and so have the Keynesian interventionists. Today, when faced with the trade cycle, supporters of capitalism have nowhere to run anymore other than to suggest reforms of the banking system in a last ditch attempt to salvage a decadent system.Indeed, the trade cycle demonstrates the impotence of reformers and politicians, and is a further indictment of the capitalist system as a whole, bringing misery for millions of workers who lose their jobs, become bankrupt or have their wages reduced and/or their working conditions worsened. And far from being an aberration, this cycle of misery is the natural cycle of capitalism and any suggestion that it can be made to operate differently is wildly utopian.